department of the treasury internal_revenue_service attn mandatory review mc dal commerce st dallas tx tax_exempt_and_government_entities_division release number release date legend org-organization name address - address org address xx - date date date employer_identification_number person to contact id number contact numbers voice fax certified mail - return receipt requested dear in a determination_letter dated may 20xx you were held to be exempt from federal_income_tax under sec_501 of the internal_revenue_code the code based on recent information received we have determined you have not operated in accordance with the provisions of sec_501 of the code accordingly your exemption from federal_income_tax is revoked effective january 20xx this is a final adverse determination_letter with regard to your status under sec_501 of the code we previously provided you a report of examination explaining why we believe revocation of your exempt status is necessary at that time we informed you of your right to contact the taxpayer_advocate as well as your appeal rights on september 20xx you signed form 6018-a consent to proposed action agreeing to the revocation of your exempt status under sec_501 of the code you are required to file form_1120 1120-pc u s property and casualty insurance_company income_tax return with the ogden service_center you have filed taxable returns on form 1120-pc u s property and casualty insurance_company income_tax return for the years ended december 20xx and december 20xx with us in addition for future periods you are required to file form_1120 1120-pc with the appropriate service_center indicated in the instructions for the return 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 contact the person whose name and telephone number are shown at the beginning of this letter sincerely nanette m downing acting director eo examinations department of the treasury ay tz le internal_revenue_service commerce street dallas tx tax_exempt_and_government_entities_division date legend taxpayer_identification_number org organization name form address address xx date org address dear tax_year s ended person to contact id number contact numbers telephone fax we have enclosed a copy of our report of examination explaining why we believe an adjustment of your organization’s exempt status is necessary we have also enclosed publication exempt_organization appeal procedures for unagreed issues and publication the examination process these publications include information on your rights as a taxpayer including administrative appeal procedures within the internal_revenue_service if you request a conference with appeals 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 the appeals_office will advise you of its final_decision if you elect not to request appeals consideration but instead accept our findings please sign and return the enclosed form 6018-a consent to proposed adverse action we will then send you a final letter modifying or revoking your exempt status under sec_501 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 send a final letter advising of our determination in either situation outlined in the paragraph above execution of form 6018-a or failure to respond within days you are required to file federal_income_tax returns for the tax period s shown above for all years still open under the statute_of_limitations and for all later years file the federal tax_return for the tax period s shown above with this agent 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 have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation sincerely sunita lough sunita lough director eo examinations enclosures publication publication form 6018-a report of examination envelope een 886a department of the ‘i'reasury - internal_revenue_service name of taxpayer org explanation of items schedule no or exhibit year period ended 20xx 20xx legend org organization name companies trustee trustee xx date country country co-1 co-2 issue sec_1 does org qualify for tax exempt status under internal_revenue_code irc sec_501 for the years beginning january 20xx if org does not qualify for tax exempt status for years ending january 20xx what are the tax consequences if the tax exempt status is revoked how will it affect future years facts org org was formed on december 20xx in the country under international companies act sections and its purpose as stated in the memorandum of association included to carry on any business other than the business which is prohibited by the act or the regulations from carrying on which may seem to the company capable of being conveniently carried on or calculated directly or indirectly to enhance the value of or render profitable any of the company’s property or rights on january 20xx org filed application form_1024 application_for recognition of exemption under sec_501 with the internal_revenue_service seeking exemption under internal_revenue_code irc sec_501 its purpose as stated in the application form was that the organization was a small casualty insurance_company its principal business will be to issue casualty insurance to unrelated third parties initially the company will issue reinsurance on an indemnity basis on casualty risks from unrelated third parties until sufficient surplus is obtained to commence writing casualty policies directly to unrelated third parties on may 20xx the organization received a determination_letter granting tax exempt status under sec_501 in response to the information_document_request mailed on march 20xx the organization stated that they provided casualty insurance to nursing homes in texas due to the fact that insurance was not available because of industry problems for nursing home medical liability and nursing home patient care liability in 20xx the nursing homes for which the policies were being provided were sold and the policies with coverage which carried into 20xx were not renewed for 20xx org has not issued any new policies issued or participated in any reinsurance agreements since the form 886-a rev department of the treasury - internal_revenue_service page -1- ore 886a department of the ‘l'reasury - internal_revenue_service name of taxpayer org explanation of items schedule no or exhibit year period ended 20xx 20xx policies expired org is waiting for the claims period to expire on the policies and is currently in the process of winding up its affairs according to the d election filed with the application on march 20xx president was the sole shareholder information gathered during the examination stated that co- trustee trustee is the sole shareholder of org forms were filed for the 20xx 20xx tax_year the following is a breakdown of the gross_receipts received by org for the years ending december 20xx 20xx and the percentage of gross premiums to gross_receipts for the same years per notice 20xx-42 premiums written org 20xx 20xx total premiums _ dividend income capital_gains interest_income percentage- gross premium reinsurance income to gross_receipts _total gross_receipts other income no premiums were received in either of the two years other income in 20xx was on org's financial statement as co-2 org did report dollar_figure of unrealized_appreciation as income on the form_990 for 20xx an election under sec_831 has never been filed as of the writing of this report there has never been a filing of the election either with the filing of the forms or separately org has not been involved in any court ordered liquidation during part of 20xx 20xx law and analysis form 886-a rev department of the treasury - internal_revenue_service page -2- eysan 886a department of the 'i'reasury - internal_revenue_service name of taxpayer org explanation of items schedule no or exhibit year period ended 20xx 20xx does internal_revenue_code irc sec_501 for the years beginning date qualify for tax exempt status under internal_revenue_code sec_501 exempts from federal_income_tax insurance_companies as defined in sec_816 other than life including interinsurers and reciprocal undemriters if- i i the gross_receipts for the taxable_year do not exceed dollar_figure and il more than percent of such gross_receipts consist of premiums or ii in the case of a mutual insurance company- i the gross_receipts of which for the taxable_year do not exceed dollar_figure and il more than percent of such gross_receipts consist of premiums clause ii shall not apply to a company if any employee of the company or a member of the employee’s family as defined in sec_2032 is an employee of another company exempt from taxation by reason of this paragraph or would be so exempt but for this sentence sec clarification of exemption from tax for small property and casualty insurance_companies of the pension funding equity act of p l amended sec_501 to change the definition of small property and casualty insurance_companies insurance_companies other than life_insurance_companies exempt from income taxes to a company whose gross_receipts for the taxable_year do not exceed dollar_figure and over half such gross_receipts consist of premiums currently whose net written premiums or if greater direct written premiums for the taxable_year do not exceed dollar_figure or a mutual_insurance_company a whose gross_receipts for the taxable_year do not exceed dollar_figure and more than percent of which consist of premiums and b none of whose employees or member of the employee's family is an employee of another company exempt from tax under sec_501 _ these changes were applicable after date notice_2006_42 irb provides guidance as to the meaning of gross_receipts for purposes of sec_501 of the internal_revenue_code this notice advises taxpayers that the service will include amounts received from the following sources during the taxable_year in gross_receipts for purposes of sec_501 a premiums including deposits and assessments without reduction for return_premiums or premiums_paid for reinsurance b items described in sec_834 gross_investment_income of a non-life insurance_company and form 886-a rev department of the treasury - internal_revenue_service page -3- enon 886a name of taxpayer org schedule no or exhibit year period ended 20xx 20xx department of the ‘l'reasury - internal_revenue_service explanation of items c other items that are properly included in the taxpayer's gross_income under subchapter_b of chapter subtitle a of the code thus gross_receipts include both tax-free interest and the gain but not the entire amount_realized from the sale_or_exchange of capital assets because those items are described in sec_834 gross_receipts do not however include amounts other than premium income or gross_investment_income unless those amounts are otherwise included in gross_income accordingly the term gross_receipts does not include contributions to capital excluded from gross_income under sec_118 or salvage or reinsurance recovered accounted for as offsets to losses_incurred under sec_832 sec_834 of the internal_revenue_code includes under gross_receipts the gains from the sale or exchanges of capital assets to the extent provided in subchapter_p sec_1201 and following relating to capital_gains_and_losses based on the computations above it is determined that limitation but was unable to meet the requirement for each year as a stock company requirements are only for mutual companies is not able to try to meet the second set of requirements those did meet the dollar_figure section e of the pension funding act of p l provides the effective date of the new requirements for exemption under sec_501 it states effective date- in general- except as provided in paragraph the amendments made by this section shall apply to taxable years beginning after date transition rule for companies in receivership or liquidation- in the case of a company or association which-- a for the taxable_year which includes date meets the requirements of sec_501 of the internal_revenue_code_of_1986 as in effect for the last taxable_year beginning before date and b on date is in a receivership liquidation or similar proceeding under the supervision of a state court the amendments made by this section shall apply to taxable years beginning after the earlier of the date such proceeding ends or date was not involved in a court ordered liquidation during or form 886-arrev department of the treasury - internal_revenue_service page -4- ieteygaal 886a department of the treasury - internal_revenue_service name of taxpayer org explanation of items schedule no or exhibit year period ended 20xx 20xx therefore for the years beginning january exempt status under sec_501 did not qualify for tax if years beginning date what are the tax consequences does not qualify for tax exempt status for since years beginning january the year beginning january did not qualify for tax exempt status under sec_501 for the filing of the forms was incorrect for should have filed forms 1120-pc sec_831 discusses tax on insurance_companies other than life_insurance_companies sec_831 states as a general_rule taxes computed as provided in sec_11 shall be imposed for each taxable_year on the taxable_income of every insurance_company other than a life_insurance_company sec_831 provides an alternative_tax for certain small companies it states in sec_831 that in general in lieu of the tax otherwise applicable under subsection a there is hereby imposed for each taxable_year on the income of every insurance_company to which this subsection applies a tax computed by multiplying the taxable_investment_income of such company for such taxable_year by the rates provided in sec_11 sec_831 discusses the companies to which this subsection applies a in general this subsection shall apply to every insurance_company other than life including interinsurers and reciprocal underwriters if- i ii the net written premiums or if greater direct written premiums for the taxable_year do not exceed dollar_figure and such company elects the application of this subsection for such taxable_year the election under clause ii shall apply to the taxable_year for which made and for all subsequent taxable years for which the requirements of clause are met such election once made may be revoked only with the consent of the secretary regulations regs a discusses the time for making elections under i described in paragraph a of this section must be made by the later of- it states in general that except as otherwise provided in this section the elections form 886-a crev department of the treasury - internal_revenue_service page -5- department of the ‘treasury - internal_revenue_service eae 886a name of taxpayer org schedule no or exhibit year period ended 20xx 20xx explanation of items a the due_date taking into account any extensions of time to file obtained by the taxpayer of the tax_return for the first taxable_year for which the election is effective or b date in which case the election generally must be made by amended_return regs a mentioned above includes sec_831 regs a describes the manner of making elections it states except otherwise provided in this section the elections described in paragraph a of this section must be made by attaching a statement to the tax_return for the first taxable_year for which the election is to be effective based on the code and regulation sections above is not entitled to the relief under b for years under examination and for any future year until they decide to file the election the election has never been filed either with the form_990 or separately the election was filed and all subsequent years the election can not be made retroactive any election filed now or in the future would only be effective for the year if the tax exempt status is revoked how will it affect future years the tax exempt status should be revoked for the years beginning date form 1120-pc is required for each year and all future years where qualify for exemption if future years it may be allowed to file the form_990 for each year they qualify as a self- declared entity otherwise form 1120-pc would be required any year in the future that the form 1120-pc is required is allowed to make an election under sec_831 once the election is made it is effective for the year the election is made and for all future years that the form 1120-pc is required the election can not be made retroactive meets the requirements under sec_501 in does not taxpayer’s position unknown at the time of this writing summary it is the governments position based on the above facts law and analysis that the tax exemption status of org for the years beginning january 20xx should be revoked based on not meeting the qualifications for exemption under sec_501 form 1120-pc would be required to be filed for any year where org does not qualify for exemption under sec_501 form 886-a rev department of the treasury - internal_revenue_service page -6-


t c memo united_states tax_court ruth e neal petitioner v commissioner of internal revenue respondent docket no filed date j larry broyles for petitioner edwina l jones for respondent memorandum findings_of_fact and opinion swift judge the issue for decision is whether petitioner is entitled to equitable relief from joint_and_several_liability under sec_6015 with respect to the following unpaid federal income taxes that are attributable to income earned by petitioner’s former spouse as an anesthesiologist year amount dollar_figure big_number big_number unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and are so found at the time the petition was filed petitioner resided in evans georgia in the late 1960s petitioner graduated with a b s in chemistry from xavier university located in new orleans louisiana in may of petitioner graduated with a medical degree from howard university college of medicine located in washington d c after graduating from medical school petitioner completed a 1-year internship and a 3-year radiology residency also at howard university hospital on date petitioner and alimam neal alimam were married at the time of their marriage petitioner wa sec_27 and alimam wa sec_28 years old this marriage was petitioner's first and alimam's second alimam also obtained a medical degree and in completed his medical residency in the department of anesthesiology at walter reed army medical center located in washington d c in at the end of petitioner's and of alimam’s medical residencies petitioner and alimam moved to augusta georgia where petitioner has been employed full time as a radiologist at the hospital affiliated with the medical college of georgia and since as a member_of_the_faculty at the medical college of georgia in petitioner received the georgia state medical association's medallion its highest honor for exemplary medical service and community contributions for years after moving to georgia in as part of his commitment to the army relating to the costs of his medical school education alimam was employed at the dwight david eisenhower army medical center as an anesthesiologist in after completing his commitment to the army alimam left military service and worked at the medical college of georgia for year and thereafter established his own medical practice from through the late 1990s including the years at issue herein alimam has maintained his own medical practice with a specialty in anesthesiology in and petitioner and alimam’s three children were born during the years at issue herein petitioner’s only significant source_of_income was her salary from her employment as a radiologist and as a faculty_member at the medical college of georgia each month petitioner’s salary was deposited into a separate checking account that she maintained during the years at issue herein alimam received income from his medical practice and from rental real_estate which real_estate he separately owned as discussed below during most of the years of their marriage including the years at issue herein petitioner herself from her income paid most of the family_expenses alimam paid only a limited portion of the family_expenses and alimam spent an exorbitant amount of his money on personal investments and other nonfamily matters using her income petitioner paid her own personal expenses one-half of the mortgage on the family residence and most of the expenses of the three children including the costs of the children’s clothing and school supplies private school tuition and various extracurricular activities such as football soccer gymnastics piano and ballet using her income petitioner also purchased the groceries and other household supplies petitioner during the years at issue private school tuition for the three children totaled dollar_figure a month spent little on herself and essentially all of petitioner’s income in each year was spent on family_expenses other than a mandatory state retirement fund to which petitioner contributed petitioner does not have significant savings using his income alimam generally paid the other half of the monthly mortgage the household utility bills payments due on the various cars he purchased the payments due on petitioner’s one car and his many personal expenses throughout their marriage petitioner and alimam maintained separate checking accounts and generally the monthly mortgage payments were made with checks written by alimam in alimam filed for bankruptcy petitioner also signed the bankruptcy petition at the time of the above bankruptcy alimam inaccurately told petitioner that the above bankruptcy and their poor financial situation were caused by various tax_shelter deductions which alimam had claimed on their joint federal_income_tax returns and which had been audited and disallowed by respondent resulting in large tax deficiencies in fact alimam and petitioner’s bankruptcy and tax problems related significantly to unpaid taxes attributable to alimam’s income from his medical practice around the same time petitioner had heard from friends and medical colleagues that they also had claimed tax_shelter deductions that had been disallowed by respondent and petitioner believed alimam’s explanation as to the reason for their financial difficulties and for the bankruptcy petition that was filed during the hearings relating to the above bankruptcy petitioner first learned that alimam had purchased in his own name among other assets a boat a villa in colorado six or seven cars and expensive fine art alimam had not informed petitioner of any of these purchases this first bankruptcy case was closed on date the record is unclear as to the resolution of this bankruptcy case a number of times during the years at issue due to alimam’s failure to pay household utility bills the family’s utilities were shut off and on one occasion in order to keep the utilities on petitioner pawned a rolex watch alimam had given her on date alimam again filed for bankruptcy and again petitioner signed this bankruptcy petition this time alimam inaccurately told petitioner that this second bankruptcy was caused by another audit by respondent in which respondent disallowed expenses claimed on their joint federal_income_tax returns filed in the early 1990s relating to alimam’s medical practice listed below are the assets included in the bankruptcy_estate and an indication of whether the assets at that time were held in the name of petitioner in the name of alimam or jointly the bankruptcy documents in evidence do not indicate whether the dollar amounts indicated for the assets reflect the estimated value or the cost of the assets asset real_property - martinez ga real_property - quincy fl real_property - augusta ga real_property - hilton head island sc checking accounts individual_retirement_account state retirement_plan mercedes automobile mercedes automobile dodge station wagon automobile ford ltd automobile ford thunderbird automobile mercedes automobile household goods clothes furs jewelry total petitioner alimam joint -- dollar_figure -- -- -- dollar_figure -- big_number -- -- -- -- -- -- big_number big_number -- -- dollar_figure dollar_figure dollar_figure -- dollar_figure -- big_number -- big_number -- -- big_number -- -- -- -- -- big_number -- -- -- big_number -- -- -- leased assets this second bankruptcy case was closed on date and the record is unclear as to the resolution of this bankruptcy case at some point prior to petitioner learned that alimam was having a number of extramarital affairs including a long- term affair with a woman whom with her child alimam financially supported on date as a result of alimam’s mismanagement of the marital finances including his failure to pay the taxes at issue herein alimam’s extramarital affairs and other marital problems petitioner with their three children left the marital home petitioner and alimam were divorced on date in the divorce decree of the superior court of columbia county state of georgia alimam was ordered to pay all outstanding joint federal income taxes as well as any other future tax_liability having been incurred during the course of the parties’ marriage in the divorce proceeding petitioner was not awarded alimony or any support payments from alimam alimam was ordered to pay monthly child_support of dollar_figure for the three children which child_support alimam paid only sporadically alimam was once incarcerated for failure to pay such child_support throughout their marriage and in spite of petitioner’s requests alimam did not provide to petitioner any financial information relating to his medical practice and petitioner was never shown any books_and_records relating to alimam’s medical practice during the years in issue all of petitioner’s annual income and her withheld taxes were reflected on forms w-2 wage and tax statement which petitioner gave to alimam each year prior to the preparation by alimam’s accountant of their joint federal_income_tax returns the taxes withheld from petitioner’s salary each year reflected essentially the total federal_income_tax liabilities that would have been due on petitioner’s income had petitioner filed separate federal_income_tax returns during the years at issue alimam did not have any taxes withheld from his income and alimam did not make any estimated_tax payments relating to his income in connection with the preparation of petitioner and of alimam’s joint federal_income_tax return for each of the years through alimam would gather the information relevant to the preparation of the tax returns including the forms w-2 that petitioner provided to him and take the information to his accountant the accountant would prepare the tax returns and give them to alimam alimam would sign the tax returns and then generally give the tax returns to petitioner to sign after which alimam would take the tax returns back from petitioner and mail to respondent the signed tax returns on their and federal_income_tax returns however alimam apparently signed petitioner’s signature year after year from through and without petitioner’s knowledge and also apparently without his accountant’s knowledge in his mailing to respondent of petitioner and alimam’s tax returns alimam would not include any payment of the tax balances shown to be due on the tax returns as filed which balances related to unpaid taxes attributable to alimam’s income from his medical practice specifically with regard to the years at issue herein on date alimam untimely mailed to respondent petitioner and alimam’s joint federal_income_tax return on which return petitioner and alimam’s total joint federal_income_tax liability was reflected as dollar_figure and on which return the only taxes shown as paid were the dollar_figure that petitioner had paid through income_tax_withholding on date alimam untimely mailed to respondent petitioner and alimam’s joint federal_income_tax return on which return petitioner and alimam’s total joint federal_income_tax liability was reflected as dollar_figure and on which return the only taxes shown as paid were the dollar_figure that petitioner had paid through income_tax_withholding on date alimam timely mailed to respondent petitioner and alimam’s joint federal_income_tax return on which return petitioner and alimam’s total joint federal_income_tax liability was reflected as dollar_figure and on which return the only taxes shown as paid were the dollar_figure that petitioner had paid through income_tax_withholding petitioner did not meet alimam’s accountant until sometime in soon after which petitioner and alimam separated petitioner and alimam’s joint federal_income_tax returns for and were accurately prepared by alimam’s accountant and respondent does not assert any_tax deficiencies in the taxes reported thereon petitioner understood and assumed that alimam when he mailed the above tax returns to respondent for and was including a payment for the full tax balances shown to be due as indicated above however alimam did not include any payments in his mailing to respondent of the and joint federal_income_tax returns twice petitioner’s wages or bank account were levied in partial collection of the above unpaid joint federal income taxes only in after separating from alimam and after speaking to alimam’s accountant and lawyer for the first time did petitioner learn that alimam had filed the above federal_income_tax returns without including payments of the tax balances shown to be due thereon on date petitioner made a timely election under sec_6015 for equitable relief from joint_and_several_liability relating to the above and unpaid taxes attributable to alimam’s income on date respondent issued a notice_of_determination denying petitioner’s request for equitable relief when notified of the instant court_proceeding alimam did not intervene and alimam does not challenge petitioner’s eligibility for equitable relief from joint_and_several_liability alimam was not called as a witness at trial as of the time of trial petitioner no longer has contact with alimam and alimam apparently is no longer licensed to practice medicine reflected in the table below for the years at issue are comparisons of petitioner’s and of alimam’s separate earned_income estimates of petitioner’s and of alimam’s separate federal_income_tax liabilities and the federal_income_tax payments that were made for each year reflecting primarily petitioner’s withheld taxes as well as the total amount of petitioner and of alimam’s joint federal_income_tax liability reported on the tax returns and not challenged by respondent amounts estimated for the separate sep tax_liabilities of petitioner and of alimam are based on respondent’s computations of the portions of petitioner and of alimam’s total joint federal income taxes for and that are attributable separately to petitioner and to alimam petitioner earned_income est sep year tax liab dollar_figure dollar_figure big_number big_number big_number big_number tax_payments dollar_figure big_number big_number alimam est sep earned_income tax liab dollar_figure dollar_figure big_number big_number big_number big_number tax_payments joint total_tax liability dollar_figure big_number big_number petitioner did not significantly benefit from alimam’s failure to pay the tax balances shown to be due on their joint federal_income_tax returns for and subsequent years petitioner has continued to have income taxes withheld from her salary has timely filed her separate individual federal_income_tax returns and has paid in full her federal_income_tax liabilities petitioner continues to support her three children financially two of whom are adults and not currently attending school on account of the bankruptcies unpaid tax_liabilities resulting poor credit and other financial problems arising from her marriage to alimam petitioner currently resides in a home and drives a car owned by friends since her divorce from alimam petitioner has not taken vacations either with the children or separately opinion generally taxpayers filing joint federal_income_tax returns are jointly and severally liable for all taxes due thereon sec_6013 taxpayers however may be relieved of joint_and_several_liability under limited circumstances described in sec_6015 c and f petitioner alleges that on the particular facts and circumstances of this case respondent abused his discretion under sec_6015 in denying equitable relief to petitioner from joint_and_several_liability respondent raises an issue as to the admissibility into evidence herein of facts not presented to respondent’s appeals_office during the administrative hearing asserts that he did not abuse his discretion in denying petitioner relief from joint_and_several_liability and for the first time in his opening post- trial brief raises a jurisdictional question as to whether we may review in this underpayment case respondent’s denial of sec_6015 relief in 122_tc_32 we held that we are not limited to a consideration of the facts presented to respondent’s appeals_office and in ewing sec_6015 provides equitable relief --under procedures prescribed by the secretary if-- taking into account all the facts and circumstances it is inequitable to hold the individual liable for any unpaid tax or any deficiency or any portion of either and relief is not available to such individual under subsection b or c the secretary may relieve such individual of such liability in respondent’s pretrial memorandum in respondent’s opening statement at trial throughout the trial and in respondent’s reply brief respondent makes no mention of the jurisdictional question only in respondent’s opening posttrial brief does respondent raise this jurisdictional question and only by way of an obscure sentence in the middle of arguments relating to other issues respondent does not identify this jurisdictional question as a discrete issue in this case and respondent provides no argument on this jurisdictional question v commissioner 118_tc_494 we held that we have jurisdiction to review claims for sec_6015 relief similar to petitioner’s claim under sec_6015 whether it would be inequitable for a requesting spouse to be held jointly liable for unpaid taxes requires a careful consideration of all possible factors that are relevant to the inquiry 101_fedappx_34 6th cir quoting 116_f3d_172 6th cir revg t c memo affg 119_tc_306 revproc_2000_15 sec_4 2000_1_cb_447 sets forth guidelines or factors to consider in deciding claims for equitable relief under sec_6015 as follows whether the requesting spouse will suffer economic hardship whether the requesting spouse at the time the return was signed had knowledge or reason to know that the liability reported on the return would not be paid whether the nonrequesting spouse has a legal_obligation to pay the unpaid joint federal income taxes whether the underpayments of joint federal income taxes are attributable to the nonrequesting spouse whether the spouses are separated or divorced whether the requesting spouse suffered abuse by the nonrequesting spouse whether the requesting spouse received significant benefit beyond normal support as a result of the underpayments of joint federal income taxes and whether the requesting spouse made a good_faith effort to comply with the federal_income_tax laws in years following the years to which the request for relief relates generally no single factor will control whether equitable relief will be granted in a particular case rather all relevant facts will be considered and weighed appropriately and the above guidelines are not intended to be exhaustive ewing v commissioner t c pincite revproc_2000_15 sec_4 for example other factors that have been considered by this court include whether an understatement or underpayment_of_tax was the result of concealment overreaching or other wrongdoing on the part of the nonrequesting spouse see eg ewing v commissioner t c pincite in lopez v commissioner tcmemo_2005_36 relief was not granted because although various facts weighed in favor of the taxpayer the taxpayer’s knowledge and financial resources weighed heavily against granting relief in keitz v commissioner tcmemo_2004_74 relief was granted because the taxpayer’s lack of knowledge of the underpayment outweighed the absence of economic hardship as listed below in this case it has been established that most of the guidelines or factors listed in revproc_2000_15 supra weigh in favor of granting petitioner relief from joint tax_liability for and with regard to the unpaid taxes attributable to alimam’s income from his medical practice under the divorce decree alimam has a legal_obligation to pay the unpaid taxes due for the years petitioner and alimam were married including and essentially all of the underpayments at issue herein are attributable to alimam petitioner and alimam are currently divorced petitioner did not receive a significant benefit from the unpaid taxes and petitioner has throughout her marriage with alimam and for subsequent years made a good_faith effort to comply with the tax laws with regard to her income the two remaining factors whether petitioner had knowledge of or reason to know of alimam’s nonpayment of the taxes due and whether petitioner would suffer economic hardship if not granted relief from joint_and_several_liability are more difficult questions petitioner’s knowledge of or reason to know of the nonpayment of the tax in determining whether petitioner at the time the tax returns were signed had knowledge or reason to know that the tax reported on the returns would not be paid relevant factors include petitioner’s level of education petitioner’s involvement in the family’s financial affairs petitioner’s lifestyle standard of living and spending patterns and alimam’s evasiveness and deceit concerning the marital finances see levy v commissioner tcmemo_2005_92 citing 18_f3d_1521 11th cir revg and remanding tcmemo_1991_463 872_f2d_1499 11th cir affg t c memo respondent argues that petitioner should be regarded as having had constructive knowledge of the nonpayment by alimam of the taxes reflected on petitioner and alimam’s and joint federal_income_tax returns respondent argues that the unpaid taxes contributing to the bankruptcy filings and the garnishment of petitioner’s wages should have put petitioner on notice that alimam would not pay the taxes for and to the contrary alimam misrepresented to petitioner that the unpaid taxes for years before related to tax deficiencies that had been determined by respondent which explanation petitioner believed and which belief we find reasonable and credible respondent argues that petitioner should be treated as having had constructive knowledge that the taxes reflected on the tax returns for and would remain unpaid because she had a duty_of inquiry on the particular facts of this case however where among other things filed tax returns accurately reflected the correct_tax liabilities nonpayment of the balances of the taxes shown to be due on the returns was concealed by alimam and petitioner was not otherwise put on notice of the nonpayment we will not treat petitioner as having had constructive knowledge of the unpaid taxes relating to alimam’s income economic hardship generally economic hardship for purposes of sec_6015 is defined as the inability to meet basic living_expenses 101_fedappx_34 6th cir affg t c memo citing sec_301_6343-1 proced admin regs petitioner argues that in spite of the salary she receives as a medical doctor she would suffer economic hardship if not granted equitable relief herein petitioner notes that she supports her youngest child and her two older children that each month she just breaks even with her finances and that she has a poor credit rating although for many years petitioner has experienced financial problems as the result of alimam’s conduct and although petitioner does not have any significant equity in any assets the facts before us are inconclusive as to the degree to which petitioner would suffer economic hardship if she were denied sec_301_6343-1 proced admin regs provides-- economic hardship-- i general_rule the levy is creating an economic hardship due to the financial condition of an individual taxpayer this condition applies if satisfaction of the levy in whole or in part will cause an individual taxpayer to be unable to pay his or her reasonable basic living_expenses relief from joint liability herein we note particularly that no financial records as to petitioner’s net_worth were placed in evidence conclusion taking into account all of the facts and circumstances before us in this case and balancing the above relevant guidelines and factors we conclude that it would be inequitable to hold petitioner liable for the balances due relating to petitioner and alimam’s and joint federal_income_tax liabilities and that are attributable to alimam we note particularly the following alimam’s legal_obligation relating to the unpaid taxes the fact that the taxes in issue are attributable to alimam’s income alimam’s deception with regard to his investments and nonpayment of the taxes due the absence of any significant benefit to petitioner from alimam’s failure to pay the taxes alimam’s exclusion of petitioner from the tax_return preparation process and from his financial affairs petitioner’s payment of the majority of the family’s expenses and her continued support of the children and petitioner’s payment every year of the federal income taxes attributable to her income on the facts of this case under sec_6015 petitioner is entitled to equitable relief from joint_and_several_liability with respect to the unpaid taxes at issue herein to reflect the foregoing decision will be entered under rule the rule computation in this case is to take into account the nominal unpaid taxes for and that appear to be attributable to petitioner’s income


internal_revenue_service number release date index number ----------------------------------- ----------------------------------------- ----------------------------- -------------------------- - department of the treasury washington dc person to contact ------------------ id no ------------- telephone number --------------------- refer reply to cc psi b04 - plr-139031-03 date april re ------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------- legend grandparent a ------------------------ grandparent b ----------------- child a -------------------- child b ------------------------ grandchild a -------------------------- grandchild b ---------------------------- grandchild c ---------------------- great-grandchild a ------------------ great-grandchild b ----------------------- great-grandchild c ------------------------ great-grandchild d ---------------------- great-grandchild e -------------------------- great-grandchild f -------------------- great-grandchild g ------------------------------ great-grandchild h -------------------- great-grandchild i ---------------------------- trust a ------------------------------------------------------- grandchild a’s trust a ---------------------------------------------------------------- ------------------------------- grandchild b’s trust a ----------------------------------------------------------------- ------------------------------- grandchild c’s trust a ----------------------------------------------------------- ------------------------------- plr-139031-03 trust b ------------------------------------------------------------- grandchild a’s trust b ---------------------------------------------------------------- ------------------------------- grandchild b’s trust b ----------------------------------------------------------------- ------------------------------- grandchild c’s trust b ----------------------------------------------------------- ------------------------------- corporate trustee ----------------------------------------- individual trustee a ---------------------- individual trustee b -------------------------- bank ---------------------------------------- fund ------------------------------------------- date ------------------------ date ---------------------------- date ------------------------ date -------------------- date ------------------------- state --------- statute -------------------------------------------------------------------------------- court ------------------------------------------------ dear -------------- this responds to a letter from your authorized representative dated date and prior correspondence requesting rulings regarding the federal income and generation-skipping_transfer gst tax consequences of a proposed severance of certain trusts facts grandparent a died on date survived by his spouse grandparent b who subsequently died on date grandparent a and grandparent b had two children child a and child b child a had three children grandchild a grandchild b and grandchild c child a died on date child b never married and never had children date date and date are prior to date paragraph a_trust a was to be held for the benefit of grandparent b during her life pursuant to article iii paragraph b on grandparent b’s death trust a was divided into equal shares for the benefit of each child of child a then living therefore following the death of grandparent b on date trust a was divided into grandchild a’s trust a grandparent a’s will provided for the creation of trust a under article iii the facts submitted and representations made are as follows under article iii paragraph e of trust a the trustees may distribute such under article iii paragraph d until the complete distribution of a grandchild’s plr-139031-03 grandchild b’s trust a and grandchild c’s trust a each share has been administered as a separate trust trust or until the grandchild’s prior death so much of the net_income is to be distributed to that grandchild as the trustees in their absolute discretion deem reasonably necessary for the grandchild’s comfortable support education and welfare the remaining income may be distributed to any one or more of grandparent a’s descendants except child a and child b and their spouses as the trustees in their absolute discretion deem advisable any remaining income is to be added to the principal of the share principal of a grandchild’s trust only to that grandchild in their absolute discretion as the trustees deem advisable each grandchild has a limited testamentary_power_of_appointment under paragraph e to direct distribution of that grandchild’s trust share among the grandchild’s lawful descendants in such proportions and subject_to such trusts and conditions as such grandchild directs in default thereof upon a grandchild’s death the trustee is directed to distribute the grandchild’s share per stirpes to grandparent a’s lawful descendants with a special provision for the widow of either grandchild a and grandchild b who should die without leaving a lawful descendant who survives such grandchild paragraph h of article iii contains a provision mandating the termination and distribution of each grandchild’s trust no later than years after the death of the last survivor of a listed class of individuals living at the death of grandparent a and in what proportions any receipts or disbursements shall be credited charged to or apportioned between income and principal date under trust b a separate trust was created for each grandchild of grandparent b grandchild a’s trust b grandchild b’s trust b and grandchild c’s trust b pursuant to paragraph c of article i of trust b until the death of the grandchild the trustee may distribute so much of the net_income to that grandchild as the trustee in its absolute discretion deems advisable for the grandchild’s comfortable support education welfare and happiness the trustee may either accumulate the remaining net_income or distribute so much of it to any one or more of grandparent b’s lawful descendants and their spouses in such proportions as the trustee deems advisable paragraph c also provides that the trustee may only distribute principal to the grandchild of such share under paragraph d the trustee may add undistributed_net_income to principal or may retain such income in an accumulated income account for grandparent b created trust b an irrevocable_trust on date date is prior to paragraph n of article iii authorizes the trustee inter alia to determine whether pursuant to the terms of trust b each grandchild has a limited testamentary paragraph g of article i contains a provision mandating the termination and plr-139031-03 possible future distribution to beneficiaries from time to time eligible to receive current distributions of net_income power_of_appointment under paragraph e of article i to direct distribution of such grandchild’s trust among grandparent b’s lawful descendants in such proportions and subject_to such trusts and conditions as such grandchild directs in default of appointment upon the grandchild’s death the trustee is directed to distribute the trust per stirpes to the primary beneficiary’s lawful descendants or if none per stirpes to grandchild b’s lawful descendants with a special provision for the widow of either of grandchild a and grandchild b who should die without leaving a lawful descendant who survives such grandchild provided however that if the trustee deems any descendants of grandparent b to be incapable of using to good advantage the share otherwise to be so received the trustee may allocate such trust among any of the other descendants of grandparent b in such proportions as the trustee deems proper distributions of each trust under trust b no later than years after the death of the last survivor of a listed class of individuals living at the date of execution of the agreement creating trust b to determine whether and in what proportions any receipts or disbursements shall be credited charged or apportioned between income and principal trust b a significant portion of the assets of each of the current trusts consists of interests in common trust funds ctfs as defined in sec_584 maintained by bank rulings concluding that the entry by court of an order authorizing the trustee to allocate capital_gain receipts to income and charge certain income expenses to corpus and the trustees’ exercise of discretion in accordance with that court order will not adversely affect the status of grandchild a’s trust a grandchild a’s trust b grandchild b’s trust a grandchild b’s trust b grandchild c’s trust a and grandchild c’s trust b as exempt from gst tax each grandchild has three children the great-grandchildren of grandparent a and grandparent b the parties propose to divide each grandchild’s separate trust under trust a and trust b into three equal separate new trusts collectively known as the new trusts the parties propose to name each of the nine new trusts for one of the nine great-grandchildren specifically the trusts will be severed as follows the trustees of trust a are bank and two individuals bank is the sole trustee of paragraph l of article i provides that the trustee shall have the power inter alia on date the internal_revenue_service issued private letter rulings the prior grandchild a’s trust a will be divided into three equal trusts one each for great-grandchild a great-grandchild b and great-grandchild c grandchild a’s plr-139031-03 trust b will also be divided into three equal trusts one each for great-grandchild a great-grandchild b and great-grandchild c grandchild b’s trust a will be divided into three equal trusts one each for great-grandchild d great-grandchild e and great-grandchild f grandchild b’s trust b will also be divided into three equal trusts one each for great-grandchild d great-grandchild e and great-grandchild f grandchild c’s trust a will be divided into three equal trusts one each for great-grandchild g great-grandchild h and great-grandchild i grandchild c’s trust b will also be divided into three equal trusts one each for great-grandchild g great-grandchild h and great-grandchild i the trustees represent that each new trust will be separately managed and all of the trust provisions of each new trust will remain identical to the terms of the original trust from which it was derived prior to the severance the primary beneficiary of each new trust will still be the grandchild who was the original primary beneficiary prior to severance and who will also be the only eligible recipient of principal during that grandchild’s life the trustees’ discretionary powers with respect to undistributed_income will be unchanged including the permissible beneficiaries the trust term and the provisions regarding disposition of trust assets at termination will also be the same administered the assets of each new trust will be invested separately and titled solely in the name of that trust the new trusts will each file separate_income tax returns separately track state law accounting_income and keep separate trust records the trustees represent that the principal purposes of severing the trusts are to accommodate the differing income distribution needs and differing investment objectives of the descendants of the grandchildren and that there is no tax_avoidance purpose to the proposed severance to make the discretionary income distributions only to the grandchild and to the great- grandchild for whom the new trust is named and that great-grandchild’s family you represent that there have been no additions to trust a or trust b since date the trusts are governed by the laws of state you also represent that statute of state law gives the trustees the power to sever the trusts as proposed rulings requested into the new trusts under state law will not adversely affect the trusts’ status as exempt from the gst tax under chapter and each new trust created as a result of the severance will remain exempt from the gst tax the trustee subject_to asset availability and fiduciary duties intends to continue the exercise of the trustee’s power to sever each trust on a fractional basi sec_3 the exercise of the trustee’s power to sever each trust and transfer the trusts’ plr-139031-03 the exercise of the trustee’s power to sever each trust on a fractional basis into the new trusts in accordance with state law will not cause the original trusts the new trusts or their beneficiaries to realize gain_or_loss from the sale_or_other_disposition of property under sec_1001 units of participation in fund on a fractional in-kind basis into the new trusts in accordance with state law will not cause the current trusts the new trusts or their beneficiaries to realize gain_or_loss from the sale_or_exchange of a participating interest in a common_trust_fund under sec_584 as a result of such severance or transfer_tax purposes exercise of fiduciary discretion by the trustee of a new trust to credit realized capital_gains of that trust to income and to charge income expenses of that trust to principal in a manner consistent with the prior rulings will not adversely affect that trust’s status as exempt from the gst tax under chapter ruling_request no - gst tax the holding of the prior rulings will apply to each of the new trusts and the each of the new trusts will be treated as a separate trust for federal income sec_2601 imposes a tax on every generation-skipping_transfer under ' a of the tax_reform_act_of_1986 act the gst tax is generally applicable to generation-skipping transfers made after date however under ' b a of the act and ' b i of the generation-skipping_transfer_tax regulations the tax does not apply to any generation-skipping_transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date under ' b ii any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in his or her gross_estate under ' or sec_2042 if the settlor had died on date under sec_2602 the amount of tax imposed under sec_2601 is determined by multiplying the taxable_amount by the applicable_rate the taxable_amount of a taxable_distribution is the amount received by the transferee sec_2621 of a taxable_termination is the amount of property with respect to which there was a termination sec_2622 and of a direct_skip is the amount received by the transferee sec_2623 under sec_2641 the term applicable_rate means the product of the maximum_federal_estate_tax_rate in the year that the generation-skipping_transfer occurs and the inclusion_ratio under sec_2642 the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer i sec_1 minus the applicable_fraction under sec_2642 in plr-139031-03 general the numerator of the applicable_fraction is the gst_exemption amount allocated to the property transferred and the denominator is the value of the property transferred under sec_2631 every individual is allowed a gst_exemption amount which may be allocated by the individual or the individual’s executor to any property with respect to which the individual is the transferor sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax will not cause the trust to lose its exempt status sec_26_2601-1 provides that a modification will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in ' than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer sec_26_2601-1 example illustrates a situation where a_trust that is otherwise exempt from the gst tax authorizes the trustee to distribute income and principal at the trustee s discretion for the benefit of a and b and their respective issue on the death of the last to die of a and b the corpus is to be distributed to the issue of a and b per stirpes pursuant to a court order the trust is divided equally into two trusts one for the benefit of a and a s issue and one for the benefit of b and b s issue the example concludes that under the facts presented the division of the trust into two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in ' than the person or persons who held the beneficial_interest prior to the division and the division does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust accordingly the two partitioned trusts will not be subject_to the provisions of chapter trust created under trust a and trust b into three equal separate new trusts with one trust named for each great-grandchild all of the trust provisions of each new trust will remain identical to the terms of the original trust from which it was derived prior to the severance the primary beneficiary of each new trust will still be a grandchild for whom the original trust was established and that grandchild will also be the only eligible recipient of principal during that grandchild’s life the trustees’ discretionary powers with respect to undistributed_income will be unchanged including the permissible beneficiaries the trust term and the provisions regarding disposition of trust assets at in the present case the parties propose to divide each grandchild’s separate sec_1001 provides that the gain from the sale_or_other_disposition of accordingly based on the facts submitted and the representations made we sec_61 provides that gross_income includes gains derived from dealings plr-139031-03 termination will also be the same therefore the proposed division will not shift a beneficial_interest in the trusts to any beneficiary who occupies a lower generation than the person or persons who held the beneficial_interest prior to the division in addition the division does not extend the time for vesting of any beneficial_interest beyond the period provided for in the original trusts conclude that the exercise of the trustee’s power to sever the trusts on a fractional basis into the new trusts under state law will not adversely affect the trusts’ status as exempt from the gst tax under chapter and each new trust created as a result of the severance will remain exempt from the gst tax ruling_request no -gain or loss in property and under sec_61 from an interest in trust property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in such section for determining loss over the amount_realized of property shall be the sum of any money received plus the fair_market_value of the property other than money received under c except as otherwise provided in subtitle a the entire amount of the gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained a partition of jointly owned property is not a sale_or_other_disposition of property where the co-owners of the joint property sever their joint_interests but do not acquire a new or additional interest as a result of the transaction thus neither gain nor loss is realized on a partition see revrul_56_437 1956_2_cb_507 issue of when a sale_or_exchange has taken place that results in a realization of gain_or_loss under sec_1001 in cottage savings a financial_institution exchanged its interest in one group of residential mortgage loans for another lender’s interests in a different group of residential mortgage loans the two groups of mortgages were considered substantially identical by the agency that regulated the financial_institution sec_1001 states that the amount_realized from the sale_or_other_disposition 499_us_554 concerns the under state law the trustee has the power to sever any trust estate on a in cottage savings u s pincite the court concluded that sec_1_1001-1 it is consistent with the supreme court’s opinion in cottage savings to find that plr-139031-03 reasonably interprets sec_1001 and stated that an exchange of property gives rise to a realization event under sec_1001 if the properties exchanged are materially different in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent cottage savings u s pincite the court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans cottage savings u s pincite fractional basis into or more separate trusts for any reason a separate_account or trust created by severance or segregation shall be treated as a separate trust for all purposes from and after the date on which the severance or segregation is effective and shall be held on terms and conditions that are substantially equivalent to the terms of the trust from which it was severed or segregated so that the aggregate interests of each beneficiary in the severed trusts are substantially equivalent to the beneficiary’s interests in the trust before severance see statute the interests of the beneficiaries of the new trusts will not differ materially from their interests in the original grandchild trusts in the proposed transaction the original trusts will be severed in accordance with state law on a pro_rata basis except for the changes described above all other provisions of the new trusts will remain unchanged accordingly the proposed transaction will not result in a material difference in_kind or extent of the legal entitlements enjoyed by the beneficiaries and no gain_or_loss is recognized on the partition of the trusts for purposes of sec_1001 ruling_request no - common_trust_fund trust fund ctf means a fund maintained by a bank exclusively for the collective investment and reinvestment of moneys contributed thereto by the bank in its capacity as a trustee executor administrator or guardian admission or withdrawal of a participant the admission of a participant shall be treated with respect to the participant as the purchase of or an exchange for the participating interest the withdrawal of any participating interest by a participant shall be treated as a sale_or_exchange of such interest by the participant in a ctf from one trust of which the taxpayer is the sole beneficiary to another trust of which the taxpayer is also the sole beneficiary does not constitute a withdrawal of a sec_584 provides that for purposes of subtitle a the term common revrul_60_256 1960_2_cb_193 holds that a transfer of units of participation sec_584 provides that no gain_or_loss shall be realized by the ctf by the based solely on the facts and representations submitted we conclude that the sec_643 provides that under regulations prescribed by the secretary two the primary purposes of establishing the new trusts are represented as being to plr-139031-03 participating interest within the meaning of sec_584 provided that no funds change hands there is no surrender of indicia of ownership nothing is received by the taxpayer and the trustee of the two trusts is the same under such circumstances the basis of the participating units in the hands of the transferee trust is the same as it was in the hands of the transferor trust on the date of transfer transfer of the ctf participating interests from the current trusts to the new trusts does not constitute a withdrawal therefore no gain_or_loss will be realized by the ctf the current trusts the new trusts or any trust_beneficiary under sec_584 ruling_request no - sec_643 or more trusts shall be treated as one trust if such trusts have substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries and a principal purpose of such trusts is the avoidance of federal_income_tax accommodate the differing income distribution needs and investment objectives of the descendants of the grandchildren it is further represented that there is no tax_avoidance purpose in the establishment of the new trusts within the meaning of sec_643 determining whether avoidance of income_tax is a primary purpose of the establishment of the new trusts is a question of fact the determination of which must be deferred until the federal_income_tax returns of the parties involved have been examined by the office having examination jurisdiction over those income_tax returns administered and it is determined that tax_avoidance is not a primary purpose of the establishment of the new trusts each of the new trusts will be treated as a separate trust for federal_income_tax purposes ruling_request no - prior rulings sec_6110 provides that a taxpayer may not rely on a private_letter_ruling issued to another taxpayer see also dollar_figure of revproc_2004_1 2004_1_cb_1 in this case after the severance all trust provisions will remain identical to the terms of the original trust from which it was derived prior to the severance including paragraph n of article iii of trust a and paragraph l of article i of trust b the provisions subject_to the court order considered in the prior rulings accordingly based on the facts and representations we conclude that the holdings in the prior rulings will apply to each of the new trusts therefore the exercise of fiduciary discretion by the trustee of a new trust to credit realized capital_gains of that trust to income and to charge income expenses of that trust to principal in a manner consistent therefore provided that the new trusts are separately managed and plr-139031-03 with the prior rulings and the court orders upon which those rulings were based will not adversely affect that trust’s status as exempt from the gst tax under chapter except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely yours by_________________________ george l masnik branch chief branch office of the associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes cc


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 tege eoeg teb presp-144246-06 date date dear -------------- pursuant to sec_54 of the internal_revenue_code the code and notice_2005_98 2005_52_irb_1211 and after review of your application submitted on date including supplements thereto we have determined that the projects described in appendix a attached hereto are qualified for purposes of sec_54 and will be owned by one or more qualified borrowers we allocate authority to ----------------- ---------- the issuer a qualified issuer under sec_54 to issue up to dollar_figure------------- of clean renewable energy bonds crebs bonds issued pursuant to this allocation must be designated by the issuer as bonds for purposes of sec_54 for the projects described in appendix a up to the amount allocated for each project described in appendix a bonds so designated must be issued on or before date please be aware that in order for bonds to be crebs the applicable_requirements of the code including without limitation sec_54 notice_2005_98 and notice_2006_7 2006_10_irb_559 must be met please note that creb proceeds may be used to reimburse capital expenditures paid_by qualified borrowers for qualified projects only if the provisions of sec_54 are met if you have any questions with respect to this allocation please contact --------------------- -------- or -----------------------------of the office of division counsel associate chief_counsel tax-exempt and government entities on --------------------- not a toll-free call except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter for purposes of the renewable_electricity_production_credit under sec_45 of the code no inference may be drawn from this allocation that any project listed in appendix presp-144246-06 a is a qualified_facility or that electricity to be produced at such project s is electricity from a qualified_energy resource at a qualified_facility within the meaning of sec_45 this determination is directed only to the applicant named above sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any form 8038-g information_return for tax- exempt governmental obligations filed for bonds issued pursuant to this allocation the allocation contained in this letter is based upon information and representations submitted by the applicant for the creb allocation 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 application_for an allocation it is subject_to verification on examination sincerely assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities by timothy l jones senior counsel tax-exempt_bonds branch presp-144246-06 appendix a borrower name project type project location -------------------- wind facility -------------------- wind facility -------------------- wind facility ---------------------------------- ------------------------------------------------ ------------------------------------------------- -------------------------- -------------------------------------------- --------------------------- -------------------------------- ------------ -------------------------------- -------------------------------- -------------------------------- ---------------------- total amount allocated dollar_figure-------------- dollar_figure-------------- dollar_figure------------- dollar_figure------------------


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b09 - plr-125021-02 date date in re legend taxpayer property trust x y year year sec_2 camp date grantee dear we received your letter dated date and subsequent correspondence requesting rulings regarding application of the rules for a qualified_personal_residence_trust qprt under sec_2702 of the internal_revenue_code this letter responds to your request the facts and representations submitted are summarized as follows taxpayer proposes to transfer property to trust the terms of trust are intended to satisfy the requirements for a qualified_personal_residence_trust found in sec_25_2702-5 of the gift_tax regulations property consists of x acres of land approximately y acres of property have been cleared and contain taxpayer’s vacation residence a guesthouse a barn a boathouse two sheds and a large pier and dock property has a moderate topography and a mixed cover of predominantly softwood forest the shore frontage consists of ledge and rocky beach property is assessed and taxed as a single undivided parcel of plr-125021-02 land zoning restrictions limit property to residential and accessory uses other properties in the area are generally of a similar nature taxpayer and his family have used_property as a vacation residence and as a personal_residence for at least two weeks per year since the property was acquired in year taxpayer his family and occasional guests use the entire acreage as an extension of the land immediately surrounding the residence buildings ie for hiking picnicking wildlife watching enjoying scenic views etc during year sec_2 property was used during the summer months as a campsite for high school students participating in an educational program known as camp in each year that property was used as camp taxpayer received total consideration of one dollar dollar_figure under the term of a lease agreement entered into solely for purposes of satisfying liability concerns with respect to accidents and injuries incurred by participating students no commercial activities have been conducted on property for over years property is subject_to a perpetual conservation_easement entered into on date between taxpayer and grantee the easement provides that property may only be used for single-family educational and conservation purposes billboards multi-family units mobile homes and hotels are prohibited on property in addition no commercial activities may be conducted on property the easement also restricts the construction of new buildings alterations to the surface of property and limits the cutting of standing lumber a number of surrounding properties are also subject_to similar conservation easements paragraph a of the proposed trust provides that all net_income of the trust is to be distributed to taxpayer in quarter annual installments or more frequently upon termination of taxpayer’s term_interest for any reason the trustee is directed to distribute to taxpayer or the representatives of taxpayer’s estate any undistributed_net_income and the right to any accrued income not yet received paragraph b provides property is a personal_residence of taxpayer during taxpayer’s term_interest i any replacement residence that may be acquired will be property that qualifies as a personal_residence of taxpayer ii any repairs or improvements made are to be of such nature that the residence property then held can continue to qualify as a personal_residence iii the residence property is to be available for taxpayer’s use as a personal_residence and iv taxpayer has the right to use occupy and enjoy it without liability for rent when the residence property is no longer used for a personal_residence of taxpayer the qprt status of the trust will cease as to all property paragraph g governs the disposition of all trust property after any such cessation plr-125021-02 paragraph c provides the trustee will not i hold an interest in more than one residence property at a time ii hold any interest in any furniture furnishings or other tangible_personal_property located in or about or that may be used in connection with the residence property iii hold or acquire any assets of any kind other than the residence property except as permitted by paragraph sec_1 through f inclusive and applicable federal_law iv commute taxpayer’s term_interest v make any distributions of net_income or principal to any person other than taxpayer during taxpayer’s term_interest or vi use apply or otherwise deal with or dispose_of the residence property or any other asset of the trust otherwise than in accordance with the requirements of applicable federal_law the trustee may not sell or otherwise transfer any interest in any personal_residence held in the trust directly or indirectly to taxpayer taxpayer’s spouse or any controlled or other entity in any transaction that would result in the disqualification of the trust under applicable federal_law paragraph d provides that the trustee may receive or acquire and hold in separate identifiable accounts additions of cash not in excess of the amounts reasonably required for the following i real_estate_taxes assessments other expenses related to the residence property payments of interest and principal on any mortgage debt to which such property is subject and other expenses of the trust that already have been incurred or that are expected to be paid within six months after the addition made for this purpose ii the costs of any improvements to the residence property that are to be paid within the same period after any addition made for this purpose or iii contribution to the purchase by the trust of a replacement residence within three months after the date of any addition made for this purpose if and only if a contract to purchase the same is in effect before such date the trustee is authorized to apply any additions for the purposes for which they were acquired within the periods permitted by applicable federal_law at the end of each calender quarter trustee will determine whether the amount of cash held exceeds the amount permitted to be held under applicable federal_law and if so immediately distribute the excess to taxpayer in addition within thirty days after the termination of taxpayer’s term_interest the trustee will distribute to taxpayer or the representative of taxpayer’s estate any amounts held under this paragraph that are not used to pay expenses of the trust which are then due and payable or which are directly related to the termination of the trust paragraph e provides that the trustee may receive proceeds of any sale of the residence property and hold them in a separate_account the trustee is authorized to apply such proceeds in replacing the residence property if taxpayer’s term_interest has not earlier terminated the qprt status of the trust will cease as to any proceeds that remain on the earlier to occur of i the second anniversary of the date of the sale of the residence property and ii the date on which the trust acquires a replacement residence paragraph g governs the disposition of any and all proceeds as to which such cessation occurs plr-125021-02 paragraph f provides that the trustee may receive or acquire and hold in separate identifiable accounts of the trust i insurance policies on the residence property ii the proceeds of insurance resulting from damage to or destruction of the residence property and iii the proceeds of any involuntary_conversion of the residence property the trustee is authorized to apply such proceeds in repairing rebuilding or replacing the residence property if taxpayer’s term_interest has not earlier terminated the qprt status of the trust will cease as to any proceeds remaining on the earlier to occur of a the second anniversary of the date of the damage destruction or involuntary_conversion of the residence property and b the date on which the repair or rebuilding of the residence property is completed or the trust acquires a replacement residence paragraph g governs the disposition of any and all proceeds as to which such cessation occurs paragraph g provides that if the qprt status of the trust ceases as to any portion or all of its assets the trustee in accordance with applicable federal_law will convert and thereafter administer the assets into a separate annuity_trust in which taxpayer’s interest meets all requirements of applicable federal_law for a qualified_annuity_interest each conversion will be made within thirty days after the date on which qprt status ceases as to any portion or all of the assets of the trust paragraph h provides that the trust shall terminate on the earlier to occur of i the twelfth anniversary date of the trust and ii the date of taxpayer’s death paragraph i provides that if the trust terminates on the twelfth anniversary date of the trust the trustee will apportion all of its assets that remain after any distributions or disbursements required under paragraph sec_1 and d in such manner that one equal share will be apportioned to each of taxpayer’s children then living and one equal share per stirpes among the lineal_descendants then living of any child of taxpayer who is then deceased paragraph j provides that if the trust terminates at taxpayer’s death the trustee will distribute or apply all assets that remain after any distributions or disbursements required under paragraph sec_1 and d as taxpayer designated in taxpayer’s last will executed at any time after the date of and expressly referring to the trust if not disposed of through taxpayer’s will then remaining assets will be distributed to taxpayer’s wife if living if not then disposed of in accordance with paragraph i as if the twelfth anniversary of the date of the trust had occurred on the date of and just before taxpayer’s death paragraph provides that any assets as to which a conversion occurs under paragraph g are to be held as a separate annuity_trust for taxpayer’s benefit as annuitant for the unexpired portion of his term_interest the annuity_trust is to be administered in accordance with all requirements of applicable federal_law for a_trust in which the term_interest is a qualified_annuity_interest plr-125021-02 you have requested the following rulings property which taxpayer will transfer to trust meets the requirements of a personal_residence as defined in sec_25_2702-5 and the trust’s provisions satisfy the requirements of sec_25_2702-5 and the taxpayer’s transfer qualifies as a transfer to a qprt sec_280a provides that a taxpayer uses a dwelling_unit during the taxable_year as a residence if he uses such unit or portion thereof for personal purposes for a number of days which exceeds the greater of a days or b percent of the number of days during such year for which such unit is rented at a fair rental sec_2702 provides that solely for purposes of determining whether a transfer of an interest in trust to or for the benefit of a member of the transferor’s family is a gift and the value of such transfer the value of any interest in the trust retained by the transferor or any applicable_family_member as defined in sec_2701 is determined as provided in sec_2702 sec_2702 provides that the value of any retained_interest that is not a qualified_interest is treated as being zero the value of any retained_interest which is a qualified_interest shall be determined under sec_7520 sec_2702 provides that sec_2702 does not apply to any transfer if the transfer involves the transfer of an interest in trust all the property in which consists of a residence to be used as a personal_residence by persons holding term interests in such trust sec_25_2702-5 of the gift_tax regulations provides in part that sec_2702 does not apply to a transfer in trust meeting the requirements of this section a transfer in trust meets the requirements of this section only if the trust is a personal_residence_trust as defined in paragraph b of this section a_trust meeting the requirements of a qualified_personal_residence_trust as defined in sec_25_2702-5 is treated as a personal_residence_trust sec_25_2702-5 provides that a qualified_personal_residence_trust is a_trust meeting all the requirements of sec_25_2702-5 these requirements must be met by provisions in the governing instrument and these governing instrument provisions must by their terms continue in effect during the existence of any term_interest in the trust sec_25_2702-5 provides that for the purposes of sec_25_2702-5 a personal_residence of a term holder is either a the principal_residence of the term holder within the meaning of sec_1034 b one other residence of the term holder within the meaning of sec_280a but without regard to sec_280a or c an undivided fractional interest in either plr-125021-02 sec_25_2702-5 provides that a personal_residence may include appurtenant_structures used by the term holder for residential purposes and adjacent land not in excess of that which is reasonably appropriate for residential purposes taking into account the residence’s size and location the fact that a residence is subject_to a mortgage does not affect its status as a personal_residence the term personal_residence does not include any personal_property eg household furnishings sec_25_2702-5 provides that the governing instrument must require that income of the trust be distributed to the term holder not less frequently than annually sec_25_2702-5 provides that the governing instrument must prohibit distributions of corpus to any beneficiary other than the transferor prior to the expiration of the retained term_interest sec_25_2702-5 provides that in general except as otherwise provided in paragraphs c ii and c of this section the governing instrument of a qualified_personal_residence_trust must prohibit the trust from holding for the entire term of the trust any asset other than one residence to be used or held for use within the meaning of paragraph c i of this section as a personal_residence of the term holder the residence under sec_25_2702-5 the trust may hold certain assets listed in that section in addition to the personal_residence sec_25_2702-5 provides that the governing instrument must prohibit commutation prepayment of the term holder’s interest sec_25_2702-5 provides that the governing instrument must provide that a_trust ceases to be a qualified_personal_residence_trust if the residence ceases to be used or held for use as a personal_residence of the term holder a residence is held for use as a personal_residence of the term holder so long as the residence is not occupied by any other person other than the spouse or a dependent of the term holder and is available at all times for use by the term holder as a personal_residence sec_25_2702-5 provides that i the governing instrument must provide that within thirty days after the date on which the trust has ceased to be a qualified_personal_residence_trust with respect to certain assets either a the assets be distributed outright to the term holder b the assets be converted to and held for the balance of the term holder’s term in a separate share of the trust meeting the requirements of a qualified_annuity_interest or c in the trustee’s sole discretion the trustee may elect to comply with either paragraph c i a or b of this section pursuant to their terms and ii a for assets subject_to this paragraph c to be converted to and held as a qualified_annuity_interest the governing instrument must contain all the provisions required by sec_25_2702-3 with respect to a qualified_annuity_interest plr-125021-02 sec_25_2702-5 provides that the governing instrument must prohibit the trust from selling or transferring the residence directly or indirectly to the grantor the grantor’s spouse or an entity controlled by the grantor or the grantor’s spouse during the retained term_interest of the trust or at any time after the retained term_interest that the trust is a grantor_trust based upon the facts submitted and representations made the size of property is comparable to that of nearby properties used for residential purposes accordingly for purposes of sec_25_2702-5 property includes adjacent land not in excess of that which is reasonably appropriate for residential purposes taking into account the residence’s size and location in addition the appurtenant_structures located on property are used by taxpayer for residential purposes therefore we conclude that property is a personal_residence within the meaning of sec_2702 and sec_25_2702-5 in addition we conclude that the proposed trust as submitted contains all provisions required by sec_25_2702-5 and thus meets the requirements of a qualified_personal_residence_trust accordingly taxpayer’s transfer will qualify as a transfer to a qualified_personal_residence_trust this ruling is based on the facts presented and the applicable law including restrictive covenants in effect on the date of this letter if there is a change in material fact or law local or federal before the transactions considered in this ruling take effect the ruling will have no force or effect a copy of this letter should be attached to any gift estate or generation-skipping_transfer_tax returns that you may file relating to this matter a copy is enclosed for that purpose except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code 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 melissa liquerman branch chief branch associate chief_counsel passthroughs and special industries enclosure copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service number release date index number washington dc person to contact telephone number refer reply to cc psi - plr-144270-01 date date x a d1 year dear this letter responds to a letter dated date submitted on behalf of x by a x’s president requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year a is the president a represents that a always intended for x to be an s_corporation and the minutes of the shareholder meeting indicate a’s intention for x to be an s_corporation moreover a form_1120s u s income_tax return for an s_corporation was filed with the irs indicating a’s intention that x be an s_corporation however the person who a thought was going to file the completed form_2553 election by a small_business_corporation did not do so sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such 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 such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x plr-144270-01 has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s first taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely yours j thomas hines branch chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury i n t e r n al r e v e n u e s e r v i c e w ashington d c date of f i c e of c h i ef c ou n sel number info release date genin-119909-09 ------------------------- ---------------------------------- --------------------------- uil dear --------------- thank you for your letter of date to commissioner shulman regarding the tax consequences to victims of the investment fraud mr bernard l madoff perpetrated on date we issued guidance revrul_2009_9 and revproc_2009_20 on the tax treatment of losses from so-called ponzi schemes similar to that mr madoff operated i am enclosing copies for your information revrul_2009_9 explains the income_tax law that applies to an investor who loses money in a fraudulent investment arrangement it provides that an investor who was the victim of a fraudulent investment arrangement is entitled to a theft_loss deduction that is not limited by the rules that apply to capital losses investment theft losses are not subject_to limitations that apply to personal casualty and theft losses the theft_loss is deductible in the year the fraud is discovered except to the extent the investor has a reasonable_prospect_of_recovery the amount of the theft_loss includes not only the investor's unrecovered investment but also amounts reported as income from the investment in prior years and reinvested in the fraudulent investment arrangement a theft_loss deduction that creates a net_operating_loss for the investor can be carried back and forward according to the timeframes prescribed by law to generate a refund of taxes paid in other taxable years to claim a theft_loss deduction in any taxable_year an investor must prove that the loss genin-119909-09 was due to theft and that no reasonable prospect exists of recovering the investment investors often cannot make highly factual determinations with certainty in the year the loss is discovered for this reason we published revproc_2009_20 to provide a simplified_method for investors to compute and report their losses from fraudulent investment schemes this revenue_procedure generally allows an investor who was a victim of mr madoff’s fraud to claim a theft_loss in the amount the investor may deduct is up to percent of the loss less the amount of reimbursement he or she expects to receive as an advance for customer claims from the securities investor protection corporation sipc or from private insurance or other contractual arrangements that guarantee the investor against loss i hope this information is helpful please call me at --------------------- if i can further assist you sincerely john p moriarty chief branch office of associate chief_counsel income_tax and accounting enclosures