t c memo united_states tax_court roydell campbell petitioner v commissioner of internal revenue respondent docket no filed date roydell campbell pro_se shawna a early for respondent memorandum findings_of_fact and opinion panuthos chief special_trial_judge respondent determined a deficiency in petitioner’s federal_income_tax in the amount of dollar_figure and an accuracy-related_penalty pursuant to sec_6662 a of dollar_figure for the taxable_year unless otherwise indicated section references are to the internal_revenue_code in effect for the year in issue and continued - - the issues for decision are whether the proceeds of loans received from a qualified_employer_plan are distributions and therefore taxable_income to petitioner whether petitioner must include in income a state_income_tax refund and whether petitioner is liable for the accuracy-related_penalty under sec_6662 a findings_of_fact some of the facts have been stipulated and are so found the stipulated facts and the related exhibits are incorporated herein by this reference at the time of filing the petition petitioner resided in the bronx new york petitioner has been employed by the city of new york for more than years as an assistant engineer petitioner participated in the new york city employees’ retirement_system nycers plan the plan a qualified_employer_plan employees were permitted to borrow from the plan the loan application stated that the balance outstanding on any existing loan is combined with the new cash loan and establishes a new loan the loans were repaid in biweekly payroll withholdings employees ' continued all rule references are to the tax_court rules_of_practice and procedure the notice_of_deficiency contains adjustments to petitioner’s itemized_deductions these are computational adjustments which will be affected by the outcome of the other issues to be decided and we do not separately address them - - had the following options for the repayment schedule minimum repayment repay in years or less a specific repayment amount per pay_period or a specified number of repayments the following warning appears on the application above the repayment schedule section pleask read this information before making your selections federal tax law provides that where the total outstanding loan is either greater than dollar_figure or the term of repayment exceed sec_5 years or if the loan is subsegquently not repaid the loan is subject_to a determination as to whether any part of it constitutes a taxable_distribution between and petitioner borrowed funds from the plan totaling dollar_figure including interest petitioner borrowed funds from the plan on separate occasions between date and date when each new loan was made any existing loans were rolled into the new loan at issue are the 28th and 29th loans the 28th loan was made on date in the amount of dollar_figure by the terms of the date loan petitioner agreed to pay dollar_figure biweekly over pay periods the 29th loan was made on date in the amount of dollar_figure once again all existing loans were rolled into the new loan by the terms of the date loan petitioner agreed to pay dollar_figure biweekly over pay periods petitioner selected the minimum repayment option in the aforementioned loans - nycers sent petitioner two forms 1099-r distributions from pensions annuities retirement profit--sharing plans iras insurance contracts etc reflecting taxable amounts of dollar_figure and dollar_figure on his federal_income_tax return petitioner itemized his deductions on schedule a and claimed a deduction of dollar_figure for state and local_taxes petitioner was entitled to a refund of dollar_figure from the state of new york for his tax_year in taxing authorities in new york did not issue a refund check to petitioner rather the state applied the refund due to petitioner to an outstanding new york state tax_liability respondent determined that petitioner failed to include as income for the loan proceeds distributed from the plan further respondent determined that petitioner failed to include as income the refund applied by the state of new york finally respondent determined that petitioner was liable for the negligence_penalty under sec_6662 petitioner contends that the loans are not taxable_income petitioner argues that nycers and the publications from the internal_revenue_service irs are at fault petitioner also argues that the refund from the state of new york is not income because he did not receive a refund check - opinion a loans from the plan generally when a participant receives a loan from a gualified plan the amount is considered a taxable_distribution see sec_72 a sec_72 a provides that if the aggregate balance of all outstanding loans from the plan is less than a prescribed ceiling which may never exceed dollar_figure the loan will not be treated as a distribution however a loan will be a taxable_distribution if the loan is not a home loan and by its terms does not require repayment within years see sec_72 p b the loans at issue by their terms require payments deducted biweekly from petitioner’s paycheck according to the payment schedule it would take petitioner dollar_figure years to fully repay the loans petitioner has not argued or shown that the loans served to finance the acquisition of a home used as his principal_residence therefore the loan proceeds received by petitioner in are distributions petitioner contends in the alternative that the distributions represent in part a return of his contributions and to that extent are not includable as income sec_72 provides that any deductible employee contribution made to a qualified_employer_plan shall be treated as an amount contributed by the employer which is not includable in the gross -- - income of the employee however unless the plan specifies otherwise any distribution from a qualified_employer_plan will not be treated as made from the accumulated_deductible_employee_contributions until all other_amounts to the credit of the employee have been distributed see sec_72 the record does not reflect the terms of the plan nor that the distributions were made from deductible_employee_contributions further petitioner did not establish all other_amounts not considering the deductible_employee_contributions were distributed therefore the loan proceeds received in constitute taxable_distributions to petitioner and we sustain respondent’s determination b state_income_tax refund pursuant to sec_111 if state_income_tax was deducted on a federal_income_tax return for a prior taxable_year and if such deduction resulted in a tax_benefit to the taxpayer such as a reduction of federal_income_tax for the prior taxable_year a subsequent recovery by the taxpayer of the state_income_tax must be included in the taxpayer’s gross_income for federal_income_tax purposes in the year in which the recovery is received see kadunc v commissioner tcmemo_1997_92 and cases cited therein petitioner presented no evidence to show that he did not realize a tax_benefit from the deduction of state_income_tax on - his federal_income_tax return for although petitioner did not receive the refund check the refund amount was applied to an outstanding new york state tax_liability in the amount credited against petitioner’s new york state tax_liability is included as gross_income as constructively received insofar as it was credited to petitioner’s account or set apart for him or otherwise made available to him see sec_1_451-2 income_tax regs accordingly we sustain respondent’s determination that the refund of dollar_figure of state_income_tax is includable in petitioner’s gross_income for his tax_year cc accuracy-related_penalty respondent determined that petitioner is liable for the accuracy-related_penalty under sec_6662 for the accuracy-related_penalty is equal to percent of any portion of an underpayment_of_tax required to be shown on the return that is attributable to the taxpayer’s negligence or disregard of rules or regulations see sec_6662 and b negligence consists of any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code sec_6662 disregard consists of any careless reckless or intentional disregard id an exception applies to the accuracy-related_penalty when the taxpayer demonstrates there was reasonable_cause for the underpayment and the taxpayer acted in good_faith with - - respect to such underpayment see sec_6664 whether the taxpayer acted with reasonable_cause and in good_faith is determined by the relevant facts and circumstances the most important factor is the extent of the taxpayer’s effort to assess the proper tax_liability see stubblefield v commissioner tcmemo_1996_537 sec_1_6664-4 income_tax regs sec_1 b income_tax regs specifically provides circumstances that may indicate reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in light of all of the facts and circumstances including the experience knowledge and education of the taxpayer see 85_tc_934 a taxpayer is generally charged with knowledge of the law see 99_tc_202 ignorance of the law is not always a defense to the imposition of sec_6662 a taxpayer must take reasonable steps to determine the law and apply it see id it is the taxpayer’s responsibility to establish that he or she is not liable for the accuracy-related_penalty imposed by sec_6662 see rule a 92_tc_501 petitioner argues that he relied on the version of irs publication tax guide for individuals the section regarding loans is as follows loans if you borrow money from an employer’s qualified_pension or annuity plan you may have to treat the loan as a distribution this means that you may have to include in income all or part of the amount borrowed the record demonstrates that petitioner was aware that some or all of each loan was a taxable_distribution yet he declined to include any part of the loans as income on the basis of the entire record we conclude petitioner has not established that the underpayment was due to reasonable_cause or that petitioner acted in good_faith accordingly we hold petitioner is liable for the accuracy-related_penalty to reflect the foregoing decision will be entered under rule the rule computation will take into account a form w-2c corrected wage and tax statement from the city of new york


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 fip b02 plr-112080-07 date date ---- ------------ --------------------- --------------------------- ------------------------------ legend taxpayer ---------------------------------------------------------------------- state a lp a month year year year dear ------------ taxpayer the requested ruling concerns the treatment of partnership debt and temporary investments held by taxpayer through its interest in lp for purposes of sec_856 of the internal_revenue_code facts sec_856 to be treated as a reit for federal_income_tax purposes taxpayer is the taxpayer is a state a real_estate_investment_trust reit that has elected under this is in reply to a letter dated date requesting a ruling on behalf of ------- ------- ------- plr-112080-07 managing general_partner of lp and owns approximately a percent of the outstanding common units of lp lp owns and operates numerous real properties throughout the united_states through business entities classified as partnerships or disregarded entities for federal_income_tax purposes in month taxpayer raised capital through a public offering of senior convertible debentures year debentures the year debentures which mature in year are convertible under certain circumstances into common shares of taxpayer stock the net_proceeds from the year debentures were loaned to lp for convertible debt of lp with terms that substantially mirror the year debentures the convertible debt is convertible into ownership shares in lp upon the occurrence of certain events lp will ultimately use the proceeds of the public offering of the year debentures to acquire real_estate_assets and fund working_capital however in the interim lp has temporarily invested and will continue to invest the proceeds in stock and debt instruments including money market funds during the 1-year period beginning on the date on which taxpayer received the net_proceeds from the year debentures additional convertible senior debentures with terms similar to the year debentures year debentures taxpayer intends to use the proceeds from the year debentures to fund its operations conducted by lp by loaning the net_proceeds from the year debentures to lp in exchange for convertible lp debt with terms that substantially mirror the terms of the year debentures lp will ultimately use the net_proceeds from the year debentures to acquire real_estate_assets and to fund working_capital in the interim lp will use the proceeds from the year debentures to temporarily invest in stock and debt instruments including money market funds during the 1-year period beginning on the date that taxpayer receives the net_proceeds from the year debentures be secured_by an interest_in_real_property taxpayer represents that the lp debt will be treated as indebtedness for federal_income_tax purposes law and analysis neither the year lp debt nor the year lp debt collectively the lp debt will taxpayer presently intends to raise additional capital through a public offering of sec_856 provides a reit must derive at least percent of its gross_income from certain enumerated sources including dividend interest and rents_from_real_property sec_856 provides that a reit must derive at least percent of its gross_income from certain enumerated real_estate sources including rents_from_real_property and qualified_temporary_investment_income plr-112080-07 sec_856 defines qualified_temporary_investment_income as any income which- i is attributable to stock or a debt_instrument within the meaning of sec_1275 ii is attributable to the temporary investment of new_capital and iii is received or accrued during the 1-year period beginning on the date on which the reit receives such capital sec_856 provides that new_capital means any amount received by the reit either in exchange for stock or certificates of beneficial interests in the reit other than amounts received pursuant to a dividend_reinvestment_plan or in a public offering of debt obligations of the reit which have maturities of a least years under sec_1_856-3 of the income_tax regulations a reit that is a partner in a partnership is deemed to own its proportionate share of each of the assets of the partnership and to be entitled to the income of the partnership attributable to that share for purposes of sec_856 the interest of a partner in the partnership's assets is determined in accordance with the partner's capital interest in the partnership the character of the various assets in the hands of the partnership and items of gross_income of the partnership retain the same character in the hands of the partners for all purposes of sec_856 taxpayer is required to account for its proportionate share of lp’s income and assets pursuant to sec_1_856-3 therefore the assets or income with which lp would repay the loan to taxpayer will be accounted for by taxpayer in accordance with sec_1_856-3 if payments on the debt from lp to taxpayer are treated as income by taxpayer double counting of income will result accordingly to the extent payments on the loan from taxpayer to lp are reflected in taxpayer’s income and assets derived from its capital interest in lp those payments should not be treated by taxpayer as separate items of income or assets but rather should be disregarded for purposes of sec_856 similarly a portion of the loan by taxpayer to lp should not be treated as a separate asset of taxpayer to the extent of taxpayer’s proportionate interest in lp taxpayer’s proportionate share of the income and assets of lp are treated by taxpayer as if it earned the income and held the assets directly therefore the character and attributes of the income and assets will be the same whether taxpayer earns income and holds assets directly or through its interest in lp accordingly for purposes of sec_856 any income that satisfies the definition of qualified_temporary_investment_income may be treated as such by taxpayer whether earned by taxpayer directly or through its interest in lp beginning on the dates on which taxpayer receives the proceeds from the debentures also for purposes of sec_856 any property attributable to the temporary investment of new_capital whether held directly by taxpayer or through its interest in lp will be treated as a real_estate asset for the 1-year period beginning on the dates on which taxpayer receives the proceeds from the debentures as provided in sec_856 plr-112080-07 except as specifically ruled upon above no opinion is expressed concerning any federal_income_tax consequences relating to the facts herein under any other provision of the code specifically we do not rule whether taxpayer otherwise qualifies as a reit under part ii of subchapter_m of chapter of the code this ruling is directed only to the taxpayer requesting it taxpayer should attach a copy of this ruling to each tax_return to which it applies sec_6110 of the code provides that this ruling may not be used or cited as precedent sincerely william e coppersmith william e coppersmith chief branch office of associate chief_counsel financial institutions products


department of the treasury internal_revenue_service washington d c date number release date cc dom fs proc tl-n-5758-99wli2 uilc internal_revenue_service national_office service_center advice memorandum for district_counsel brooklyn cc ner brk from subject assistant chief_counsel field service cc dom fs tefra assessment procedure for tax attributable to partnership cancellation of indebtedness this responds to your request for significant advice dated date in connection with a question posed by the tefra coordinator of the brookhaven service_center issue whether the tax_liability of a partner that is attributable to the increase of cancellation_of_indebtedness_income of a partnership should be assessed by way of computational adjustment or through the deficiency procedures conclusion the tax_liability of a partner that is attributable to the increase of cancellation_of_indebtedness_income of a partnership should be assessed through the deficiency procedures facts following a tefra proceeding adjustments to a partner’s tax_liability assessments are made in one of two manners if the assessment is attributable to a partnership_item the assessment is typically made by way of a computational tl-n-5758-99 adjustment if the assessment is attributable to an affected_item it must be determined whether any partner level determinations are required if no partner level determinations factual are required the assessment is also made by way of computational adjustment if a partner level factual determination is required a statutory_notice_of_deficiency generally must be issued historically the service centers have assessed tax attributable to income from the cancellation of indebtedness that is flowed through to taxpayers from a tefra entity by way of a computational adjustment the question has arisen as to the proper characterization and thus the proper assessment procedure for an adjustment attributable to income from the cancellation of indebtedness flowing from tefra entity law and analysis a dichotomy exists between on the one hand the procedures applicable to the determination and redetermination of deficiencies and on the other hand the procedures applicable to the administrative adjustment and judicial readjustment of partnership items maxwell v commissioner 87_tc_779 emphasis in original items of partnership income loss deduction or credit that affect each partner are to be determined at the partnership level id sec_6221 respondent has no authority to assess a deficiency attributable to a partnership_item until after the close of a partnership proceeding id pincite sec_6225 once the partnership proceeding has concluded partnership items and computational affected items may be assessed by computational adjustment whereas a statutory_notice_of_deficiency must be issued for affected items that require factual determinations n c f energy partners v commissio89_tc_741 i r c a a i thus our threshold question is whether the assessment of tax attributable to income from the cancellation of indebtedness is a partnership_item or an affected_item a ‘partnership item’ means any item required to be taken into account for the partnership’s taxable_year to the extent prescribed by the commissioner’s regulations as an item that ‘is more appropriately determined at the partnership level’ 87_tc_783 quoting sec_6231 an item whose existence or amount is dependent on any partnership_item is an affected_item id pincite determination of the amount or the existence of cancellation_of_indebtedness_income of a partnership is more appropriately determined a the partnership level and the partnership is required to take it into account under subtitle a see sec_6231 thus the amount of cancellation_of_indebtedness_income of the partnership is a partnership_item to which the tefra procedures rather than the deficiency procedures apply sec_6231 furthermore the partnership’s allocation of partnership items among the partners is a partnership_item sec_301_6231_a_3_-1 thus both the partnership’s aggregate and each partner’s distributive_share of the cancellation tl-n-5758-99 of indebtedness income are partnership items the present issue however is whether the tax attributable to the increase of cancellation of indebtedness can be assess computationally generally an item of partnership income is a partnership_item of which each partner’s distributive_share can be computed and the correlative increase in tax assessed through a computational adjustment see maxwell t c pincite 102_tc_683 sec_6231 sec_301_6231_a_3_-1 income_from_discharge_of_indebtedness however may be excluded from gross_income in a variety of circumstances see generally sec_108 in the case of a partnership the exclusion provisions are to be applied at the partner level sec_108 thus the inclusion of the cancellation_of_indebtedness_income at the partner level includes nonpartnership item factors the inclusion of cancellation_of_indebtedness_income is an affected_item because it includes both partnership_item and nonpartnership item components see sec_6231 and a next it must be determined whether the inclusion into income of each partner’s share of cancellation_of_indebtedness_income is an affected_item requiring factual determinations at the partner level whether an affected_item may be assessed through a computational adjustment depends on whether the adjustment made to a partner’s income require s no additional factual determinations at the partner level other than a computation 849_fsupp_500 w d tex emphasis in original if additional factual determinations must be made at the partner level then a notice_of_deficiency must be issued prior to assessment i r c a a i and a among the reasons cancellation_of_indebtedness_income may be excluded from computing a partner’s tax_liability is if the partner is insolvent sec_108 the determination as to whether the partner is insolvent is a factual determination that must be made at the partner level sec_108 therefore the service is required to follow the deficiency procedures before making an assessment of tax attributable to cancellation_of_indebtedness_income i r c a a i please call if you have any further questions cc regional_counsel northeast region michael p corrado cc ner tl


internal_revenue_service number release date index number ---------------------- ------------------------------------- ------------------------------------- in re ruling_request department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------- id no ----------- ----------------- telephone number ---------------------- refer reply to cc psi b04 plr-109477-13 date august legend taxpayer taxpayer son’s trust daughter’s trust attorney accounting firm year date date dear ----------------- ---------------------- ------------------------ -------------------------------------- --------------------------------------------- --------------------- ------------------------------- ------- --------------------- ----------------------- this letter responds to your personal representative’s letter of date and subsequent correspondence requesting an extension of time under sec_2642 of the internal_revenue_code and sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to allocate generation-skipping_transfer gst_exemption to a transfer to a_trust in year on date taxpayer established two irrevocable trusts one for each of her children son’s trust and daughter’s trust and gifted cash to each trust the trusts have gst potential a few days later attorney advised taxpayer and taxpayer by letter dated date to allocate their respective gst_exemption to the gift to daughter’s trust but not to the gift to son’s trust attorney sent copies of the trusts and the date letter to accounting firm taxpayer and taxpayer retained accounting firm to prepare their year form sec_709 united_states gift and generation-skipping_transfer_tax returns on the returns taxpayer and taxpayer elected to treat all gifts in year as made one-half by each pursuant to ' on taxpayer 1’s return accounting firm elected under sec_2632 not to have the deemed_allocation rule_of sec_2632 apply to the plr-109477-13 date gifts to son’s trust and daughter’s trust on the return however accounting firm did not affirmatively allocate taxpayer 1’s gst_exemption to the gift to daughter’s trust accounting firm sent courtesy copies of taxpayer 1’s and taxpayer 2’s returns to attorney attorney discovered the failure to affirmatively allocate taxpayer 1’s gst_exemption to the gift to daughter’s trust it has been represented that taxpayer has sufficient available gst_exemption to allocate to the gift to daughter’s trust taxpayer is requesting relief under sec_2642 and sec_301_9100-3 to allocate her gst_exemption to the date gift to daughter’s trust law and analysis sec_2601 imposes a tax on every gst which is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption amount which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2631 provides that for purposes of sec_2631 the gst_exemption amount for any calendar_year shall be equal to the basic exclusion amount under sec_2010 for such calendar_year sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2632 provides that if any individual makes an indirect_skip during such individual's lifetime any unused portion of such individual's gst_exemption shall be allocated to the property transferred to the extent necessary to make the inclusion_ratio for such property zero if the amount of the indirect_skip exceeds such unused portion the entire unused portion shall be allocated to the property transferred sec_2632 provides that an individual-- i may elect to have this subsection not apply to-- i an indirect_skip or ii any or all transfers made by such individual to a particular trust and ii may elect to treat any trust as a gst_trust for purposes of this subsection with respect to any or all transfers made by such individual plr-109477-13 to such trust sec_2632 provides that an election under clause i ii or ii of sec_2632 may be made on a timely filed gift_tax_return for the calendar_year for which the election is to become effective sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor's lifetime other than a direct_skip is made on form_709 the allocation must clearly identify the trust to which the allocation is made the amount of gst_exemption allocated to it and if the allocation is late or if an inclusion_ratio greater than zero is claimed the value of the trust assets at the effective date of the allocation sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c -- a the value of such property for purposes of subsection a shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 and b such allocation shall be effective on and after the date of such transfer sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 which was enacted into law on date sec_2642 provides that in determining whether to grant relief the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the deemed_allocation rules and the time for electing to treat any trust as a gst_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 plr-109477-13 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore taxpayer is granted an extension of time of days from the date of this letter to allocate her gst_exemption to the date gift to daughter’s trust the allocation will be effective as of date taxpayer should make the allocation on a supplemental form_709 for year and file the form with the internal_revenue_service cincinnati service center-stop cincinnati ohio taxpayer should attach a copy of this letter to the form except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-109477-13 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely james f hogan james f hogan chief branch passthroughs special industries enclosures copy for sec_6110 purposes


t c memo united_states tax_court jean w lange and jeanne p lange petitioners v commissioner of internal revenue respondent docket no filed date david r rhein for petitioners j anthony hoefer for respondent memorandum findings_of_fact and opinion fay judge respondent determined deficiencies in petitioners' federal income taxes as follows year deficiency dollar_figure big_number big_number the sole issue for decision is whether petitioners are entitled to deductions under sec_162 or sec_212 for legal expenses paid during the years and findings_of_fact most of the facts have been stipulated and are so found the stipulations of facts and attached exhibits are incorporated herein by this reference at the time the petition in this case was filed petitioners resided in sac city iowa petitioner jean lange hereinafter referred to as peti- tioner and his brother elmer lange elmer acquired an percent interest in union state bank the bank in late or later the brothers formed madison holding_company madison and exchanged the bank stock and the debt they had incurred in purchasing the bank stock for stock in madison while each brother had purchased an equal number of shares of the bank stock petitioner incurred dollar_figure more debt than elmer in 1all section references are to the internal_revenue_code in effect for the taxable years in issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated acquiring the bank stock to compensate for this disparity elmer received big_number more shares of madison preferred_stock than petitioner the madison stock was issued as follows common shares preferred shares elmer petitioner big_number big_number big_number big_number the preferred_stock provides for a per share non- cumulative preferred dividend on dissolution each share entitles the holder to receive a dollar_figure liquidation preference over the common_stock but the holder is not entitled to receive proceeds in excess of the dollar_figure preference finally the preferred_stock is voting_stock despite the inequality in their ownership positions elmer and petitioner treated each other as equal partners when the bank suffered financial reverses in the 1980's petitioner and elmer contributed equal amounts dollar_figure each to madison these funds were used to strengthen the bank financially petitioner was more involved with the bank's daily operations and elmer acquiesced to petitioner's management decisions the record indicates that the brothers intended to equalize their respective ownership positions in madison at some future time none of the family members other than the two brothers was aware of the disparity in stock ownership in the brothers executed a buy sell agreement to provide for the disposition of madison stock upon the death of either of them the agreement gave the surviving brother the right to purchase the common and preferred_stock from the deceased brother's widow the buy sell agreement was executed by both brothers and their respective spouses in elmer tried to equalize ownership of the madison preferred_stock his accountant informed him that to equalize their ownership positions madison could issue big_number additional shares to petitioner or elmer could sell of his shares to petitioner petitioner and elmer agreed that it would be easier to have elmer sell shares of his preferred_stock to peti- tioner this transaction never occurred however due to concerns over the bank's financial stability elmer died on date elmer's widow beth was appointed executrix of his estate beth soon discovered the disparity in petitioner and elmer's preferred_stock ownership after some discussions between the respective families an agreement was drafted which acknowledged the disparity and provided for a transfer of shares of madison preferred_stock to petitioner from elmer's estate in exchange for dollar_figure this agreement was signed by petitioner and his family but elmer's heirs refused to sign shortly thereafter elmer's heirs expressed a desire to retain majority ownership in madison when petitioner realized that elmer's heirs intended to retain majority control he became concerned that this would adversely impact the management of the bank in date petitioner passed a corporate resolution whereby madison attempted to redeem big_number shares of preferred_stock and big_number shares of common_stock from elmer's estate later petitioner appointed his son to be a director of madison petitioner and his son amended the resolution to increase by shares the number of preferred shares that were to be redeemed by madison on date petitioner and his son held another directors' meeting at this meeting they authorized the issuance of big_number shares of madison common_stock to petitioner in exchange for a reduction in madison's debt owed to him elmer's heirs filed a lawsuit in the iowa district_court for madison county alleging petitioner had breached a fiduciary duty owed to madison shareholders by authorizing the issuance of the big_number shares of common_stock to himself and by attempting to have madison redeem the common and preferred_stock from the heirs petitioner counterclaimed seeking various remedies including specific performance of the redemption and the sale of madison preferred shares from elmer's estate 2the counterclaims are as follows counterclaims defendants counterclaim plaintiffs jean w lange and gene c lange petitioners' son for their coun- terclaims against beth thomas lange mary beth williams and martha jane lange state count i declaratory_judgment a present controversy exists among the parties regarding the legal effect of certain actions taken by madison holding co the estate of elmer f lange beth thomas lange mary beth williams martha jane lange jean w lange and gene c lange including but not limited to a b c d e whether the agreement for the sale of shares of madison holding co preferred_stock to jean w lange is valid and enforceable who owns the stock of madison holding co held by elmer f lange before his death whether the stock certificate forms signed by beth thomas lange purportedly as president of madison holding co are valid whether the noticed redemption by madison holding co of big_number common shares and big_number preferred shares is valid whether the consideration for the big_number shares of common_stock issued to jean w lange of date was adequate and whether said issuance was consistent with the rights of all concerned and f whether the bylaws of madison holding co create enforceable rights in favor of madison holding co continued on date the district_court issued its opinion in lange v lange equity no this ruling was appealed to the iowa supreme court which held that the agreement whereby elmer's estate was to sell shares to petitioner should be enforced the iowa supreme court also held that the district continued wherefore jean w lange and gene c lange pray for a declaration that i the agreement for the sale of shares of madison holding co preferred_stock is valid and enforceable ii the estate of elmer f lange is and continues to be a stockholder of madison holding co subject_to the redemption by madison holding co with respect to big_number common shares and big_number of the preferred shares and further subject_to jean w lange's contract rights with respect to an additional preferred shares iii the stock certificate forms signed by beth thomas lange pur- portedly as president of madison holding co are of no force or effect iv the noticed redemption of big_number common shares and big_number preferred shares is valid v the consideration for the big_number shares of common_stock was adequate and said issuance was consistent with the rights of all concerned and vi all the rights of madison holding co jean w lange and gene c lange under the bylaws are valid and enforceable and such other further relief as may be equitable in the premises and for the costs of this action count ii specific performance wherefore jean w lange and gene c lange pray for specific performance of the redemption of stock by madison holding co from the estate of elmer f lange and further pray that counterclaim defendants beth thomas lange mary beth williams and martha jane lange be required to take all steps necessary to cause the estate of elmer f lange to perform the agreement for the sale of shares of madison holding co pre- ferred stock and for such other further relief as may be equitable in the premises and for the costs of this action court properly voided both petitioner's attempt to have madison redeem the stock from elmer's estate and his attempt to have madison issue big_number shares of common_stock to himself petitioner and his wife filed joint income_tax returns for and in these returns they claimed deductions for legal fees in the amounts of dollar_figure dollar_figure and dollar_figure respectively all of the legal fees related to the above litiga- tion respondent determined that petitioner and his wife were not entitled to current deductions for the legal fees that they incurred opinion we must decide whether the legal fees paid_by petitioner were deductible during the years at issue petitioner argues that the fees were properly deducted pursuant to sec_162 or sec_212 sec_162 allows a deduction for all ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business sec_162 sec_212 allows a deduction for all ordinary and necessary expenses paid_or_incurred during the taxable year-- for the production_or_collection_of_income sec_212 petitioner bears the burden of proving that he satisfies the requirements under sec_162 or sec_212 rule a 290_us_111 3see lange v lange n w 2d iowa respondent argues that the deductibility of the legal fees is governed by sec_263 sec_263 disallows deductions for capital expenditures legal expenses paid to defend or perfect title to property are capital expenditures and are not currently deductible 397_us_572 59_tc_708 we must look to the origin of the claim to decide whether the legal fees paid_by petitioner are currently deductible woodward v commissioner supra pincite the origin-of-the- claim test requires us to examine the origin and character of the legal claim rather than the taxpayer's subjective purpose in filing the lawsuit id 372_us_39 in gilmore the supreme court said the origin and character of the claim with respect to which an expense was incurred rather than its potential consequences upon the fortunes of the taxpayer is the controlling basic test of whether the expense was business or personal and hence whether it is deductible or not united_states v gilmore supra pincite the origin of the claim is identified by analyzing all of the facts and circumstances surrounding the litigation id pincite- if the origin of the claim involves the defense or protection of title to property the legal fees are nondeductible capital expenditures 526_f2d_135 6th cir boagni v commissioner supra pincite the question to be answered is out of what kind of transaction did the litigation arise boagni v commissioner supra the facts surrounding the litigation between petitioner and elmer's heirs are not in dispute after his brother died petitioner took various steps to protect his ownership of madison stock and to acquire additional shares of such stock elmer's family resisted petitioner's efforts and filed suit against petitioner and his son petitioner counterclaimed seeking a declaration that the attempted redemption from elmer's estate and issuance of stock to petitioner were valid and seeking an order for specific performance of the agreement to sell shares petitioner argues that he undertook the litigation to protect his position at the bank petitioner points to several of respondent's revenue rulings holding that litigation expenses_incurred to defend a taxpayer's actions as an employee are deductible as ordinary and necessary expenses_incurred in the conduct_of_a_trade_or_business see revrul_74_394 1974_2_cb_40 revrul_71_470 1971_2_cb_121 petitioner contends the origin of the claim was the heirs' attempt to remove petitioner from his job at the bank because petitioner filed his claims in part to protect his employment at the bank petitioner reasons that the legal fees he incurred are currently deductible we disagree the litigation arose because petitioner caused madison to issue additional shares of stock to himself and he attempted to have madison redeem shares of stock from elmer's heirs peti- tioner in his counterclaim sought to enforce an agreement to purchase shares from elmer's estate in order to equalize the stock ownership as between the families the claims have their origin in the protection defense and acquisition of peti- tioner's ownership_interest in madison stock while petitioner's purpose in undertaking the litigation might have included protecting his job this is not determinative under the origin- of-the-claim test see 70_tc_584 see also mitchell v commissioner tcmemo_1994_ and cases cited therein affd 73_f3d_628 6th cir petitioner through litigation sought to establish his ownership of additional shares of madison stock we conclude that the litigation costs were incurred to defend protect and acquire petitioner's title to the madison stock and therefore constitute nondeductible capital expenditures which should be added to the basis of petitioner's madison stock see 411_f2d_1374 2d cir revg 50_tc_104 lin v commissioner tcmemo_1984_581 accordingly we sustain respondent's determination in the notice_of_deficiency to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number ------------------------------------------ --------------------------------------------------------- ----------------------- -------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no -------------- telephone number ---------------------- refer reply to cc psi b01 plr-105938-17 plr-105942-17 date date x sub sub sub sub sub --------------------------------------------------------------------------------------------------- ------------------------ --------------------------------------------------------------------------------------------------- ------------------------ --------------------------------------------------------------------------------------------------- ----------------------- --------------------------------------------------------------------------------------------------- ----------------------- --------------------------------------------------------------------------------------------------- ----------------------- --------------------------------------------------------------------------------------------------- ------------------------ state -------------- date ---------------------- date ---------------------- date --------------------------------------------------------------------------------------------------- ---------------------- date ---------------------- plr-105938-17 dear ---------------- this letter responds to a letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code and an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to elect to treat sub as a qualified_subchapter_s_subsidiary qsub facts the information submitted states that x was incorporated in state on date and elected to be treated as an s_corporation effective date x acquired percent of the stock of sub and sub on date as of date sub owned percent of the stock of sub and sub x timely elected to treat sub sub and sub as qsubs however due to inadvertence these elections were ineffective additionally sub was incorporated on date and at all times has been percent owned by sub x also timely elected to treat sub as a qsub effective date however this election was also ineffective additionally x represents that at all times on and after date x has owned all of the outstanding_stock of sub and sub has owned all the outstanding_stock of sub x intended for sub to be treated as a qsub effective date however due to inadvertence x failed to file form_8869 qualified_subchapter_s_subsidiary election form x represents that the circumstances resulting in the ineffectiveness of x's qsub elections were inadvertent and were not motivated by tax_avoidance or retroactive tax planning additionally x represents that at all times since date x and its shareholders have filed federal_income_tax returns consistent with x having a valid s_corporation_election in effect x also represents that at all times since date x and its shareholders have filed federal_income_tax returns consistent with sub sub sub and sub as having valid qsub elections in effect and since date with sub as having a valid qsub election in effect law and analysis sec_1361 of the code provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust plr-105938-17 described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than class of stock sec_1361 provides that a qsub shall not be treated as a separate corporation and all assets liabilities and items of income deduction and credit of a qsub shall be treated as assets liabilities and such items as the case may be of the s_corporation sec_1361 defines a qsub as a domestic_corporation which is not an ineligible_corporation if percent of the stock of the corporation is held by an s_corporation and the s_corporation elects to treat the corporation as a qsub sec_1_1361-3 of the income_tax regulations provides the time and manner for making a qsub election a taxpayer makes a qsub election with respect to a subsidiary by filing form_8869 with the appropriate service_center effective up to two months and days prior to the date the election is filed or not more than months after the election is filed sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the tax_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under paragraph or of sec_1362 the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the event resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination the corporation shall be treated as an s_corporation during the period specified by the secretary sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer plr-105938-17 acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts submitted and representations made we conclude that x’s elections to treat sub sub sub and sub were ineffective we also conclude that the circumstances resulting in the ineffectiveness of x’s qsub elections for sub sub sub and sub were inadvertent within the meaning of sec_1362 accordingly sub sub and sub will be treated as a qsubs effective date and thereafter and sub will be treated as a qsub effective date and thereafter provided sub sub sub and sub are otherwise eligible to be treated as qsubs in addition we conclude that x has satisfied the requirements of sec_301_9100-3 with respect to a late qsub election for sub as a result provided that x makes a qsub election for sub by filing a completed form_8869 effective date along with a copy of this letter with the appropriate service_center within days from the date of this letter then such election will be treated as timely made effective date except as specifically ruled above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was otherwise eligible to be an s_corporation and whether sub sub sub sub and sub were otherwise valid qsubs with regard to any defective consents to x’s s_corporation_election we suggest you attempt to perfect such consents through the procedure described in sec_1_1362-6 this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent plr-105938-17 pursuant to the power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representatives sincerely joy c spies joy c spies senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c summary opinion united_states tax_court deirdre g mcnamara petitioner v commissioner of internal revenue respondent docket no 15050-03s filed date deirdre g mcnamara pro_se nancy c carver for respondent panuthos chief special_trial_judge this case was heard pursuant to the provisions of sec_6330 and sec_7463 the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent issued petitioner a notice_of_determination concerning collection action s under sec_6320 and or unless otherwise indicated all section references are to the internal_revenue_code as amended notice_of_determination for unpaid federal_income_tax and related liabilities for the notice_of_determination asserts that the unpaid balance is dollar_figure the issue for decision is whether respondent’s determination to proceed with collection action was an abuse_of_discretion background some of the facts have been stipulated and they are so found petitioner resided in new york new york at the time the petition was filed petitioner filed a federal_income_tax return for the taxable_year on date the return was examined by respondent on date a notice_of_deficiency was issued determining a deficiency in the amount of dollar_figure for the taxable_year a timely petition was filed with this court docket no 13739-98s and on date a decision was entered for the taxable_year in the amount of dollar_figure the decision was entered pursuant to the stipulation of the parties the stipulated decision was executed by petitioner and counsel for respondent after the decision was entered petitioner submitted a check to respondent in the amount of dollar_figure the check was not honored by the bank due to insufficient funds on date respondent sent petitioner a final notice_of_intent_to_levy and right to a collection_due_process_hearing petitioner timely filed with respondent a form request for a collection_due_process_hearing as a basis for her disagreement with respondent’s proposed collection action petitioner asserts among other things that govt agencies colluded in egregious civil human rights abuses against me my family by letter dated date the appeals officer invited petitioner to submit additional relevant information relating to the issues that could be considered in this connection a form 433-a collection information statement was provided to petitioner so that she could present collection alternatives to respondent petitioner responded by letter dated date the letter does not contain any information or assertions that could reasonably be considered as an appropriate challenge to respondent’s collection action as a result on date respondent issued a notice_of_determination wherein he concluded that respondent could proceed with the proposed collection action discussion this court has jurisdiction to review the commissioner’s administrative determination under sec_6330 sec_6330 petitioner received a notice_of_deficiency and she timely filed a petition with this court a decision was entered with respect to the taxable_year based on the agreement of the parties since the validity of the underlying tax_liability is not at issue we review the determination for abuse_of_discretion 114_tc_604 114_tc_176 wooten v commissioner tcmemo_2003_113 in so doing we do not conduct an independent review of what would be an appropriate collection alternative van vlaenderen v commissioner tcmemo_2003_346 we review only whether the appeals officer’s determination was arbitrary capricious or without sound basis in fact or law see 112_tc_19 under sec_6330 a taxpayer is entitled to a hearing in which he or she may raise any relevant issue relating to the unpaid tax or the proposed levy including offers of collection alternatives such as an offer_in_compromise sec_6330 and c in the present case petitioner appears to contend that respondent should not proceed with collection because of abuses she and her family have suffered by various government agencies petitioner does not otherwise present any argument that the appeals officer’s actions were an abuse_of_discretion on the basis of the information considered by the appeals officer we cannot conclude that the appeals officer’s determination to proceed with collection action was an abuse_of_discretion see van vlaenderen v commissioner supra crisan v commissioner tcmemo_2003_318 willis v commissioner tcmemo_2003_302 o’brien v commissioner tcmemo_2003_290 schulman v commissioner tcmemo_2002_129 indeed when the court asked petitioner to explain why she disagreed with respondent’s proposed collection action petitioner failed to provide any meaningful explanation we are satisfied that respondent did not abuse his discretion in making his determination reviewed and adopted as the report of the small_tax_case division to give effect to the foregoing decision will be entered for respondent


internal_revenue_service department of ay ty 8g washington oc contact person telephone number in reference to t ep ra t4 date uec uniform issue list no legend employer x plan a plan b_trust c state d t h dear this is in response to a ruling_request submitted on your behalf by your authorized representative dated date and supplemented by additional correspondence dated date date and date the ruling_request concerns the tax treatment of elective_deferrals to a cash_or_deferred_arrangement in coordination with a nonqualified_deferred_compensation_plan the following facts and representations were submitted by your authorized representative employer x currently maintains plans a and b plan a is a profit sharing plan intended to qualify under sec_401 of the internal_revenue_code code containing a cash_or_deferred_arrangement intended to qualify under sec_401 of the code plan b is a nonqualified_deferred_compensation_plan available to a group of management or highly compensated employees selected by employer x employees who are eligible to participate in plan b must be eligible to participate in plan a you are eligible to participate in both plan a and plan b under pian a participants are eligible to make salary deferral contributions subject_to the annual dollar limitation of sec_402 of the code and the actual_deferral_percentage limitation of sec_401 of the code employer x may make matching_contributions to plan a with respect to salary deferral contributions employer x may also make discretionary contributions to plan a matching_contributions and discretionary contributions made to plan a are subject_to a graded three-year_vesting schedule plan b provides for salary deferral contributions and employer matching_contributions the employer matching_contributions are subject_to a vesting schedule the salary deferral matching_contribution and vesting provisions of pian b mirror the salary deferral matching_contribution and vesting provisions of plan a prior to each january a participant may elect to enter into an irrevocable salary reduction agreement no later than december of the calendar_year preceding the year in which the compensation to which the salary deferral relates is earned pursuant to the election a participant will specify the percentage of compensation otherwise payable for the ensuing calendar_year that will be deferred under plan b employer x will make matching_contributions to pian b with respect to the amounts deferred up to six percent of compensation salary deferrals and other contributions are made to plan b through trust c trust c meets the requirements of revproc_92_64 trust c is valid under the laws of state d plan b provides that all amounts under plan b shall remain the property of employer x subject_to the claims of employer x’s creditors participants and beneficiaries in plan b have no preferred claim on or any beneficial_ownership interest in any property rights or investments held by employer x in connection with plan b as soon as practicable after the end of the plan_year of plan a ie calendar_year but no later than january of the ensuing plan_year employer x will perform preliminary actuai deferral percentage adp and actual contribution_percentage acp testing to determine the maximum permissible salary deferrals that could be made for such plan_year consistent with sec_402 of the code and the limitations of sec_401 k on behalf of each participant to pian a ifa participant has elected to have salary deferrals under plan b transferred to pian a the lesser_of the maximum permissible salary deferrals determined in accordance with the preceding sentence or the participant’s salary deferrals under plan b for that year will be transferred to plan a the transfer will occur no later than march of the plan_year next- following the plan_year with respect to which the determination of the maximum permissibic salary deferrals is made the election to have such amount transferred to plan a will be made at the same time as the participant elects to enter into a salary reduction agreement with employer x under pian b any amount tn excess of the maximum permissible salary deferrals will remain in pian b and accumulate earnings until a distributable event occurs under the terms of plan b ifa participant does not elect to have salary deferrals transferred from pian b to plan a then the maximum permissible salary deferrals under plan b for that year will be returned to the participant any refund of salary deferrals will be included in a participant's taxable_income for the year with respect to which the salary deferrals were made the determination of the amount of salary deferrals transferred from plan b to pian a will be calculated in accordance with the provisions of plan a and plan b as reflected in the election forms associated with both plans these provisions preclude employer discretion with respect to the amount of salary deferrals transferred from plan b to plan a on behalf of any participant yg matching_contributions made on behalf of a participant to plan b will be transferred to plan a to the extent such matching_contributions would have been made to the participant’s pian a account no earnings credited under plan b will be transferred to plan a thus salary deferrals under plan a that result from salary deferrals under plan b will consist solely of amounts that were otherwise payable to the participant as current compensation_for the plan_year involved and for which a deferral election has been made any matching_contributions associated with such salary deferral contributions will be in the same amounts as would be made if the salary deferrals were directly made subject_to the actual_contribution_percentage_test of sec_401 of the code all salary deferral and matching_contributions under plan a will be treated similarly a participant will be fully vested in salary deferral contributions and will be entitied to a distribution only upon separation_from_service termination of the plan without establishment or maintenance of another defined_contribution_plan a sale of the company that complies with sec_401 k of the code attainment of age death disability or hardship with respect to the foregoing the following rulings are requested assuming that plan a otherwise satisfies the requirements for a qualified_cash_or_deferred_arrangement and that the elective_deferrals and actual_deferral_percentage limitations or sec_402 and sec_401 of the code are not exceeded elective_deferrals made by you under pian a that are initially heid by employer x pursuant to the terms of pian b will be excluded trom gross_income under sec_402 of the code for purposes of satisfying the sec_402 limit of the code elective_deferrals under plan a made by you for a given plan and calendar_year that are initially held by employer x pursuant to the terms of plan b will be treated as having been made in the calendar_year in which they would have been otherwise received as wages by you sec_401 of the code provides in pertinent part that a qualified_cash_or_deferred_arrangement is any arrangement which is a part of a profit-sharing or stock_bonus_plan a pre- erisa money purchase plan or a rural_cooperative pian which meets the requirements of sec_401 and under which a covered_employee may elect to have the employer make payments as contributions to a_trust under the plan on behalf of the employee or to the employee directly in cash section k -i a of the income_tax regulations regulations provides that a cash or deferred election is any election or modification of an earlier election by an employee to have the employer either a provide an amount to the employee in the form of cash or some l other taxable benefit that is not currently available or b contribute an amount to a_trust or provide an accrual or other benefit under a plan deferring the receipt of compensation a cash or deferred election includes a salary reduction agreement between an employee and employer under which a contribution is made under a plan only if the employee elects to reduce cash compensation or to forgo an increase in cash compensation under section k -l a ii of the regulations a cash or deferred election can only be made with respect to an amount that is not currently available to the employee on the date of the election under sec_1 k -i a iii of the regulations cash or another taxable_amount is currently available to the employee if it has been paid to the employee or if the employee is able currently to receive the cash or other taxable_amount at the employee's discretion under sec_1 k -i b i of the regulations an elective contribution is taken into account for purposes of the actual_deferral_percentage_test for a plan_year only if a the elective contribution is allocated to the employee's account under the plan as of a date within that plan_year and b the elective contribution relates to compensation that either would have been received by the employee in the plan_year but for the employee's election to defer under the arrangement or is attributable to services performed by the employee in the plan_year and but for the employee's election to defer would have been received by the employee within two and one-half months after the close of the plan_year an elective contribution is considered allocated as of a date within the plan_year only if the allocation is not contingent upon the employee's participation in the plan or performance of services on any date subsequent to that date and the elective contribution is actually paid to the trust no later than the end of the 12-month_period immediately following the pian year to which the contnibution relates sec_402 of the code provides in pertinent part that contributions made by an employer on behalf of an employee to a_trust which is a part of a qualified_cash_or_deferred_arrangement as defined in sec_401 shall not be treated as distributed or made available to the employee nor as contributions made to a_trust by the employee merely because the arrangement includes provisions under which the employee has an election whether the contribution will be made to the trust or received by the employee in cash under sec_402 of the code the elective_deferrals of any individual for any taxable_year are included in such individual's gross_income to the extent the amount of such deferrals for the taxable_year exceeds dollar_figure as adjusted under sec_402 of the code notwithstanding sec_402 of the code regarding elective_deferrals under a qualified_cash_or_deferred_arrangement with respect to ruling_request one you are eligible to defer compensation under plan a and plan b by making two irrevocable elections the elections must be made no later than yy december of the calendar_year preceding the year in which the compensation to which the salary deferral election relates is earned first you elect the amount of compensation to be deferred under plan b second you elect to have the portion of such plan b deferrals equal to the maximum permissible salary deferrals under plan a maximum permissible salary deferrals under plan a then the entire plan b deferrals transferred to plan a if you do not elect to transfer any salary deferrals to plan a the maximum permissible salary deferrals that could have been transferred will be returned to you in no event will either the transfer of the maximum permissible salary deferrals to plan a or the return of such deferrals to you be made later than march of the year following the year for which the deferral election was made or if the plan b deferrals are less than the ‘ in addition for purposes of the actual_deferral_percentage_test under sec_401 of the code for a calendar_year plan_year elective_deferrals irrevocably and prospectively elected under plan b made by you for a calendar_year plan_year that are initially held in the general assets of employer x and then contributed to plan a will be treated as having been made under plan a in the calendar_year in which the compensation to which the deferrals relate was earned by you provided that the elective_deferrals are allocated to your account by the end of that calendar pian year and the elective_deferrals continue to relate to compensation that either would have been received by you in the calendar_year plan_year but for your election or is attributable to services performed by you in the calendar_year plan_year and would have been received by you within months after the calendar_year plan_year but for your election an election to make a contribution to plan a is a cash or deferred election within the meaning of section k -1 a of the regulations because it is an election to have employer x provide a benefit under a plan deferring compensation rather than providing an amount in cash to the employee accordingly with respect to ruling_request one we conclude that assuming plan a otherwise satisfies the requirements for a qualified_cash_or_deferred_arrangement and that the elective_deferral and actual_deferral_percentage limitations of sec_402 g and k of the code are not exceeded elective_deferrals made by you under plan a that are initially held by employer x pursuant to the terms of plan b will be excluded from gross_income under sec_402 e of the code when contributed to plan a provided such contribution is timely paid and allocated with respect to ruling_request two you will make an irrevocable election to have your maximum permissible salary deferrals initially held by plan b transferred to plan a on your behaif the maximum permissible salary deferrals that may be transferred to plan a would be subject_to the limitation of sec_402 for the year in which the salary deferrals were earned rather than in the year in which such amount is transferred to plan a if the maximum permissible salary deferrals are returned to you they will be taxable to you in the year such amount was earned rather than the year such amount is actually returned to you yu o accordingly with respect to ruling_request two we conciude that tor purposes of satisfving the limitations of sec_402 of the code contributions made to pian a by employer x on vour behalf assuming that such contributions are timely made and timely allocated to vour account under plan a which are initially held by employer x pursuant to the terms of plan b will be treated as salary deterrals under plan a having been made in the year in which they would have been taxable to vou but for vour election under pian b to have such salary deferrals contributed to plan a the above rulings are based on the assumption thai at all times reievani to these muiings pian a is qualified under sec_401 a or the code ane its cash_or_deferred_arrangement is qualified under sec_4u1 k of the code this ruling is directed oniy io the tanpayer that requested tl and appiles only with respect to plan a as submited with this request section oi i letter_ruling may not be used or cited as precedent titie of empiovee retiremer securty act of we express no opinion as to whether the subject transactions comply with tine i finaliv no opinion is expressed as to the income_tax consequences of esranish participating in it except as expressly stated herein erisa is witnin tne jurisdiction of the deparment cf letor accordingis mcome ax orthe code provices that this in accordance with a power or on mle with this office a cor being sent to vour authorizec representative res vours am ss feet gy zo a wv g ridgle jr empiovee plans ci technical branch enclosures deleted copy of the letter notice a


number release date id office uilc cca_2009092915504554 -------------- from ---------------------- sent tuesday date pm to -------------------- cc -------------------- subject fw barred overassessment --------- ---- forwarded me your question below determination is defined for mitigation purposes under sec_1313 as a final disposition by the secretary of a claim_for_refund in this situation it appears as though the determination would allow a deduction for year sec_1 and and this deduction was also erroneously allowed to the taxpayer for year sec_4 and this double allowance of a deduction is a circumstance of adjustment pursuant to sec_1312 if the secretary allows the taxpayer's claim_for_refund the taxpayer would be claiming a deduction for these items both in year sec_1 and and year sec_4 and pursuant to sec_1311 the service would be adopting a position maintained by the taxpayer that is inconsistent with the erroneous allowance of the deduction in year sec_4 and therefore there is an argument that mitigation would apply to correct the double allowance and assess for year sec_4 and assuming that we actually collected the assessments and the taxpayers file a refund claim please let me know if you have any further questions -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- ----------------------


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 intl plr-142432-09 date date ty -------------- legend a ------------------------------------------------------------------------------ -------------------- company rrsp tax years year year year year dear --------------- --------------------------- -------------------------------------- --------------- ------- ------- ------- ------- this is in reply to a letter dated date requesting an extension of time under sec_301_9100-3 for a to elect the provisions of revproc_2002_23 2002_1_cb_744 for tax years the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted plr-142432-09 in support of the requested rulings it is subject_to verification on examination the information submitted for consideration is substantially as set forth below facts a established a canadian registered retirement savings_plan rrsp in year a has been a u s resident since year at all times during a’s ownership of the rrsp he was not aware that he had to make an election to defer u s taxation on income accrued in his rrsp based on article xviii of the united states-canada income_tax convention the treaty in year a engaged the services of company to prepare his returns for year and all subsequent tax returns and relied on company with respect to his personal income_tax matters and the preparation of his federal_income_tax returns attachments and elections related to such returns in year company reviewed its files and discovered that it had not informed a of the need to make an election to defer income_tax under article xviii of the treaty after a was notified of the need to make an election to benefit from the treaty he immediately took action to request an extension of time to file an election under sec_301_9100-3 as of the date of this ruling_request the internal_revenue_service has not communicated with a in any way regarding his rrsp ruling requested a requests the consent of the commissioner of the internal_revenue_service for an extension of time under sec_301_9100-3 to make an election pursuant to revproc_2002_23 to defer u s federal income_taxation on income accrued in his rrsp as provided for in article xviii of the treaty for tax years law and analysis sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301 -1 b provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in plr-142432-09 sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation the election provided in revproc_2002_23 is a regulatory election within the meaning of sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant a an extension of time provided that a satisfies the standards set forth in sec_301_9100-3 based solely on the information submitted and representations made we conclude that a satisfies the standards of sec_301_9100-3 accordingly a is granted an extension of time until days from the date of this ruling letter to elect the provisions revproc_2002_23 for tax years as provided in sec_301_9100-1 the granting of an extension of time is not a determination that a is otherwise eligible to make the above-described election pursuant to section dollar_figure of revproc_2002_23 the election once made cannot be revoked except with the consent of the commissioner for tax years and all subsequent tax years until the tax_year in which a final distribution is made from the rrsp a must file a form_8891 for the rrsp for which the election is made 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 a copy of this letter must be attached to a's u s income_tax return for the year in which a obtained the ruling and should be associated with a’s amended returns for tax years this letter_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 will be sent to your authorized representative sincerely _______________ quyen huynhquyen huynh senior counsel branch office of associate chief_counsel international enclosure copy for purposes