department of the treasury internal_revenue_service n front st room memphis tn uil apr person to contact contact telephone number in reply refer to te_ge review staff _ tax_exempt_and_government_entities_division release number release date legend org name of org org dear this is a inal adverse determination as to your exempt status under sec_501 of the internal_revenue_code our adverse determination was made for the following reasons org fails to meet the requitement for exemption under sec_501 sec_1_501_c_4_-1 treasury regulations reads local associations of employees described in sec_501 are expressly entitled to exemption under sec_501 a as conditions to exemption it is required that the membership of such an association be limited to the employees of a designated petson or persons in a particular municipality and that the net eamnings of the association be devoted exclusively to charitable educational or recreational purposes sec_501 m of the internal_revenue_code states an organization described in paragraph or of subsection shall be exempt from tax under subsection a only if no substantial part of its activities consists of providing commetcial-type insurance as a result of our recent audit of your organization's activities for the period ended december 20xx it was determined that a substantial part of yout activities is providing commetcial-type insurance to members therefore we ate revoking your organization's exemption from federal_income_tax under sec_501 of the intemal revenue code effective january 19xx you have executed the form 6018-a agreeing to this revocation you have filed form 1120pc for all tax years since 19xx and you have indicated you will continue those filings with the appropriate internal revenue campus you have the right to contact the office_of_the_taxpayer_advocate however you should first coritact the person whose name and telephone number are shown above since this person can access your tax information and can help you get answers you can call and ask for taxpayer_advocate assistance or you can contact the ‘taxpayer advocate from the site where the tax_deficiency was determined by writing to internal-revenue service office of taxpayer_advocate ‘taxpayer advocate assistance cannot be used as a substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations nor extend the time fixed by law that you have to file a petition in the united_states tax_court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling if you have any questions please contact the person whose name and telephone number ate shown in the heading of this letter sincerely yours enclosure copy of form 6018-a marsha a ramirez director bo examinations department of the treasury internal_revenue_service tax_exempt_and_government_entities_division legend org name of organization address address of org date org address taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe an adjustment of your organization's exempt status is necessary if you do not agree with our position you may appeal your case the enclosed publication the examination process explains how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process if you request a conference we will forward your written_statement of protest to the appeals_office and they will contact you for your convenience an envelope is enclosed if you and appeals do not agree on some or all of the issues after your appeals_conference or if you do not request an appeals_conference you may file suit in united_states tax_court the united_states court of federal claims or united_states district_court after satisfying procedural and jurisdictional requirements as described in publication letter catalog number 34801v you may also request that we refer this matter for technical_advice as explained in publication exempt_organization appeal procedures for una greed issues if a determination_letter is issued to you based on technical_advice no further administrative appeal is available to you within the irs on the issue that was the subject of the technical_advice if you accept our findings please sign and return the enclosed form_6018 consent to proposed adverse action we will then send you a final letter modifying or revoking exempt status if we do not hear from you within days from the date of this letter we will process your case on the basis of the recommendations shown in the report of examination and this letter will become final in that event you will be required to file federal_income_tax returns for the tax period s shown above file these returns with the ogden service_center within days from the date of this letter unless a request for an extension of time is granted file returns for later tax years with the appropriate service_center indicated in the instructions for those returns you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate - assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you letter catalog number 34801v thank you for your cooperation enclosures publication publication form_6018 report of examination envelope sincerely marsha a ramirez director eo examinations letter catalog number 34801v ‘ porm a department of the treasury - internal_revenue_service explanation of items schedule no or exhibit name of taxpayer org december 20xx year period ended legend org name of org date xx issues whether org classified as exempt under sec_501 of the internal_revenue_code should be revoked because providing commercial-type_insurance is a substantial part of their activities facts org was granted tax exempt status under sec_501 of the internal_revenue_code effective january 19xx internal_revenue_code m denied tax exemption where providing commercial-type_insurance is a substantial part of an organization's activities as a result org began filing form_1120 in 19xx law internal_revenue_code m states an organization desctibed in paragraph or of subsection c shall be exempt from tax under subsection a only if no substantial patt of its activities consists of providing commercial-type_insurance taxpayer's position org agtees that as of januaty 19xx based on org's operations as a commercial insurer org no longer qualified for a federal_income_tax exemption government's position org is a commercial insurer providing commercial-type_insurance is a substantial part of their activities internal_revenue_code m denies tax exempt status where providing commercial-type_insurance is a substantial part of an organization's activities so org no longer qualifies for tax-exempt status effective january 19xx form_886 department of the treasury - internal revenus age


internal_revenue_service number release date index number ----------------- ---------------------------------------- ----------------------- ---------------------------------------- in re ---------------------------------------- -------------------------------- ---------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ telephone number --------------------- refer reply to cc tege eb ec plr-124215-08 date date legend taxpayer ---------------------------------------- employee --------------------- organization ----------------------------------------------------- -------------------------- dear --------------- this letter is in response to a letter dated date submitted by your authorized representative requesting a ruling under sec_404 of the internal_revenue_code code specifically you requested a ruling that naming a sec_501 organization as a beneficiary of your employee’s deferred_compensation will not preclude the deduction of the compensation pursuant to sec_404 the facts as represented are as follows taxpayer is a corporation that adopted a nonqualified_deferred_compensation_plan plan for a group of highly compensated employees the plan allows employees to defer a specified percentage or dollar amount of their salary and incentive compensation the deferred_compensation in the plan becomes payable upon the employee’s death separation_from_service or upon termination of the plan each employee may designate in writing one or more beneficiaries to receive all or part of the employee’s deferred_compensation in the event of the employee’s death employee is employed by taxpayer and participates in the plan spouse employee’s spouse was designated by employee as the beneficiary of the deferred_compensation if spouse survives employee by days and does not disclaim the compensation if spouse does not survive employee by days or disclaims the deferred_compensation employee designated organization a sec_501 organization as the beneficiary plr-124215-08 sec_404 of the code provides that if compensation is paid_or_accrued on account of any employee under a plan deferring the receipt of such compensation the compensation is not deductible under chapter of subtitle a of the code when accrued however if the compensation would otherwise be deductible under chapter of subtitle a of the code it is deductible under sec_404 of the code subject_to the limitations imposed by sec_404 sec_404 generally provides that compensation paid under a nonqualified_plan of deferred_compensation ie a plan for which contributions are not deductible under sec_404 or of the code is deductible in the taxable_year in which an amount attributable to the contribution is includible in the gross_income of employees participating in the plan sec_1 a - b of the income_tax regulations provides that a contribution is includible where the employee or his beneficiary excludes it from his gross_income under sec_101 or subchapter_n thus this section illustrates that a contribution is considered includible in the gross_income of an employee when it is includible in the gross_income of the employee or his beneficiary and a contribution is considered to be so includible even if it is excluded from the gross_income of the beneficiary sec_691 provides that the amount of all items of gross_income in respect of a decedent which are not properly includible in respect of the taxable_period in which falls the date of his death or a prior period including the amount of all items of gross_income in respect of a prior decedent if the right to receive such amount was acquired by reason of the death of the prior decedent or by bequest devise or inheritance from the prior decedent shall be included in the gross_income for the taxable_year when received of a the estate of the decedent if the right to receive the amount is acquired by the decedent's_estate from the decedent b the person who by reason of the death of the decedent acquires the right to receive the amount if the right to receive the amount is not acquired by the decedent's_estate from the decedent or c the person who acquires from the decedent the right to receive the amount by bequest devise or inheritance if the amount is received after a distribution by the decedent's_estate of such right sec_691 provides that if a right described in sec_691 to receive an amount is transferred by the estate of the decedent or a person who received such right by reason of the death of the decedent or by bequest devise or inheritance from the decedent there shall be included in the gross_income of the estate or such person as the case may be for the taxable_period in which the transfer occurs the fair_market_value of such right at the time of such transfer plus the amount by which any consideration for the transfer exceeds such fair_market_value for purposes of sec_691 the term transfer includes sale exchange or other_disposition or the satisfaction of an installment_obligation at other than face value but does not include transmission at death to the estate of the decedent or a transfer to a person pursuant to the right of such person to receive such amount by reason of the death of the decedent or by bequest devise or inheritance from the decedent plr-124215-08 sec_691 provides that the right described in sec_691 to receive an amount shall be treated in the hands of the estate of the decedent or any person who acquired such right by reason of the death of the decedent or by bequest devise or inheritance from the decedent as if it had been acquired by the estate or such person in the transaction in which the right to receive the income was originally derived and the amount includible in gross_income under sec_691 or shall be considered in the hands of the estate or such person to have the character which it would have had in the hands of the decedent if the decedent had lived and received such amount sec_1_691_a_-1 of the regulations provides that in general the term income_in_respect_of_a_decedent refers to those amounts to which a decedent was entitled as gross_income but which were not properly includible in computing his taxable_income for the taxable_year ending with the date of his death or for a previous taxable_year under the method_of_accounting employed by the decedent see the regulations under sec_451 sec_1_691_a_-4 provides the rules governing the treatment of income_in_respect_of_a_decedent or a prior decedent in the event a right to receive such income is transferred by the estate or person entitled thereto by bequest devise or inheritance or by reason of the death of the decedent in general the transferor must include in his gross_income for the taxable_period in which the transfer occurs the amount of the consideration if any received for the right or the fair_market_value of the right at the time of the transfer whichever is greater thus upon a sale of such right by the estate or person entitled to receive it the fair_market_value of the right or the amount received upon the sale whichever is greater is included in the gross_income of the vendor similarly if such right is disposed of by gift the fair_market_value of the right at the time of the gift must be included in the gross_income of the donor in the case of a satisfaction of an installment_obligation at other than face value which is likewise considered a transfer under sec_691 see sec_1_691_a_-5 sec_1_691_a_-4 provides that if the estate of a decedent or any person transmits the right to income_in_respect_of_a_decedent to another who would be required by sec_691 to include such income when received in his gross_income only the transferee will include such income when received in his gross_income in this situation a transfer within the meaning of sec_691 has not occurred sec_2518 provides in general that if a person makes a qualified_disclaimer with respect to any interest in property subtitle b shall apply with respect to such interest as if the interest had never been transferred to such person sec_2518 provides that the term qualified_disclaimer means an irrevocable and unqualified refusal by a person to accept an interest in property but only if such refusal is in writing such writing is received by the transferor of the interest his legal_representative or the holder of the legal_title of the property to which the interest relates such person has not accepted the interest or any of its benefits and as a result of such refusal the interest passes without any direction on the part of the person plr-124215-08 making the disclaimer and passes either a to the spouse of the decedent or b to a person other than the person making the disclaimer based solely on the facts presented we rule as follows if spouse makes a qualified_disclaimer with respect to employee’s deferred_compensation or predeceases the employee then naming organization as the designated_beneficiary of the deferred_compensation will not preclude taxpayer’s deduction of the compensation pursuant to sec_404 no opinion is expressed concerning when the employee’s deferred_compensation will be deductible or includible in gross_income except as specifically ruled above no opinion is expressed as to the federal tax consequences of the transaction described above under any other irc provision the ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter should be attached to any of your income_tax returns to which it is relevant the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely john b richards acting senior technician reviewer executive compensation branch office of division counsel associate chief_counsel tax exempt government entities enclosures copy of letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c qq contact person id number telephone number tt g1 employer_identification_number uniform issue no date date egend i - z z z l o d i d a i c m i f dear sir madam this letter is in response to your request for a ruling under sec_501 of the internal_revenue_code lis the parent_corporation of a multi-entity health care system located in the a area l was created in as a result of a restructuring of m into a multi-corporation health care system the system’ facts the system is composed of the following organizations l is the parent of the system and has been recognized as tax-exempt under sec_501 of the code l promotes health education and related activities and promotes the charitable work of some of its tax-exempt subordinate organizations including the provision of strategic planning finance marketing and overall direction to the organizations within the system unless otherwise indicated below each of the following organizations are subordinates of l m owns and operates a b bed acute care inpatient hospital in a and has been recognized as tax-exempt under sec_501 of the code m is the sole stockholder of u n is organized to provide non-acute health care services including home heaith services walk-in clinics health care professional services community health education day care services and nursing care facilities for the elderly under sec_501 of the code n is the sole member of r which also has been recognized as tax-exempt under sec_501 n has been recognized as tax-exempt o was created to engage in fundraising activities for the benefit of the tax-exempt organizations in the system o has been recognized as tax-exempt under sec_501 of the code p is a nonprofit non-exempt corporation that provides support staff to an ambulatory surgery center operated as a division of m r provides hospice care to the a community its sole member is n r has been recognized as tax-exempt under sec_501 of the code s is a health_maintenance_organization that has applied for recognition of exemption under sec_501 of the code t is a for-profit corporation that owns and leases real_property and engages in management services real_estate development and joint ventures u is a foreign_insurance_company owned by m it provides professional and general liability insurance coverage for the system entities and physicians on the m_medical staff who meet the qualifications for insurability - land m have determined that their missions of delivering high quality health care to the community may be better achieved by restructuring their respective boards of directors and committee governance configuration to change the mix of physician community and management involvement as a result l and m have proposed amending their respective bylaws forming various committees and issuing committee protocols in the manner described below l's and m's boards of directors will be identical each board will have voting members and one nonvoting member one nonvoting seat on each board will be held by the vice chief of medical staff of m the voting members will be comprised of nine persons who must live in or work in l's service area but who must not be members of m’s medical staff or employed by l or by any of its subsidiaries community directors four persons who are active members of the professional staff of m or an organization controlled by m provider directors and the president of m and l and the chief of staff of m ‘official directors a quorum consists of a simple majority of the voting members of the board however at feast four members of the majority must be community directors and at least three members of the majority must be provider directors all of l's and m's board committees and officer positions will be identical the standing board committees will be hospital oversight committee executive committee clinical quality and service committee managed care and reimbursement committee finance_committee governance committee joint conference committee except as described below with respect to the executive committee none of these committees -will have any power over the day-to-day operations of either l m or other entities in the system instead they will report to the respective boards of directors of l and m and will perform duties delegated by the respective boards certain committees will have decisive powers granted through express board sanction or under the limited and narrow authorization provided in the committee protocols issued by the board in generat the full board retains authority to modify or reject any decisions made by a committee all the tax-exempt subsidiaries in the system will amend their respective articles of incorporation and bylaws so that they will be identical to each other except for their respective charitable purposes corporate member and size and composition of their respective boards the operations of these organizations will not change land m as well as all the other entities in the system have adopted a substantial conflicts of interest policy the purpose of l's and m's respective executive committees are to provide a means of interim action for board-level decision-making between board meetings and to perform other responsibilities as delegated by the board or as established in the committee protocols described below l's and m’s executive committees are authorized to meet and act on behalf of l’s and m’s boards of directors respectively on an emergency basis when a meeting of the full board_of each organization is not feasible in such cases each executive committee can act with full power of the respective board in other situations if the board has expressly delegated decision-making powers to the executive committee by specific board policy or directive the executive committee can meet and act on behaif of the board between board meetings on such delegated matters each executive committee will be comprised of five voting members consisting of the chairperson the vice chairperson the president the secretary-treasurer and one at large member selected by the board_of directors at least one member of the executive committee will be a member of the medical staff the chief of staff will serve as a non-voting member of this committee a quorum of four of the five voting members is necessary to act on matters in lieu of action by the board if the executive committee is merely advising the board a quorum is only three voting members at any time the executive committee intends to act on behalf of the board community members of the executive committee non-employee non-medical staff must constitute a majority of the voting members of the executive committee decisions of the executive committee can be modified or reversed by the board to the extent that action in reliance on such decisions has not occurred the composition of the membership of the other standing committees is as follows the hospital oversight committee is comprised of voting members from the following categories of persons two community trustee directors each community trustee director must be representatives of the community in system's service area and not be a member of the medical staff nor an employee of any system entity thus the community trustee directors must be independent of the system and be reflective of the community - five medical staff members the medical staff members must be active members of the professional staff of mor any entity in the system and two of those medical staff members must be board members nominated by the governance committee recommended by the medical executive committee and elected by the board four administrative representatives the chief operating officer chief medical administrative officer vice president responsible for nursing and the vice president for quality comprise the representatives from administration in an ex officio voting capacity the chairperson of the board the chief of staff and the chief_executive_officer serve in ex officio non-voting capacities the clinical quality and service committee is comprised of seven voting members from the following categories four community trustee directors each community trustee director must be representative of members of the community in the system’s service area and not be a member of the medical staff nor an employee of any entity in the system thus each community trustee director must be independent of the system and be reflective of the community one of the four members must be a board member and at least one member of this committee must be a member of the hospital oversight committee nominated by the governance committee and elected by the board a three medical staff members the medical staff members must be active members of the professional staff of the system at least one member of this committee must be a board member and at least one must be a member of the hospital oversight committee nominated by the governance committee and elected by the board non-voting members the vice president for quality will serve in an ex officio non-voting capacity the chairperson of the board_of trustees the chief_executive_officer the chief of staff and the vice chief of staff will also serve in ex officio nonvoting capacities the managed care and reimbursement committee is comprised of seven voting members from the following categories four community trustee directors each community trustee director must be representative of members of the community in the system's service area and not be a member of the medical staff nor an employee of any entity in the system thus the community trustee director must be independent of the system and be reflective of the community at least one of these members must be a board member and be nominated by the board three medical staff members the medical staff members must be active members of the professional staff of any entity in the system and one of these members will be a board member and be nominated by the board non-voting representatives the chairperson of the board_of trustees the chief of staff and the chief_executive_officer will serve in ex officio non-voting capacities the chief managed care officer and the chief financial officer will serve as staff to this committee the finance_committee is comprised of seven voting members from the following categories five community trustee directors each community trustee director must be representative of members of the community in the system’s service area and not be a member of the medical staff nor an employee of any entity in the system thus the community trustee director must be independent of the system and be reflective of the community at least three of these members must be members of the board be nominated by the governance committee and elected by the board -20 two medical staff members the medical staff members must be active members of the professional staff of the system and at least one of these members must be a board member nominated by the governance committee and elected by the board non-voting members the chairperson of the board_of trustees the chief of staff and the chief_executive_officer will serve in an ex officio non-voting capacity the governance committee is comprised of five voting members from the following categories two community trustee directors each community representative must be a representative member of the community in the system's service area and cannot be a member of the medical staff nor an employee of any system entity both of these committee members must be members of and elected by the board thus these committee members must be independent from the system and be reflective of the community two medical staff members the medical staff members must be active members of the professional staff of the system both of these committee members must be members of and elected by the board chief_executive_officer the chief_executive_officer of the system will serve as a voting member in addition the chief of staff of m will serve as an ex officio non-voting member of the committee the joint conference committee consists of l chief of medica staff and chief of staff-elect all elected officers of the board_of directors one physician board member the president of m m's executive in charge of operations and m's executive in charge of medical affairs ruling requested the revised composition and duties of m’s boards of directors and of its committees will not adversely affect m's status as an organization described in sec_501 and sec_509 of the code applicable law sec_501 of the code provides an exemption from federal_income_tax for organizations described in sec_501 ol0e ov sec_501 of the code provides for the exemption from federal_income_tax of organizations organized and operated exclusively for charitable scientific or educational_purposes provided no part of the organization's net_earnings inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the income_tax regulations provides that for an organization to be exempt as one described in sec_501 of the code it must be both organized and operated exclusively for one or more exempt purposes under sec_1_501_c_3_-1 of the regulations an exempt_purpose includes a charitable purpose sec_1_501_c_3_-1 of the regulations provides that an organization is organized exclusively for one or more exempt purposes only if its articles of organization a limit the purposes of such organization to one or more exempt purposes and b do not expressly empower the organization to engage otherwise than as an insubstantial part of its activities in activities which in themselves are not in furtherance of one or more exempt purposes sec_1 c -1 c of the regulations provides that an organization is operated exclusively -for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 of the code an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose in 326_us_279 the jonexempt purpose if substantial in nature will destroy court stated that the presence ofa single the exemption regardless of the number or importance of truly exempt purposes sec_1_501_c_3_-1 of the regulations provides that the term charitable is used in sec_501 of the code in its generally accepted legal sense the promotion of health has long been recognized as a charitable purpose see restatement second trusts sec_368 sec_372 4a scott fratcher the law of trusts sec_368 sec_372 ed revrul_69_545 1969_2_cb_117 states that a properly organized nonprofit_hospital meets the community benefit standard and thus qualifies for exemption as a charitable_organization under sec_501 of the code where its board_of trustees is controlled by independent civic leaders it has a medical staff open to all qualified physicians in the area consistent with the size and nature of its facilities it operates a full-time emergency room open to all persons without regard to the ability to pay and it provides hospital care for everyone in the community able to pay the cost thereof either themselves through private health insurance or with the aid of public programs the application of the community benefit standard to exempt hospitals and other exempt health care organizations was sustained in 506_f2d_1278 d c cir vacated on other grounds 426_us_26 and in 71_tc_158 acg 1981_2_cb_2 rationale one of the components of the community benefit standard with respect to a hospital is that the hospital's governing body must be controlled by independent members of the community land m have each proposed restructuring their respective boards of directors and committee governance configuration to change the mix of physician community and management involvement as a result l and m have e proposed amending their respective bylaws forming various committees and issuing committee protocols in the manner described above following the proposed restructuring the proposed amendments to l's and m's bylaws the formation of various committees and the issuance of committee protocols the respective board_of directors and executive committees wil be controlled by independent members of the community in addition the quorum requirements in l’s and m's bylaws and the adoption of a substantiat conflicts of interest policy ensure this result therefore you will satisfy the community control component of the community benefit standard of revrul_69_545 supra as a result you will continue to be organized and operated exclusively for charitable purposes under sec_501 of the code ruling the revised composition and duties of your board_of directors and of its committees will not -adversely affect your status as an organization described in sec_501 and sec_509 of the code this ruling is based on the understanding that there will be no material changes in the facts upon which it is based this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described this ruting is directed only to the organization that requested it and may not be used or cited by others as precedent we are informing your exempt_organizations area manager of this action please keep a copy of this ruling in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representatives sincerely ified alsecin priakeander marvin friedlander manager exempt_organizations technical group of


internal_revenue_service number release date index number ------------------------------------------------------------ --------------------- ------------------------------------ -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------------ telephone number ---------------------- refer reply to cc psi b04 plr-135474-16 date date re ---------------------------------------- legend decedent spouse date date ----------------------------------------------------------------------- ------------------------------ ---------------------------- ---------------------------- dear -------------------- this letter responds to your personal representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election plr-135474-16 it is represented that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of decedent’s death including any taxable_gifts made during her lifetime you request an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return plr-135474-16 sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely-filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i 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 no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides 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 the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 plr-135474-16 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date it is represented that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly-prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed 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 if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-135474-16 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs special industries by lorraine e gardner ________________________________ lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court harry eugene mathews petitioner v commissioner of internal revenue respondent docket no filed date after p failed to file his tax_return r determined a deficiency in income_tax and additions to tax under sec_6651 and i r c p contested the deficiency arguing that a state court garnishment order was fraudulent and improperly caused the payment of his military retirement_funds to his former spouse and that he should not be taxed on these funds held p is liable for the deficiency and for additions to tax under sec_6651 and i r c held further p is liable for a sec_6673 i r c penalty harry e mathews pro_se nancy l karsh for respondent memorandum findings_of_fact and opinion wherry judge after a concession by respondent the issues for decision are whether petitioner’s military retirement pay is includable in gross_income whether petitioner is liable for an addition_to_tax under sec_6651 for failure_to_file his tax_return whether petitioner is liable for an addition_to_tax under sec_6651 for failure to pay his taxes and whether the court should impose a penalty under sec_6673 for petitioner’s advancement of frivolous or groundless arguments in proceedings instituted primarily for protest or delay findings_of_fact some of the facts have been stipulated and are so found the stipulations of the parties with accompanying exhibits are incorporated herein by this reference at the time he filed his petition with this court petitioner resided in florida 1see infra note 2all section references are to the internal_revenue_code_of_1986 as amended and in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure petitioner served in the u s air force for years before retiring as a master sergeant for his service petitioner is entitled to military retirement pay mrp for the gross amount petitioner was entitled to receive as his mrp was dollar_figure per month however petitioner executed a veterans administration waiver pursuant to which he waived receipt of dollar_figure each month the defense finance and accounting service dfas is the agency responsible for disbursing petitioner’s mrp for each month of the dfas withheld approximately dollar_figure from petitioner’s mrp dollar_figure of which was subject_to a texas state court garnishment order for child_support and deposited the balance into petitioner’s bank account no withholdings were made for federal income taxes 3all amounts have been rounded to the nearest whole dollar 4petitioner was entitled to both an mrp and disability benefits from the veterans administration va however retirees are barred from receiving concurrent payments of both mrp and va disability benefits unless certain exceptions are met including that the retiree have a va disability rating of percent or more u s c secs and u s c sec petitioner stated at trial that his disability rating was percent but he believed it should have been percent instead of receiving the full amount of the mrp that a retiree is entitled to the retiree can file an election waiving receipt of the portion of the mrp equal to the amount of the va disability benefit awarded u s c sec presumably it is advantageous for a retiree to file such a waiver because the va disability benefit is excluded from gross_income under sec_104 and b whereas the mrp constitutes taxable_income 5neither party addressed why federal income taxes were not withheld from petitioner’s mrp petitioner did not file a federal_income_tax return for therefore respondent prepared a substitute for return for petitioner under sec_6020 showing a total amount due of dollar_figure on date on the basis of this substitute for return respondent mailed to petitioner at his last_known_address a notice_of_deficiency for the taxable_year showing a deficiency of dollar_figure and additions to tax under sec_6651 and of dollar_figure and dollar_figure respectively petitioner timely petitioned this court in his petition as well as in other filings made with this court and at trial petitioner made broad arguments disputing the validity of the texas state court garnishment order he claims widespread fraud racial discrimination and theft conspiracy and corruption on the part of various governmental entities instead of identifying or advancing specific arguments as to why he was not liable for the deficiency or the additions to tax this court waived the filing fee for cause pursuant to petitioner’s request a trial was held in miami florida 6the substitute for return showed gross_income of dollar_figure consisting of petitioner’s mrp and after allowing a standard_deduction of dollar_figure and personal_exemption of dollar_figure arrived at a taxable_income of dollar_figure on which respondent determined a deficiency of dollar_figure respondent also determined an additional deficiency of dollar_figure under sec_72 for an early withdrawal from a qualified_retirement_plan respondent has since acknowledged that sec_72 does not apply and petitioner is not liable for the dollar_figure additional deficiency opinion as stated above petitioner has failed to identify or advance specific arguments as to why he was not liable for the deficiency or additions to tax thus petitioner fails to meet the requirement of rule b that a petition contain clear and concise assignments of each and every error which the petitioner alleges to have been committed by the commissioner in the determination of the deficiency or liability even ignoring petitioner’s failure to satisfy rule b for the reasons set forth in this opinion we will sustain the deficiency and additions to tax i whether petitioner’s mrp is taxable as a general_rule the commissioner’s determination of a taxpayer’s liability in the notice_of_deficiency is presumed correct and the taxpayer bears the burden of proving that the determination is improper see rule a 290_us_111 however pursuant to sec_7491 the burden_of_proof on factual issues that affect the taxpayer’s tax_liability may shift to the commissioner where the taxpayer introduces credible_evidence with respect to such issue the burden will shift only if the taxpayer has inter alia complied with applicable substantiation requirements and cooperated with reasonable requests by the secretary for witnesses information documents meetings and interviews sec_7491 petitioner did not raise the burden_of_proof issue did not introduce any credible_evidence and failed to comply with the substantiation requirements accordingly the burden_of_proof remains on petitioner petitioner’s main argument is that the garnishment order issued by the texas state court is fraudulent and more than a million dollars have been stolen through a very eleborate sic scam court records show this is at least the fifth time petitioner has raised this argument for reasons discussed below this court holds that petitioner’s mrp including the amount garnished is included in gross_income and this court lacks jurisdiction to decide whether the texas state court garnishment order is fraudulent 7at trial during cross-examination of respondent’s witness petitioner stated his taxable_income should be lower because his va waiver should be based on a disability rating of percent instead of percent see supra note discussing the impact of a higher disability rating on such a waiver however petitioner never raised this issue in his petition or any other pretrial motion never fully addressed the issue at trial and never filed a posttrial brief therefore we deem this issue conceded see 87_tc_698 affd 832_f2d_403 7th cir 67_tc_94 n further even if this issue had been fully laid out we lack jurisdiction to decide it see oppenheimer v commissioner tcmemo_1986_537 we also lack jurisdiction to decide texas state child_support issues 8in one case mathews v commissioner tcmemo_2005_84 we granted respondent summary_judgment two cases docket nos and 5762-02l were dismissed for lack of jurisdiction a fourth case docket no 11601-05s was dismissed for failure to state a claim upon which relief can be granted pursuant to rule a whether petitioner’s mrp is includable in gross_income sec_61 expressly defines gross_income to include pensions petitioner’s military retirement pay is pension income within the meaning of sec_61 127_tc_200 ndollar_figure affd 521_f3d_1289 10th cir see also eatinger v commissioner tcmemo_1990_310 sec_1_61-11 income_tax regs the fact that part of petitioner’s mrp was garnished does not change this result the discharge by a third person of a taxpayer’s obligation is equivalent to receipt by the person taxed 279_us_716 see also 113_tc_152 affd 240_f3d_369 4th cir the fact that the transfer is involuntary such as by garnishment has no significance see eg 69_tc_675 chambers v commissioner tcmemo_2000_218 holding amounts garnished from employee’s wages for alimony and child_support were includable in employee’s income affd 17_fedappx_688 9th cir vorwald v commissioner tcmemo_1997_15 holding that amounts transferred from taxpayer’s retirement account to his former spouse in garnishment proceeding constituted deemed distributions to taxpayer from his retirement account and were therefore includable in his income a portion of petitioner’s mrp was garnished pursuant to a texas state court garnishment order for child_support the garnished funds were paid to satisfy a legal_obligation petitioner owed and thus constitute petitioner’s gross_income b whether this court has jurisdiction to address the validity of a texas state court garnishment order petitioner asserts that the texas state court garnishment order is a result of fraud this court as petitioner has been told on several occasions lacks jurisdiction to address petitioner’s allegations of fraud that may have occurred during the garnishment proceedings in the texas state court child_support determinations are matters of local law and we are not permitted to reassess the merits of those judgments see eg 300_us_5 holding that the validity of a_trust assignment is a matter of local law and a state court’s determination with regards to such assignment is not reviewable by this court chambers v commissioner supra 9this court recognizes that in 387_us_456 the court held that where the federal estate_tax liability turns upon the character of a property interest under state law federal authorities are not bound by a lower state trial court’s determination of such property interest estate of bosch has no effect on this case because a texas state court’s determination of petitioner’s rights vis-a-vis his former wife is not relevant to our determination that petitioner is liable for federal income taxes on money garnished to pay child_support further we note that in the case at hand we are simply acknowledging the binding effect of a state court child_support judgment rather than concluding state law should take precedence over federal tax law see 723_fsupp_367 e d la stating that whether or not taxpayer made a transfer continued refusing to address the validity of a garnishment order for alimony and child_support after taxpayer alleged his civil rights had been violated in the underlying divorce proceedings the court recognizes that petitioner does not agree with the texas state court ruling regarding his child_support_obligations and subsequent garnishment but we cannot address those allegations and petitioner has not shown a basis for excluding any amount of his mrp from gross_income therefore the entire amount of petitioner’s mrp including the portion garnished is included in gross_income ii whether petitioner is liable for the additions to tax under sec_6651 and for the taxable_year generally any person made liable for any_tax shall make a return or statement according to the forms and regulations prescribed by the secretary sec_6011 sec_6651 provides that in the case of a failure_to_file a return on time there is imposed unless it is shown that such failure is due to reasonable_cause and not due to willful neglect an addition_to_tax of percent of the tax required to be shown on the return for each month or fraction thereof for which there is a failure_to_file not to exceed percent continued under state law did not matter in characterizing the interest for federal in915_f2d_992 5th cir see also 384_f3d_794 9th cir questioning the effect of estate of bosch outside the area of estate_tax law sec_6651 provides for an addition_to_tax of percent per month up to percent for failure to pay the amount shown or required to be shown on a return unless it is shown that such failure is due to reasonable_cause and not due to willful neglectdollar_figure the respondent bears the burden of production with regard to the sec_6651 and additions to taxdollar_figure sec_7491 see 116_tc_438 to meet his burden respondent must produce sufficient evidence establishing that it is appropriate to impose the additions to tax id as stipulated petitioner admits that he did not file his tax_return and that he has not paid his taxes further petitioner has not presented any evidence that such failure_to_file and pay was due to reasonable_cause and not willful neglect respondent has thus met his burden of production and accordingly we sustain the additions to tax under both sec_6651 and 10the sec_6651 addition_to_tax is reduced by the amount of the sec_6651 addition_to_tax for any month or fraction thereof to which an addition_to_tax applies under both sec_6651 and see sec_6651 11we acknowledge that petitioner failed to assign any error to the additions to tax and therefore petitioner is deemed to have conceded them and respondent is relieved of the burden of production because respondent nonetheless met the burden of production we briefly acknowledge he did so see 123_tc_213 118_tc_358 iii sec_6673 penalty sec_6673 gives this court discretion to require the taxpayer to pay to the united_states a penalty not in excess of dollar_figure whenever it appears that a proceedings before it have been instituted or maintained by the taxpayer primarily for delay b the taxpayer’s position in such proceeding is frivolous or groundless or c the taxpayer unreasonably failed to pursue available administrative remedies a position is frivolous if it is contrary to established law and unsupported by a reasoned colorable argument for change in the law 791_f2d_68 7th cir petitioner’s unsupported argument is frivolous or groundlessdollar_figure petitioner is a habitual nonfiler who has failed to pay the taxes due on his mrp and failed to advance any specific argument as to why he is not liable for the deficiency petitioner persists in arguing that his mrp was wrongfully garnished despite the fact that this court has rejected this argument on jurisdictional grounds on several occasionsdollar_figure 12see mathews v commissioner tcmemo_2005_84 where petitioner made the same argument as in this case and we stated the court considers petitioner’s position in this case to be frivolous or groundless 13petitioner has not filed a federal_income_tax return for any year going as far back as he has instituted at least five separate proceedings in this court see supra note in fact in his petition in mathews v commissioner supra he stated i have filed a petition each year for the past continued courts have ruled that arguments to avoid tax obligations and requirements such as those arguments petitioner espouses are groundless and wholly without merit see williams v commissioner tcmemo_1999_277 imposing sec_6673 penalty for tax-protester arguments morin v commissioner tcmemo_1999_240 same sochia v commissioner tcmemo_1998_294 same groundless litigation diverts the time and energies of judges from more serious claims it imposes needless costs on other litigants once the legal system has resolved a claim judges and lawyers must move on to other things they cannot endlessly rehear stale arguments both appellants say that the penalties stifle their right to petition for redress of grievances but there is no constitutional right to bring frivolous suits see 461_us_731 people who wish to express displeasure with taxes must choose other forums and there are many available coleman v commissioner supra pincite in addition to advancing a frivolous or groundless argument petitioner appears to have instituted this proceeding primarily for delay sec_6673 was intended to apply to situations where a taxpayer repeatedly brings the same appeal after having been informed that his basis is groundless 73_tc_806 in 91_tc_615 the court imposed a sec_6673 penalty against taxpayer when he persisted in continued years all you ever do is steal my filing fee pursuing the case even after being told his position was frivolous or groundless in dew v commissioner supra pincite the court stated that it seems inescapable that petitioner instituted or at least maintained the proceedings primarily for delay in 88_tc_1529 as in coulter v commissioner 82_tc_580 the court imposed a sec_6673 penalty after the taxpayer repeated an argument that was deemed frivolous or groundless by comparison petitioner has raised the same frivolous or groundless argument in no less than five separate proceedings notwithstanding petitioner’s repeated failure_to_file returns and incessant frivolous claims regarding the state court’s ordered monthly child_support we note petitioner’s case resulted in respondent’s concession of over half the determined tax_deficiency at trial respondent conceded the sec_72 additional taxdollar_figure therefore the petition was initially neither frivolous nor dilatory in the sense that it caused to surface a meritorious sec_72 issue and resulted in respondent’s 14respondent’s concession is presumably based upon sec_72 which provides that the 10-percent additional tax does not apply to distributions which are part of a series of substantially_equal_periodic_payments not less frequently than annually made for the life or life expectancy of the employee concession of over half the deficiencydollar_figure however once respondent conceded this issue at the beginning of the trial petitioner’s resolute determination to proceed with his child_support issue and argument was frivolous and resulted in a delay in resolving his case further after the trial had concluded petitioner continued to send this court frivolous packets of information such as newspaper clippings and copies of letters sent to individuals including katie couric diane sawyer brian williams president barack obama tim geithner and ann curry regarding this issue the imposition of a sec_6673 penalty should come as no surprise to petitioner we have given petitioner repeated warnings that he was in danger of being penalized for example in mathews v commissioner tcmemo_2005_84 we told petitioner 15even though the filing of the petition resulted in respondent’s concession of the sec_72 additional tax petitioner never specifically alleged in his petition that he did not owe it in fact none of petitioner’s filings ever addressed this issue except as to their general implied objection to any_tax deficiency it was purely fortuitous that respondent had improperly determined a sec_72 additional tax and recognizing this error conceded it at the start of the trial rather the petition started and ended with the allegation that more than a million dollars have been stolen through a very elebaorate sic scam this scam can not and will not be exposed because of the high profile status of the thieves the petition went on to accuse both the irs and us tax_court of racial prejudice and discrimination it is necessary to give petitioner a word of warning the court considers petitioner’s position in this case to be frivolous or groundless it also appears that he has instituted or maintained these proceedings primarily for delay petitioner is hereby warned that the court will not hesitate to impose a penalty under sec_6673 against him in any appropriate case in the future at the commencement of trial in this case this court reminded petitioner of the prior admonishment reading directly from the earlier opinion as well as stressing that we did not have jurisdiction over the validity of the texas state court garnishment order we told petitioner to restrict the prosecution of his case to issues involving his federal_income_tax deficiency or we would not hesitate to impose a sec_6673 penalty against him petitioner responded to such warnings with allegations imputing corruption and fraudulent schemes to various governmental entities as well as accusations of racial bias this court then warned petitioner again that arguing issues we have no jurisdiction over is frivolous or groundless and manifestly for delay petitioner did not heed these numerous warnings instead his trial testimony as well as the filings made in this case largely constitute an ongoing diatribe against old crooked judges papers fraudulently obtained fictitious orders texas being backwards and racial prejudice against black men in texas in an effort to deter petitioner from continuing to file frivolous or groundless petitions this court concludes that a sec_6673 penalty of dollar_figure is appropriate it is inappropriate that taxpayers who promptly pay their taxes should have the cost of government and tax collection improperly increased by citizens apparently unwilling to obey the law or shoulder their assigned share of the government cost 124_tc_189 we note that dollar_figure does not begin to indemnify the united_states for the expenses which petitioner’s frivolous and groundless action have caused coulter v commissioner supra pincite but if petitioner persists in instituting and maintaining frivolous and groundless claims we will be inclined to impose a significantly higher sec_6673 penalty in the future we call petitioner’s attention to wheeler v commissioner tcmemo_2010_188 a case that involved facts very similar to those at hand in wheeler the taxpayer received mrp from the dfas but refused to report it as income in holding the taxpayer liable for the deficiency and imposing the maximum sec_6673 penalty because modest penalties had not deterred the taxpayer the court noted that ‘given the further fact that petitioner’s military retirement income is funded by taxpayer dollars petitioner’s persistence in pursuing a tax protest agenda is inexcusable’ and a penalty in the maximum amount of dollar_figure is appropriate when lesser amounts have not deterred a taxpayer’s defiance of the tax laws and of the rulings of the courts id quoting date order and order to show cause the court has considered all of petitioner’s contentions arguments requests and statements to the extent not discussed herein we conclude that they are meritless moot or irrelevant to reflect the foregoing decision will be entered under rule


t c summary opinion united_states tax_court scott owen schubert and amy k moore petitioners v commissioner of internal revenue respondent docket no 22477-06s filed date scott owen schubert and amy k moore pro sese margaret a martin for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code irc in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the irc in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a dollar_figure deficiency in petitioners’ federal_income_tax and a dollar_figure accuracy-related_penalty under sec_6662 the issues for decision are whether petitioners are entitled to deduct their unreimbursed employee business_expenses entitled to deduct their expenditure for tax preparation materials ie turbo tax and tax publications and liable for the accuracy-related_penalty under sec_6662 background some of the facts have been stipulated and are so found the stipulation of facts and the exhibits received into evidence are incorporated herein by reference at the time the petition was filed petitioners resided in california during the first months of mr schubert worked as a salesman selling telephone calling cards for winstar communications llc a k a idt telecom mr schubert’s sales routes required traveling to various parts of northern and southern california for the last months of mr schubert worked for cura group inc a k a vozzcom which was a amy moore did not appear at trial or sign the stipulation of facts the court will dismiss ms moore for failure properly to prosecute and will enter a decision against ms moore consistent with the decision entered against mr schubert subcontractor for comcast as a subcontractor mr schubert traveled to customers’ residences and disconnected the customers’ cable for failure to pay their comcast bills mr schubert was unemployed for the remainder of ms moore worked as a real_estate agent for intero real_estate services and as an administrator for superior employment inc ms moore showed properties to clients transported transactional documents and performed other errands in san jose santa clara and palo alto california petitioners timely filed a joint form_1040 u s individual_income_tax_return for petitioners reported dollar_figure as compensation_for services dollar_figure for mr schubert and dollar_figure for ms moore on petitioners’ schedule a itemized_deductions they claimed a dollar_figure deduction for their tax preparation materials and the following unreimbursed employee_expenses category mr schubert ms moore vehicle expense parking tolls transportation travel expense away from home meals and entertainment business_expense total 1dollar_figure 1dollar_figure big_number big_number big_number big_number big_number big_number based on a 36-cent standard mileage rate before application of the sec_67 2-percent floor respondent disallowed petitioners’ deductions for unreimbursed employee_expenses and tax preparation materials respondent allowed the standard_deduction which was larger than petitioners’ itemized_deductions as adjusted by respondent respondent’s adjustments resulted in a deficiency and he determined an accuracy-related_penalty under sec_6662 at trial mr schubert submitted into evidence revised forms 2106-ez unreimbursed employee business_expenses which were admitted into evidence as petitioners’ new position the revised forms reduced mr schubert’s claimed vehicle and business_expenses to dollar_figure and dollar_figure respectively the revised forms increased ms moore’s claimed vehicle expenses to dollar_figure and reduced her business_expenses to dollar_figure in the revised forms neither petitioner claimed deductions for travel meals and entertainment nor parking fees tolls and transportation i burden_of_proof discussion the commissioner’s determinations in a notice_of_deficiency are presumed correct and the taxpayer has the burden to prove that the determinations are in error rule a 290_us_111 but the burden_of_proof on factual issues that affect a taxpayer’s tax_liability may be petitioners abandoned these issues at trial and in effect conceded that the following claimed deductions were not proper travel meals and entertainment parking fees tolls and transportation and dollar_figure of the total dollar_figure in business_expenses accordingly respondent’s determination is sustained shifted to the commissioner where the taxpayer introduces credible_evidence with respect to such issue sec_7491 the burden will shift only if the taxpayer has complied with the substantiation requirements and has cooperated with the commissioner’s reasonable requests for witnesses information documents meetings and interviews sec_7491 petitioners have not alleged or proven that sec_7491 applies accordingly petitioners must prove that they are entitled to the deductions see 503_us_79 stating that deductions are strictly a matter of legislative grace and taxpayers bear the burden of proving that they are entitled to claim the deduction ii unreimbursed employee business_expenses it is well established that an individual may be in the trade_or_business of being an employee and that ordinary and necessary expenses_incurred in his trade_or_business are deductible subject_to the limitations of sec_67 see sec_67 and b a 54_tc_374 17_tc_1456 sec_67 imposes a limitation on the deductibility of an individual’s miscellaneous_itemized_deductions such deductions are allowable only to the extent that the aggregate deductions exceed a floor of percent of adjusted_gross_income agi the term miscellaneous_itemized_deductions is defined in sec_67 as those itemized_deductions that are not specifically enumerated therein it is also well established that the taxpayer must keep records sufficient to establish the amount of the items required to be shown on his federal_income_tax return see sec_6001 sec_1_6001-1 e income_tax regs but if the taxpayer establishes that he has incurred a deductible expense yet is unable to substantiate the exact amount the court may estimate the deductible amount in some circumstances the cohan_rule see 39_f2d_540 2d cir a claimed business_expenses mr schubert testified that he reduced the total dollar_figure claimed as businesses expenses to dollar_figure because i omitted a lot of these extra -- the fluff ie the job search mr schubert did not explain the nature of their business_expenses and no receipts or other documents were submitted into evidence to substantiate the expenditures respondent’s determination is sustained b vehicle expenses pursuant to sec_274 the court cannot estimate a taxpayer’s expenses with respect to certain items see sanford mr schubert briefly referred to the remaining dollar_figure in business_expenses as a home_office expense whether the expenses are home_office expenses under sec_280a is uncertain nevertheless the expenditures would not be deductible under sec_280a since mr schubert has not shown that a portion of their residence was exclusively used on a regular basis as their principal_place_of_business and that the exclusive use was for their employers’ convenience see sec_280a v commissioner 50_tc_823 affd per curiam 412_f2d_201 2d cir in pertinent part sec_274 provides that no deduction is allowable for listed_property unless the taxpayer complies with certain strict substantiation requirements the term listed_property is defined to include passenger automobiles and other_property used as a means of transportation see sec_280f and ii to substantiate the amount of an automobile expense the taxpayer must prove the following the amount of the expenditure ie cost of acquisition the amount of each business use and the amount of its total use by establishing the amount of its business mileage and total mileage time ie the date of the expenditure or use and the business_purpose for the expenditure or use see sec_1_274-5t through iii temporary income_tax regs fed reg date if the amount is not substantiated by adequate_records or sufficient corroborative evidence then it is disallowed see sec_274 as to the rules of substantiation the temporary_regulation provides that taxpayers must substantiate each element of an expenditure or use by adequate_records or other_sufficient_evidence that corroborates his statements sec_1_274-5t temporary income_tax regs supra taxpayers must maintain and produce such substantiation as will constitute proof of each expenditure or use id written evidence has considerably more probative value than oral evidence and the probative value of written evidence is greater the closer in time it is to the expenditure or use id although a contemporaneous log is not required a record made at or near the time of the expenditure or use that is supported by sufficient documentary_evidence has a higher degree of credibility than a subsequently prepared statement id the corroborative evidence required to support a statement not made at or near the time of the expenditure or use must have a high degree of probative value to elevate the statement and evidence to the level of credibility reflected by a record made at or near the time of the expenditure or use supported by sufficient documentary_evidence id mr schubert submitted reconstructions of petitioners’ mileage logs to prove their vehicle expenses mr schubert testified that he incorporated the information from the scribbles in his planner into the spreadsheet as to ms moore’s vehicle expenses mr schubert testified that he extrapolated the information from calendars within an outlook computer_program belonging to ms moore’s employer that showed the date and the type of errand ms moore performed mr schubert did not provide the underlying materials to respondent or produce them at trial mr schubert did not testify as to the amounts of their business mileage or to the nature of their appointments the category designated as purpose merely states appts mr schubert attempted to explain his cursory reconstruction by stating it was tough enough doing the odometers and i went back to doing the summary the court finds that petitioners have not satisfied the strict substantiation requirements of sec_274 accordingly respondent’s determination is sustained iii deduction for tax preparation materials a taxpayer may be allowed a deduction for ordinary and necessary expenses paid_or_incurred during the taxable_year in connection with the determination collection_or_refund_of_any_tax subject_to the 2-percent floor of sec_67 see sec_67 and b see also supra note in order to have a deductible amount petitioners’ aggregate miscellaneous_itemized_deductions must exceed dollar_figure dollar_figure agi x percent after the disallowance of the unreimbursed employee_expenses petitioners’ sole miscellaneous itemized_deduction is the dollar_figure for tax preparation materials petitioners’ dollar_figure miscellaneous itemized_deduction does not exceed the even if the court were to find that petitioners had substantiated their deductions for unreimbursed employee_expenses the court would nevertheless disallow the deductions because petitioners failed to show that their employers did not have a reimbursement policy see eg boltinghouse v commissioner tcmemo_2007_324 percent floor accordingly respondent’s determination is sustained iv accuracy-related_penalty initially the commissioner has the burden of production with respect to any penalty addition_to_tax or additional_amount sec_7491 the commissioner satisfies this burden of production by coming forward with sufficient evidence indicating that it is appropriate to impose the relevant penalty 116_tc_438 once the commissioner satisfies this burden of production the taxpayer must persuade the court that the commissioner’s determination is in error by supplying sufficient evidence of reasonable_cause substantial_authority or a similar provision id in pertinent part sec_6662 imposes an accuracy-related_penalty equal to percent of the underpayment that is attributable to negligence or disregard of rules or regulations or a substantial_understatement_of_income_tax sec_6662 and b and negligence is defined to include any failure to make a reasonable attempt to comply with the provisions of this title and disregard is defined to include any careless reckless or intentional disregard see sec_6662 negligence also includes any failure by the taxpayer to keep because the court finds for respondent on the negligence ground the court need not discuss the substantial_understatement_of_income_tax ground adequate books_and_records or to substantiate items properly see sec_1_6662-3 income_tax regs in interpreting sec_6662 the court has defined the term negligence as a ‘lack of due care or the failure to do what a reasonable and ordinarily prudent person would do under the circumstances ’ 89_tc_849 quoting marcello v commissioner 380_f2d_499 5th cir affg 43_tc_168 and tcmemo_1964_299 and citing 731_f2d_1417 9th cir affg 79_tc_714 affd 904_f2d_1011 5th cir affd 501_us_868 sec_6664 provides an exception to the sec_6662 penalty no penalty is imposed with respect to any portion of an underpayment if it is shown that there was reasonable_cause therefor and the taxpayer acted in good_faith sec_1_6664-4 income_tax regs incorporates a facts_and_circumstances_test to determine whether the taxpayer acted with reasonable_cause and in good_faith the most important factor is the extent of the taxpayer’s effort to assess his proper tax_liability id circumstances that may indicate reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in view of the taxpayer’s experience knowledge and education id the court finds that respondent has met his burden of production and that petitioners were negligent petitioners did not properly substantiate their deductions as required by the irc and the regulations petitioners did not establish a defense for their noncompliance with the irc’s requirements accordingly respondent’s determination is sustained to reflect the foregoing an order of dismissal will be entered as to petitioner amy k moore and decision will be entered for respondent