internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc psi b01-plr-109319-00 date date legend portfolio trust fund company manager state state declaration date dollar_figurea dollar_figureb this letter responds to your submission of date together with subsequent correspondence in which you requested certain rulings under sec_704 sec_721 and sec_7704 of the internal_revenue_code facts portfolio is a sub-trust of trust which was organized as a business_trust under the laws of state pursuant to declaration trust is registered as an investment_company under the investment_company act of act portfolio is a separate business_trust under the laws of state which recognize that separate trusts established under a single instrument with common trustees are independent legal entities portfolio is registered as an investment_company under the act portfolio and fund represent that portfolio is classified as a partnership under sec_301_7701-3 of the procedure and administration regulations portfolio serves as an investment vehicle for fund fund is a separate series of company a state corporation that is an open-end management investment_company under the act fund invests substantially_all of its assets available for investment in portfolio and has the same investment objective as portfolio fund is treated as a plr-109319-00 corporation for federal_income_tax purposes and has elected or will elect to be taxed as a regulated_investment_company ric under part i of subchapter_m of chapter of subtitle a of the code fund intends to be operated in a manner which would permit it to continue to qualify as a ric portfolio was formed on date when manager became a partner in portfolio in exchange for cash of dollar_figurea and fund became a partner in portfolio in exchange for securities and other assets with a fair_market_value of dollar_figureb manager is the investment_advisor for fund beneficial interests in portfolio are issued solely in private_placement transactions that do not involve any public offering within the meaning of sec_4 of the securities act of as amended act portfolio will not register its shares under the act because shares in portfolio may be issued solely in private_placement transactions that do not involve any public offering within the meaning of sec_4 of the act investments in portfolio only may be made by investment companies or certain other entities that are accredited investors within the meaning of regulation d under the act the interest of each partner in portfolio is limited to the net assets of portfolio and does not extend to the assets of any other investment vehicles of trust portfolio has not invested in any of trust’s other investment vehicles nor are any of trust’s other investment vehicles invested in portfolio except as required by sec_704 and sec_1_704-1 each partner will be allocated a pro_rata share of partnership income gain loss deduction and credit in accordance with the regulations under sec_704 each partner’s initial capital_account balance will be the amount of money and the fair_market_value of the property contributed to portfolio by the partner under sec_1_704-1 portfolio will revalue its investment portfolio to fair_market_value as of the close of each day portfolio will adjust each partner’s capital_account to reflect the partner’s share of the net change in the value of its portfolio of securities from the close of the prior day to the close of the current day portfolio intends to qualify as a securities_partnership under sec_1_704-3 the number of partners in portfolio will be limited to or fewer calculated pursuant to sec_1_7704-1 portfolio has made the following additional representations fund has contributed either cash and or a portfolio of assets that meets the diversification requirements of sec_1_351-1 as further defined in sec_368 for purposes of this test government securities are not included within the meaning of securities under sec_368 but are included within the meaning of total assets in sec_368 the assets contributed by fund other than cash will consist of readily marketable_stock and securities as defined in sec_1_351-1 prior to the plr-109319-00 taxpayer_relief_act_of_1997 all cash received by portfolio will be invested in readily marketable_stock and securities as defined in sec_1_351-1 prior to the taxpayer_relief_act_of_1997 the burden of making sec_704 allocations separate from reverse sec_704 allocations is substantial law and analysis ruling portfolio and fund have requested a ruling that portfolio will not be a publicly_traded_partnership within the meaning of sec_7704 sec_7704 provides that a publicly_traded_partnership is treated as a corporation sec_7704 and sec_1_7704-1 provide that for purposes of sec_7704 the term publicly_traded_partnership means any partnership if interests in the partnership are traded on an established_securities_market or readily_tradable on a secondary market or the substantial equivalent thereof sec_1_7704-1 provides that interests in a partnership are readily_tradable on a secondary market or the substantial equivalent thereof if taking into account all of the facts and circumstances the partners are readily able to buy sell or exchange their partnership interests in a manner that is comparable economically to trading on an established_securities_market sec_1_7704-1 provides that interests in a partnership are not readily_tradable on a secondary market or the substantial equivalent thereof for purposes of sec_7704 if i all interests in the partnership were issued in a transaction or transactions that was not required to be registered under the act and ii the partnership does not have more than partners at any time during the taxable_year sec_1_7704-1 provides that for purposes of sec_1_7704-1 a person owning an interest in a partnership grantor_trust or s_corporation flow-through_entity that owns directly or through other flow-through entities an interest in the partnership is treated as a partner in the partnership only if i substantially_all of the value of the beneficial owner’s interest in the flow-through_entity is attributable to the flow-through entity’s interest direct or indirect in the partnership and ii a principal purpose of the use of the tiered arrangement is to permit the partnership to satisfy the 100-partner limitation of sec_1_7704-1 portfolio has represented that the number of partners in portfolio will be limited to or fewer calculated pursuant to sec_1_7704-1 no interest in portfolio has been or will be issued in a transaction or transactions required to be registered under the plr-109319-00 act accordingly portfolio will not be a publicly_traded_partnership within the meaning of sec_7704 ruling portfolio and fund have requested a ruling that portfolio and fund will not recognize gain_or_loss under sec_721 and sec_351 as a result of the contribution of assets by fund to portfolio sec_721 states generally that no gain_or_loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership sec_721 states that sec_721 shall not apply to gain realized on a transfer of property to a partnership that would be treated as an investment_company within the meaning of sec_351 if the partnership were incorporated treas reg c provides that a transfer of property will be considered to be a transfer to an investment_company if i the transfer results directly or indirectly in diversification of the transferor’s interests and ii the transferee is among other possibilities a corporation more than percent of the value of whose assets are held for investment a transfer will not result in diversification and therefore not constitute a transfer to an investment_company if a transferor transfers a diversified portfolio of stocks and securities as determined under sec_368 applying the relevant provisions of sec_368 but treating government securities as part of total assets but not as securities of an issuer sec_1_351-1 after applying the law to the facts submitted and the representations made we conclude that portfolio and fund will not recognize gain_or_loss under sec_721 and sec_351 as a result of the contributions of assets by fund to portfolio we express no opinion about whether subsequent transfers of stock and securities to portfolio by any transferor will affect the tax consequences of the original transfers ruling portfolio and fund have requested permission to aggregate built-in gains and losses from qualified_financial_assets contributed to portfolio with built-in gains and losses from revaluations of qualified_financial_assets held by portfolio for the purpose of making sec_704 and reverse sec_704 allocations sec_704 provides that income gain loss and deduction with respect to property contributed to the partnership by a partner is shared among the partners so as to take account of the variation between the basis of the property to the partnership and its fair_market_value at the time of contribution sec_1_704-3 states that the purpose of sec_704 is to prevent the shifting of tax consequences among partners with respect to precontribution gain_or_loss plr-109319-00 under sec_704 a partnership must allocate income gain loss and deductions with respect to property contributed by a partner to the partnership so as to take into account any variation between the adjusted tax basis of the property and its fair_market_value at the time of the contribution this allocation must be made using a reasonable method that is consistent with the purpose of sec_704 sec_1_704-3 provides that the principles of sec_1_704-3 apply to allocations with respect to property for which differences between book_value and adjusted tax basis are created when a partnership revalues partnership property under sec_1_704-1 reverse sec_704 allocations a partnership that makes allocations with respect to revalued property must use a reasonable method that is consistent with the purposes of sec_704 and c sec_1_704-3 indicates that sec_704 generally applies on a property-by- property basis therefore in determining whether there is a disparity between adjusted tax basis and fair_market_value the built-in gains and built-in losses on items of contributed or revalued property generally cannot be aggregated sec_1_704-3 sets forth a special rule allowing certain securities partnerships to make reverse sec_704 allocations on an aggregate basis specifically sec_1_704-3 provides that for purposes of making reverse sec_704 allocations a securities_partnership may aggregate gains and losses from qualified_financial_assets using any reasonable approach that is consistent with the purposes of sec_704 once a partnership adopts an aggregate approach the partnership must apply the same aggregate approach to all of its qualified_financial_assets for all taxable years in which the partnership qualifies as a securities_partnership sec_1_704-3 defines a securities_partnership as a partnership that is either a management company or an investment_partnership and that makes all of its book allocations in proportion to the partners’ relative book capital accounts except for reasonable special allocations to a partner that provides management services or investment advisory services to the partnership under sec_1_704-3 a partnership is a management company if it is registered as a management company under the act sec_1_704-3 defines qualified_financial_assets as any personal_property including stock that is actively_traded as defined in sec_1_1092_d_-1 defining actively_traded property for purposes of the straddle rules for a management company qualified_financial_assets also include the following even if not actively_traded shares of stock in a corporation notes bonds debentures or other evidences of indebtedness interest rate currency or equity notional_principal_contracts evidences of an interest in or derivative financial instruments in any security currency or commodity including any option forward or futures_contract or short position or any similar financial_instrument plr-109319-00 sec_1_704-3 and e v describe two approaches to making aggregate reverse sec_704 allocations that are generally reasonable -- the partial netting approach and the full netting approach however sec_1_704-3 provides that other approaches may be reasonable in appropriate circumstances sec_1_704-3 provides that an allocation method or combination of methods is not reasonable if the contribution of property or event that results in reverse sec_704 allocations and the corresponding allocation of tax items with respect to the property are made with a view to shifting the tax consequence of built-in_gain or loss among the partners in a manner that substantially reduces the present_value of the partners' aggregate tax_liability furthermore sec_1_704-3 provides that the character and other tax_attributes of gain_or_loss allocated to the partners under an aggregate approach must a preserve the tax_attributes of each item of gain_or_loss realized by the partnership b be determined under an approach that is consistently applied and c not be determined with a view to reducing substantially the present_value of the partners' aggregate tax_liability portfolio has represented that its allocations have complied and will comply with sec_1_704-3 the aggregation rule_of sec_1_704-3 applies only to reverse sec_704 allocations therefore a securities_partnership using an aggregate approach must generally account for any built-in_gain or loss from contributed_property separately the preamble to sec_1_704-3 explains that the final regulations do not authorize aggregation of built-in gains and losses from contributed_property with built-in gains and losses from revaluations because this type of aggregation can lead to substantial distortions in the character and timing of income and loss recognized by contributing partners t d 1995_1_cb_120 however the preamble also recognizes that there may be instances in which the likelihood of character and timing distortions is minimal and the burden of making sec_704 allocations separate from reverse sec_704 allocations is great consequently sec_1 e iii authorizes the commissioner to permit by published guidance or letter_ruling aggregation of qualified_financial_assets for purposes of making sec_704 allocations in the same manner as that described in sec_1_704-3 in this case portfolio will use the partial netting approach described in sec_1_704-3 portfolio’s burden of making sec_704 allocations separate from reverse sec_704 allocations is represented to be substantial in addition the likelihood that this type of aggregation could be abused by portfolio and its partners is minimal it is represented that fund is a publicly_offered_regulated_investment_company as defined in sec_67 and sec_1_67-2t after applying the relevant law to the facts presented and the representations made we conclude that portfolio may aggregate built-in gains and losses from qualified_financial_assets contributed to portfolio by fund with built-in gains and losses from revaluations of qualified_financial_assets held by portfolio for purposes of making plr-109319-00 sec_704 and reverse sec_704 allocations provided that a contribution or revaluation of property and the corresponding allocation of tax items with respect to the property are not made with a view to shifting the tax consequences of built-in_gain or loss among the partners in a manner that substantially reduces the present_value of the partners' aggregate tax_liability except as specifically ruled upon above we express no opinion on the federal tax consequences of the transactions described above under any other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transaction s that are not specifically covered by the above rulings ruling three is limited to allocations of gain_or_loss from the sale_or_other_disposition of qualified_financial_assets made under sec_704 sec_704 and sec_1_704-3 specifically no opinion is expressed concerning i whether fund qualifies as a ric that is taxable under subchapter_m part i of the code ii allocations of items other than items of gain_or_loss from the sale_or_other_disposition of qualified_financial_assets or iii the aggregation of built-in gains and losses from qualified_financial_assets contributed to portfolio other than those described above in addition portfolio must maintain sufficient records to enable it and its partners to comply with sec_704 and sec_737 this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to portfolio and portfolio’s second authorized representative sincerely david r haglund senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c summary opinion united_states tax_court kenneth frank diller petitioner v commissioner of internal revenue respondent docket no 2668-06s filed date kenneth frank diller pro_se matthew a houtsma for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code unless otherwise indicated all section references are to the internal_revenue_code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case respondent determined for a deficiency in petitioner’s federal_income_tax of dollar_figure an addition_to_tax under sec_6651 of dollar_figure an addition_to_tax under sec_6651 of dollar_figure and an addition_to_tax under sec_6654 of dollar_figure the issues for decision are whether petitioner may exclude under sec_104 certain damages received paid unreported business_expenses is liable for the failure to timely file addition_to_tax under sec_6651 is liable for the failure to pay timely addition_to_tax under sec_6651 and is liable under sec_6654 for the addition_to_tax for failure to pay estimated_tax background the stipulation of facts and the exhibits received into evidence are incorporated herein by reference at the time the petition in this case was filed petitioner resided in greeley colorado for several years until his independent sales contract was terminated in petitioner worked for cronatron welding systems inc welding petitioner then began working with gard specialists co gard gard was and is in the business of selling nuts bolts screws traps drills grinding discs and chemicals for maintenance operations petitioner continues to work for gard petitioner filed a claim of age discrimination against welding in he received dollar_figure to settle his discrimination claim of which dollar_figure was paid directly to his attorney the parties agree that no part of the settlement paid to petitioner by welding was compensation_for physical injury or physical sickness and petitioner made no allegation that the damages were paid for medical_care attributable to emotional distress the parties also agree that petitioner received in at least dollar_figure in self-employment_income at least dollar_figure in taxable interest of which dollar_figure was withheld dollar_figure of dividends of which dollar_figure was withheld a gain of dollar_figure from the sale of stocks and bonds and rental income of dollar_figure and rental expenses of dollar_figure the parties agree that petitioner filed a request for an extension to file hi sec_2002 federal_income_tax return along with a remittance of dollar_figure on or before date but the parties also agree that petitioner has never filed a federal_income_tax return for the internal_revenue_service irs made a return for him under sec_6020 for the irs has no record of petitioner’s having filed a federal_income_tax return for during preparation for trial petitioner informed respondent that he had a business for which he paid significant business_expenses during petitioner submitted to respondent’s counsel on the morning of trial a form_1040 u s individual_income_tax_return for with an attached schedule c profit or loss from business under the name kd fabricating the schedule c reported gross_receipts of dollar_figure total expenses of dollar_figure and a net profit of dollar_figure petitioner included in the gross_income reported on schedule c the recovery from his lawsuit against welding the proceeds from the sale of a vehicle and other items similarly the expenses reported on schedule c include items from various sources discussion the commissioner’s deficiency determinations are presumed correct and taxpayers generally have the burden of proving that the determinations are incorrect rule a 290_us_111 under certain circumstances however sec_7491 may shift the burden to the commissioner with respect to a factual issue affecting liability for tax petitioner did not present evidence or argument that he satisfied the requirements of sec_7491 and therefore the burden_of_proof does not shift to respondent taxpayers are required under sec_61 to include in gross_income all income from whatever source derived unless such income has been specifically excepted from inclusion see 348_us_426 congress’s intent under sec_61 was to tax income unless specifically excluded exclusions to sec_61 must be narrowly construed 515_us_323 citing 504_us_229 the parties have agreed on the amounts of various income items received by petitioner in but not to the taxability of petitioner’s recovery_of damages for discrimination or to the treatment of his payment of attorney’s fees associated with the recovery_exclusion of certain damages sec_104 allows taxpayers to exclude from income the amount of any damages other than punitive_damages received whether by suit or agreement on account of personal physical injuries or physical sickness the flush language of sec_104 specifies that emotional distress shall not be treated as a physical injury or physical sickness but the exclusion_from_gross_income does apply to the amount of damages received for any medical_care attributable to emotional distress sec_104 treasury regulations provide that the term damages means amounts received aside from workmen’s compensation through litigation or settlement of an action that is based on tort or tort type rights sec_1_104-1 income_tax regs the supreme court in commissioner v schleier supra held that damages are excludable from income under sec_104 if they meet a two-pronged test first the taxpayer must demonstrate that the underlying cause of action giving rise to the recovery is based upon tort or tort type rights and second the taxpayer must show that the damages were received on account of personal injuries or sickness commissioner v schleier supra pincite both requirements must be satisfied for the damages to be excluded from income id pincite sec_104 was amended in to include the requirement that damages be received for physical injuries or sickness small_business job protection act of publaw_104_188 sec a 110_stat_1838 however this does not alter the analysis of schleier see tamberella v commissioner tcmemo_2004_47 affd 139_fedappx_319 2d cir none of the underlying documentation describing the nature of the settlement is in the record the parties have agreed however that no part of the settlement paid to petitioner was compensation_for physical injury or physical sickness and petitioner has made no allegation that the damages were paid for medical_care attributable to emotional distress therefore petitioner’s recovery is not exempted from inclusion in gross_income under sec_61 because petitioner’s recovery constitutes income his income includes the portion of the recovery paid to his attorney for his representation 543_us_426 petitioner however may deduct the attorney’s fees as a miscellaneous itemized_deduction under sec_67 and sec_162 subject_to the alternative_minimum_tax computations under sec_55 and sec_56 see commissioner v banks supra pincite petitioner’s business deductions during preparation for trial petitioner informed respondent that he had a business for which he paid significant business_expenses during respondent contends that petitioner has not shown that his activity if any was actually conducted for profit or as a business but if it was petitioner has not adequately substantiated his expenses from the activity before examining the issue of substantiation consideration of petitioner’s evidence of his carrying_on_a_trade_or_business is appropriate deductions are allowed under sec_162 for the ordinary and necessary expenses of carrying on an activity that constitutes the taxpayer’s trade_or_business deductions are allowed under sec_212 and for the ordinary and necessary expenses paid_or_incurred in connection with an activity engaged in for the production_or_collection_of_income or for the management_conservation_or_maintenance_of_property_held_for_the_production_of_income with respect to either section however the taxpayer must demonstrate a profit objective for the activity in order to deduct associated expenses see 66_tc_312 sec_1_183-2 income_tax regs the profit standards applicable for sec_212 are the same as those used for sec_162 see 934_f2d_573 5th cir affg tcmemo_1989_687 893_f2d_656 4th cir affg 91_tc_686 72_tc_28 34_tc_1146 sec_1_183-2 income_tax regs sets forth nine nonexclusive factors that should be considered in determining whether a taxpayer is engaged in a venture with a profit objective in order to show that he was engaged in a trade_or_business petitioner must show not only that his primary purpose for engaging in the activity was for income or profit but also that he engaged in the activity with continuity and regularity 480_us_23 respondent’s counsel represented to the court that he was not advised by petitioner of the purported business until days before trial and that petitioner did not provide him with any evidence of business income and expenses petitioner responded by offering into evidence a copy of a simple letterhead and a blank invoice each of which appeared to have been generated by a personal computer petitioner also provided a checking account statement dated date in the name of kd fabricating kenneth f diller petitioner testified that kd fabricating was in the business of selling welding maintenance and repair products a business similar to that of welding at the time he worked for them petitioner sent copies of the letterhead invoice and checking account statement to respondent in the cover letter dated date on kd fabricating co letterhead transmitting the documents petitioner stated that the documents show that kd fabricating1 is the name under which i transact business currently and have for the last ten to twelve years at trial however petitioner testified that he started kd fabricating in january of and he testified that his negative replies to questions about self-employment on his date application_for waiver of filing fee and affidavit waiver were because he was not conducting business for kd fabricating as of that date 1petitioner offered evidence that he also owned beginning in an interest in and was president of a now defunct corporate entity named kd technologies 2question of the waiver asks if you have received any money from self-employment in the last months continued this case was tried on date on date petitioner had provided to respondent’s counsel a computer- generated chart that purports to list for the w2 miscellaneous income for kenneth f diller there is no listing for kd fabricating on the chart provided to respondent’s counsel at trial however petitioner introduced a similar chart that lists income from kd fabricating of dollar_figure petitioner explained that the first chart was incomplete he did not explain why petitioner testified that kd fabricating sent out invoices in order to receive payment for sales he kept track of the invoices he testified by copying each invoice and placing it in a file folder but petitioner produced no copies of any invoices to actual customers according to petitioner customers paid him by check in petitioner however produced no bank statements or check registers to show receipt of payments from customers petitioner did not produce any evidence of any single amount received in payment from a customer petitioner’s computer-generated record of income did not list customers of kd fabricating nor their payments it merely listed the alleged total payments for the year when questioned by the court petitioner testified that he was indeed aware before appearing in court that respondent wa sec_2 continued petitioner indicated no in response challenging the existence of his kd fabricating business yet he produced no receipts or any other evidence other than his own testimony of any customer payments to kd fabricating the court is not required to accept petitioner’s self-serving testimony particularly in the absence of corroborating evidence see 440_f2d_688 9th cir affg per curiam tcmemo_1969_159 294_f2d_328 4th cir affg 34_tc_845 the court concludes that petitioner has not shown that he was engaged in an activity for profit under the name kd fabricating in taxpayers are required to maintain records that are sufficient to enable the commissioner to determine the correct_tax liability see sec_6001 sec_1_6001-1 income_tax regs petitioner’s substantiation for claimed business_expenses consists of computer-generated listings of expenses entitled cash supplies credit card expenses and check schedule petitioner produced no original documents or copies of such items as receipts credit card records bank statements or canceled checks on which his computer records were supposedly based petitioner’s cash expenditures as listed on his cash supplies document totaled dollar_figure included in both the cash and check expenses was the purchase of a new toyota pickup truck for dollar_figure petitioner testified that his listings of expenses contained some leftover expenses from welding some fuel expenses related to kd technology and some expenses related to his rental_activity as he failed to segregate his expenses he was unable to identify the expenses attributable to each activity because petitioner has not shown that he was engaged in an activity for profit under the name of kd fabricating has not shown for what purpose the claimed expenses might otherwise be deductible and if deductible has not provided proper substantiation he has not shown that he is entitled to any deductions other than those agreed to by respondent see 877_f2d_624 7th cir affg tcmemo_1987_295 additions to tax respondent bears the burden of production with respect to any addition_to_tax sec_7491 in order to meet this burden respondent must produce evidence sufficient to establish that it is appropriate to impose the addition_to_tax 116_tc_438 addition_to_tax under sec_6651 the parties agree that petitioner did not file a federal tax_return for respondent made a return for petitioner under 3petitioner may be entitled to deduct legal fees as discussed supra sec_6020 a return prepared under sec_6020 is to be disregarded for purposes of determining the amount of the addition_to_tax under sec_6651 sec_6651 respondent has met his burden of production under sec_7491 with respect to imposing the addition_to_tax under sec_6651 it is petitioner’s burden to prove that he had reasonable_cause and lacked willful neglect in not filing his return timely see 469_us_241 higbee v commissioner supra sec_301_6651-1 proced admin regs because petitioner failed to offer any evidence of reasonable_cause and lack of willful neglect for his failure_to_file timely respondent’s determination that he is liable for the addition_to_tax under sec_6651 is sustained addition_to_tax under sec_6651 under sec_6651 the return made by respondent under sec_6020 is to be treated as a return filed by petitioner for purposes of determining the amount of the addition_to_tax under sec_6651 because petitioner failed to offer any evidence of reasonable_cause and lack of willful neglect for his failure to pay timely respondent’s determination that he is liable for the addition_to_tax under sec_6651 is sustained addition_to_tax under sec_6654 sec_6654 imposes an addition_to_tax for failure to make timely and sufficient payments for estimated_taxes in order for respondent to satisfy his burden of production under sec_7491 he must produce evidence necessary to enable the court to conclude that petitioner had an obligation to make an estimated_tax payment 127_tc_200 specifically respondent must produce evidence showing that petitioner had a required_annual_payment as defined by sec_6654 for the year at issue id the sec_6654 addition_to_tax is calculated with reference to four required_installment payments of the taxpayer’s estimated_tax liability sec_6654 each required_installment of estimated_tax is equal to percent of the required_annual_payment sec_6654 under sec_6654 required_annual_payment means the lesser of-- i percent of the tax_shown_on_the_return for the taxable_year or if no return is filed percent of the tax for such year or ii percent of the tax_shown_on_the_return of the individual for the preceding_taxable_year clause ii shall not apply if the preceding_taxable_year was not a taxable_year of months or if the individual did not file a return for such preceding_taxable_year respondent produced a form_4340 certificate of assessments payments and other specified matters for establishing that petitioner filed for an extension of time to file a tax_return for along with a payment of dollar_figure respondent made a return for petitioner under sec_6020 reporting a tax_liability of dollar_figure such a return is good and sufficient for all legal purposes sec_6020 the evidence is sufficient for the court to make the analysis required by sec_6654 respondent introduced evidence in the form of a form_4340 for showing that there is no record that petitioner filed a return_for_the_preceding_taxable_year ie therefore under the flush language of sec_6654 clause ii does not apply the court concludes that petitioner had a required_annual_payment for the sec_6654 addition_to_tax is mandatory unless petitioner can place himself within one of the computational exceptions provided by sec_6654 91_tc_874 75_tc_1 petitioner did not pay the required estimated_tax for and failed to show that his failure to timely pay estimated_taxes qualifies for one of the exceptions under sec_6654 accordingly petitioner is liable for the addition_to_tax under sec_6654 for to reflect the foregoing decision will be entered for respondent


department of the treasury internal_revenue_service te_ge eo examinations fulton street room brooklyn ny tax_exempt_and_government_entities_division date number release date legend org - organization name xx - date address address org address dear taxpayer_identification_number person to contact identification_number contact telephone number certified mail this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code the code our favorable determination_letter to you dated july 19xx is hereby revoked and you are no longer exempt under sec_501 of the code effective july 20xx the revocation of your exempt status was made for the following reason s as a result of our examination for the tax_year ended june 20xx it was determined that your organization has been inactive and that there have been no operations or regular financial activities conducted or planned as such you failed to meet the operational requirements for continued exemption under sec_501 contributions to your organization are no longer deductible under sec_170 after july 20xx you are required to file income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the tax_year ending june 20xx and for all tax years thereafter in accordance with the instructions of the return processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination under the declaratory_judgment provisions of sec_7428 of the code a petition to the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia must be filed before the ' day after the date this determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory judgments by referring to the enclosed publication you may write to these courts at the following addresses you also 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 in the heading of this letter enclosure publication sincerely nanette m downing director eo examinations letter catalog number 34198j internal_revenue_service - tax_exempt_and_government_entities_division exempt_organizations examinations fulton st floor brooklyn ny date date org address department of the treasury taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code is necessary lf you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process if we issue a determination_letter to you based on technical_advice no further you may also request that we refer this matter for technical_advice as explained in publication administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any letter rev catalog number 34809f proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the if you write please provide a telephone number and the most convenient heading of this letter time to call if we need to contact you thank you for your cooperation sincerely nanette m downing director eo examinations enclosures publication publication report of examination catalog number 34809f letter rev form 886-a rev date schedule number or exhibit explanations of items name of taxpayer org tax identification_number year period ended 20xx06 ein legend org - organization name xx - date during our examination of your return form_990 for the fiscal_year ended june 20xx we noted that you discontinued operations and the filing of returns after july 20xx in order to be exempt under sec_501 an organization must be both organized and operated exclusively for one or more purposes specified in that section if an organization fails to meet either the organizational_test or the operational_test it is not exempt reg sec_1 c -i a i the organizational_test relates to the rules for governing an organization and the purposes stated in its articles of organization the operational_test relates to the organization’s activities as a result of your continued inactivity we have determined that your fail to meet the operational_test accordingly we propose to revoke your exemption from federal_income_tax as an organization described in sec_501 of the internal_revenue_code effective july 20xx if you accept our findings please sign and return the enclosed form_6018 consent to proposed action - sec_7428 form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service


t c summary opinion united_states tax_court david m kososki petitioner v commissioner of internal revenue respondent docket no 17326-12s filed date david m kososki pro_se nancy klingshirn for respondent summary opinion panuthos chief special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the internal_revenue_code code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a dollar_figure deficiency in and an accuracy-related_penalty of dollar_figure with respect to petitioner’ sec_2010 federal_income_tax the issues for decision are whether petitioner is entitled to the filing_status of married_filing_jointly and if not whether he is entitled to a dependency_exemption deductions for his two minor children b the earned_income_credit and c the additional_child_tax_credit and whether petitioner is liable for the accuracy-related_penalty under sec_6662 background the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time the petition was filed petitioner resided in michigan during petitioner and nicole kososki lived together as husband and wife with their children and provided for the children’s support petitioner’ sec_2010 adjusted_gross_income did not equal or exceed ms kososki’s petitioner and ms kososki had been married for approximately eight years and had previously filed their federal_income_tax returns as married_filing_jointly petitioner’s mother typically prepared and electronically filed the returns with the consent of petitioner and ms kososki in early date petitioner and ms kososki discussed the preparation and filing of their tax_return on date petitioner with assistance from his mother electronically filed the tax_return as married_filing_jointly the joint_return reflected an overpayment and a claim for credits resulting in a refund due of dollar_figure shortly after the return was filed ms kososki moved out of the marital home sometime thereafter ms kososki and petitioner discussed the status of their tax_return and apportioning the refund ms kososki indicated that she did not object to the filing of a joint_return but only because she expected to receive a portion of the refund from petitioner in date ms kososki learned that petitioner had received the tax_refund which had been claimed on the joint_return the refund was directly deposited into petitioner’s bank account ms kososki was not a named account_holder on petitioner’s bank account and petitioner did not otherwise share any of the refund with ms kososki in late date ms kososki filed a tax_return for with the status of married_filing_separately and claimed dependency_exemption deductions for their two children as a result of the conflicting filing statuses the internal_revenue_service irs initiated an examination of petitioner’ sec_2010 joint tax_return ultimately the irs issued a notice_of_deficiency determining that petitioner was not entitled to joint filing_status and disallowed the claimed dependency_exemption deductions the earned_income_tax_credit and the additional_child_tax_credit and determined an accuracy-related_penalty under sec_6662 discussion burden_of_proof in general the commissioner’s determination set forth in a notice_of_deficiency is presumed correct and the taxpayer bears the burden of proving otherwise rule a 503_us_79 290_us_111 sec_7491 however places the burden_of_proof on the commissioner with regard to certain factual issues because petitioner has not alleged or shown that sec_7491 applies the burden_of_proof remains on petitioner joint or separate_return sec_6013 permits a husband and wife to file a joint_return spouses who elect to file a joint_return for a tax_year are required to compute their tax on the aggregate income of both spouses and both spouses are jointly and severally liable for all taxes due see sec_6013 114_tc_276 where spouses file a joint_return with respect to a tax_year neither spouse may thereafter elect married_filing_separately status for that tax_year if the time for filing the tax_return of either spouse has expired see united_states v guy 978_f2d_934 6th cir 38_tc_530 haigh v commissioner tcmemo_2009_140 sec_1_6013-1 income_tax regs respondent argues that petitioner and his former wife did not file a joint_return we disagree petitioner with the consent of ms kososki initially timely filed a joint_return for on date in late date ms kososki timely filed a separate_return for the same tax_year generally the time for filing a tax_return is the 15th day of april following the close of the calendar_year sec_6072 because ms kososki filed as married_filing_separately before the time for either spouse to file a return had expired her separate_return is valid see sec_1_6013-1 income_tax regs since ms kososki filed a separate_return after the joint_return and the irs accepted it respondent adjusted the original joint_return of petitioner to married_filing_separately status accordingly we sustain the determination insofar as respondent determined that petitioner is not entitled to joint_return filing_status the filing of petitioner’s separate_return however is not dispositive of his entitlement to the claimed dependency_exemption deductions and tax_credits dependency_exemption deductions deductions and credits are a matter of legislative grace and the taxpayer bears the burden of proving entitlement to any deduction or claimed credit rule a 308_us_488 sec_151 allows a deduction for each dependency_exemption as defined in sec_152 sec_152 provides that a dependent means a qualifying_child or a qualifying_relative sec_152 defines a qualifying_child as an individual who bears a designated relationship to the taxpayer such as a child of the taxpayer who has the same principal_place_of_abode as the taxpayer for more than one-half of the tax_year who has not attained the age of or is a student who has not attained the age of as of the close of the calendar_year who has not provided over one-half of such individual’s own support for the calendar_year in which the tax_year of the taxpayer begins and who has not filed a joint_return with the individual’s spouse as indicated petitioner and ms kososki did not separate until thus the children lived in the same household as petitioner and ms kososki it would thus appear initially that the children are the qualifying children of each parent the code provides an objective rule for determining which taxpayer or parent is entitled to a dependency_exemption deduction in the event that both parents attempt to treat the same individual as a qualifying_child on separately filed returns when the qualifying_child resided with both parents for the same amount of time during the taxable_year see sec_152 under sec_152 i f the parents claiming any qualifying_child do not file a joint_return together such child shall be treated as the qualifying_child of ii the parent with the highest adjusted_gross_income respondent does not contest that petitioner’s children meet all the requirements of sec_152 however respondent asserts that because petitioner was not entitled to joint filing_status and because ms kososki had the higher adjusted_gross_income for he is not entitled to claim the dependency_exemption deductions for according to respondent ms kososki is therefore the only taxpayer entitled to the deductions under sec_151 petitioner admits that ms kososki had the higher adjusted_gross_income for therefore pursuant to sec_152 petitioner is not entitled to the dependency_exemption deductions for earned_income_credit taxpayers are afforded a refundable_credit under sec_32 against income_tax when their earned_income is below a statutory level however sec_32 denies this credit to married individuals who file separate returns because we find petitioner is not entitled to joint_return filing_status he is not entitled to the earned_income_credit for additional_child_tax_credit with respect to the additional_child_tax_credit for a taxpayer may claim a credit against federal_income_tax of up to dollar_figure for each qualifying_child of the taxpayer for which the taxpayer is allowed a dependency_exemption deduction under sec_151 sec_24 the court concludes that petitioner is not entitled to a dependency_exemption deduction for either of his two children as a result he is not entitled to the additional_child_tax_credit for accuracy-related_penalty sec_6662 and b and imposes a penalty of of the portion of an underpayment_of_tax attributable to the taxpayer’s negligence disregard of rules or regulations or substantial_understatement_of_income_tax negligence includes any failure to make a reasonable attempt to comply with the code including any failure to keep adequate books_and_records or to substantiate items properly see sec_6662 sec_1_6662-3 income_tax regs a substantial_understatement includes an understatement of income_tax that exceeds the greater of of the tax required to be shown on the return or dollar_figure see sec_6662 sec_1_6662-4 income_tax regs the sec_6662 accuracy-related_penalty does not apply with respect to any portion of an underpayment if the taxpayer proves that there was reasonable_cause for such portion and that he acted in good_faith with respect thereto sec_6664 the determination of whether a taxpayer acted with reasonable_cause and in good_faith depends on the pertinent facts and circumstances including the taxpayer’s efforts to assess the proper tax_liability the knowledge and the experience of the taxpayer and any reliance on the advice of a professional such as an accountant sec_1_6664-4 income_tax regs generally the most important factor is the taxpayer’s effort to assess the taxpayer’s proper tax_liability id the commissioner has the burden of production under sec_7491 with respect to the accuracy-related_penalty under sec_6662 to satisfy that burden the commissioner must produce sufficient evidence showing that it is appropriate to impose the penalty 116_tc_438 respondent determined the accuracy-related_penalty for for negligence or a substantial_understatement_of_income_tax respondent has satisfied his burden by producing evidence that the underpayment_of_tax with respect to petitioner is the result of a substantial_understatement_of_income_tax for because the understatement of dollar_figure exceeds dollar_figure which is greater than of the tax required to be shown on the return accordingly since respondent has met his burden of production petitioner must provide persuasive evidence that the accuracy-related_penalty should not be imposed with respect to the underpayment because he acted with reasonable_cause and in good_faith see sec_6664 rule a higbee v commissioner t c pincite in early petitioner filed a joint_return with ms kososki when they were married and still living together the record indicates that at the time the return was filed ms kososki did not object to the filing and in fact had discussed with petitioner the filing of the return the status of the refund and apportioning the refund when ms kososki learned that she would not receive any of the tax petitioner’s original tax_return reflected tax due of dollar_figure refund from the jointly filed return she filed a separate_return within the prescribed time for filing a return although petitioner’s initial joint_return was adjusted by the irs as a result of the later timely filed separate_return and we have sustained this adjustment petitioner has demonstrated that he acted with good_faith at the time the return was filed and he had reasonable_cause for filing the return with the status of married_filing_jointly because ms kososki had agreed to that status at the time the return was filed therefore petitioner is not liable for the accuracy-related_penalty for tax_year for the foregoing reasons the court sustains respondent’s determination that petitioner is not entitled to the status of married_filing_jointly the claimed dependency_exemption deductions the earned_income_credit and the additional_child_tax_credit for tax_year the court does not sustain respondent’s imposition of the accuracy-related_penalty under sec_6662 for tax_year we have considered all of the parties’ arguments and to the extent not addressed herein we conclude that they are moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent as to the deficiency and for petitioner as to the accuracy- related penalty under sec_6662


department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc corp b06 plr-161351-05 date date internal_revenue_service number release date index number ------------------------------------------------------- ----------------------------------------- --------------------------------------- ------------------------------- ----------------------------------------- --------------------------------------- ------------------------------- --------------------------------------------------- ------------- ----------------------------------------- --------------------------------------- --------------------------------- ------------------------------------------------------------------------- legend distributing ------------------------------------------------------------------------ ------------------------------------------------------------------- ----------------------------------------------------------- controlled -------------------------------------------------------------------------- -------------- shareholder a shareholder b shareholder c shareholder d shareholder e business x ------------------------------ ------------------------ -------------------------- -------------------------- ---------------------- --------------------------------------------------- plr-161351-05 ------------------------------------------------------------ ---------------------------------------- business y state a z a b c d e f f aa ------------- ----------- ---------- --------- --------- -------- --------- --------- ---- -------------- dear ---------------- this responds to your authorized representative’s letter dated date requesting rulings concerning the federal_income_tax consequences of a proposed transaction additional information was submitted in letters dated date and date the rulings contained in this letter are predicated upon the facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for a ruling verification of the information representations and other data may be required as part of the audit process moreover no information provided by the taxpayer has been reviewed and no determination has been made regarding whether the proposed transaction i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation distributing or the controlled plr-161351-05 corporation controlled or both see sec_355 and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in distributing or controlled see sec_355 and sec_1_355-7t distributing is a state a calendar_year s_corporation engaged in business x and business y with regard to business y distributing is the general_partner or managing member of several business entities business entities each of which owns and operates certain aa assets with regard to business y distributing’s officers and other employees have performed active and substantial management functions for at least five years with respect to the activities of those business entities in which distributing is a member or a partner including the decision- making regarding significant business matters for those business entities distributing has one class of stock outstanding of which z shares are owned approximately a by shareholder a b by shareholder b c by shareholder c d by shareholder d e by shareholder e and the remaining shares are owned by f other individual shareholders each of which own no more than f distributing has supplied information indicating that it has had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each business for each of the past five years for what has been represented as a valid business_purpose distributing has proposed the following transaction i distributing will form a new corporation controlled and will contribute to controlled all the assets used in connection with business x solely in exchange for the assumption of related liabilities and z shares of the controlled common_stock controlled will be an accrual basis taxpayer formed under the laws of state a ii distributing will distribute to its shareholders pro_rata all of the controlled stock the distribution iii controlled will elect to be an s_corporation pursuant to sec_1362 on the first available date after the distribution distributing will continue to operate business y following the distribution it is planned that in addition to having officers and a board_of directors distributing will employee one or more individuals who will have continuing responsibility for carrying out the decisions of distributing’s board_of directors with regard to business y moreover to the extent needed distributing may engage controlled or other third party vendors to provide other services for which distributing’s plr-161351-05 officers will have oversight and decision making responsibility in particular distributing will engage controlled at fair_market_value rates to provide certain auxiliary services such as financial record keeping and analysis distributing has made the following representations with respect to the proposed transaction no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of distributing the five years of financial information submitted on behalf of distributing is representative of distributing’s present operations and with regard to distributing there have been no substantial operational changes since the date of the last financial statements submitted following the transaction distributing and controlled will each continue the active_conduct of its business independently and with its separate employees except that controlled will provide to distributing at fair_market_value rates certain auxiliary services such as financial record keeping the distribution of the stock of controlled is carried out for the following corporate business_purpose to protect business y from the potential liabilities arising from business x risk reduction the distribution of the stock of controlled is motivated in whole or substantial part by this corporate business_purpose there is no acquisition of stock of distributing or controlled including any predecessor or successor of any such corporation that is part of a plan or series of related transactions within the meaning of sec_1 7t that includes the distribution of the controlled stock distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of this transaction no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution of the controlled stock no two parties to the transaction are investment companies as defined in sec_368 and iv the transaction is not used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both a b c d e f g h i plr-161351-05 j payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length k the total adjusted bases and the fair_market_value of the assets transferred to controlled by distributing each equals or exceeds the sum of the liabilities assumed as determined under sec_357 by controlled plus the fair_market_value of any other_property and the amount of any money transferred by controlled to distributing that is distributed to the shareholders of distributing or transferred to the creditors of distributing pursuant to the plan_of_reorganization l the sum of the liabilities assumed as determined under sec_357 by controlled in the contribution were incurred in the ordinary course of business and are associated with the assets being transferred m for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or 50-percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution n for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or 50-percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five year- period determined after applying sec_355 ending on the date of the distribution or ii attributable to distributions on distributing stock that was acquired by purchase as defined in sec_355 and during the five year-period determined after applying sec_355 ending on the date of the distribution o the total fair_market_value of the assets of distributing transferred to controlled will equal or exceed the aggregate adjusted_basis of the transferred assets based solely on the information submitted and the representations set forth above we rule as follows plr-161351-05 the transfer by distributing of part of its assets in exchange for all of the issued and outstanding common_stock of controlled followed by the distribution of all the controlled stock to the distributing shareholders will constitute a reorganization within the meaning of sec_368 of the code distributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing upon its transfer of assets and liabilities to controlled in exchange for all the stock of controlled sec_361 and sec_357 controlled will recognize no gain_or_loss on the receipt of distributing assets in exchange for all of the controlled stock sec_1032 the basis of each asset received by controlled will be in each instance the same as the basis of such assets in the hands of distributing immediately prior to the transaction sec_362 the holding_period of the distributing assets received by controlled will include the period during which such assets were held by distributing sec_1223 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of the distributing shareholders on their receipt of the controlled stock in the distribution sec_355 the aggregate basis of the controlled stock and the distributing stock in the hands of the distributing shareholders immediately after the distribution will equal the aggregate basis in the distributing stock held immediately prior to the distribution such aggregate basis will be allocated between the distributing stock and the controlled stock in proportion to the fair_market_value of each in accordance with sec_1_358-2 sec_358 sec_358 and sec_358 the holding_period of the controlled stock received by the distributing shareholders will include the holding_period of the distributing stock held by such shareholders provided that such shareholders held distributing stock as a capital_asset on the date of the distribution sec_1223 no gain_or_loss will be recognized by distributing upon the distribution of all of its stock in controlled to its shareholders sec_361 plr-161351-05 as provided in sec_312 proper allocation of earnings_and_profits between distributing and controlled will be made in accordance with sec_1_312-10 distributing’s momentary ownership of the stock of controlled as part of the proposed reorganization under sec_368 will not cause controlled to have an ineligible shareholder for any portion of its first taxable_year under sec_1361 if controlled otherwise meets the requirements of a small_business_corporation under sec_1361 controlled will be eligible to elect to be a subchapter_s_corporation under sec_1362 for its first taxable_year no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or the effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular no opinion is expressed regarding i whether the distribution satisfies the business_purpose requirement of sec_1_355-2 ii whether the proposed transaction is used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both see sec_355 and sec_1_355-2 and iii whether the distribution and an acquisition or acquisitions are part of a plan or series of related transactions under sec_355 in addition no opinion is expressed or implied as to whether distributing is a valid s_corporation and as to whether controlled is otherwise eligible to be an s_corporation this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not used or cited as precedent each taxpayer involved in the proposed transaction should attach a copy of this ruling letter to the taxpayer’s federal_income_tax return for the taxable_year in which the proposed transaction is completed in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely george r johnson _________________________________ george r johnson assistant to the chief branch office of associate chief_counsel corporate


department of the treasury internal_revenue_service washington d c march cc dom fs proc uilc number release date internal_revenue_service national_office field_service_advice memorandum for from sara m coe chief field service procedural branch cc dom fs proc subject expedited refund in joint_committee case this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend x authorized representative issue s in considering a request for an expedited refund in a joint_committee case does a district_director have discretion not to require security on interest accruing upon the tax_refund assuming that such discretion exists what factors should be taken into account in determining whether that discretion should be exercised in whole or in part conclusion in considering a request for an expedited refund in a joint_committee case the service does have discretion to require the taxpayer to provide security for any underpayment interest that may be payable if the taxpayer was subsequently required to repay the entire amount of the tax_refund in exercising its discretion the district_director may consider the amount of tax the anticipated time to complete the examination current interest rates and any factors affecting the financial well-being of the taxpayer facts near the completion of an audit the taxpayer x requested that the service expedite its anticipated refund of income_tax for the years in the audit cycle the taxpayer requested a refund of tax in excess of dollar_figure together with overpayment interest payable under sec_6611 on the refunded amount the taxpayer agreed to provide security in the form of a letter_of_credit for the tax_refund amount but was initially unwilling to provide security for any interest when the district_director insisted that x also provide security for interest in an amount at least equal to amount of interest being paid to the taxpayer x with the tax_refund x agreed legal analysi sec_1 in considering a request for an expedited refund in a joint_committee case a district_director has discretion whether to require security on all or any portion of the underpayment interest that may become due from the taxpayer upon a subsequent determination that the taxpayer is liable for the full amount of the refunded tax sec_6405 of the internal_revenue_code provides that no refund_or_credit of income_tax in excess of dollar_figure may be made until after a report is submitted to the joint_committee on taxation however modified procedures are authorized at irm where a taxpayer requests that a refund be made prior to the completion of survey or examination action and no disadvantage to the government will occur a security bond is substituted for the tax being refunded in advance these procedures apply where a refund is claimed in excess of dollar_figure any examination or survey action will not be completed within six months a modified expedite refund request report is sent to the joint_committee the taxpayer posts bond or other security as required by the service and the taxpayer provides an executed written security_agreement under these procedures the service does not have discretion to forego security on an expedited tax_refund irm requires the taxpayer to post bond or similar security for the amount of the refund however the service does have discretion to forego security on related interest at the discretion of the district_director an additional_amount of bond or security may be required with respect to interest on the refund in the event all or part of the refund must be repaid this amount should be measured by the reasonable anticipated time to complete the examination and the interest rate currently in effect under sec_6621 irm c the discretionary security is for potential underpayment interest that may be due pursuant to sec_6601 on the refunded amount if the refunded tax must be repaid to the service at the end of the audit the overpayment interest on the amount expeditiously refunded is relevant only in calculating the anticipated underpayment interest the purpose of the required bond or other security is to protect the service from the taxpayer’s nonpayment of the tax if it is subsequently determined that the taxpayer was not entitled to the refund the security will enable the service to quickly recover the amount that was refunded by enforcing the bond or other security_agreement regardless of the taxpayer’s financial condition at the end of the audit in evaluating the need for obtaining security on the interest the service can consider any factors that might affect the service’s ability to collect the tax and underpayment interest in determining whether to obtain security for all or part of the potential underpayment interest on the tax being refunded the district_director should consider the amount of the tax_refund the amount of potential underpayment interest and any factors that might affect the taxpayer’s ability to pay the tax plus underpayment interest at the end of the audit irm c directs that the amount of discretionary security on potential underpayment interest should be measured by the reasonably anticipated time to complete the audit and the current interest rates that is the service should compute the amount of underpayment interest that would be due on the refunded amount of tax as of the future date when the tax underpayment caused by making revproc_94_60 1994_2_cb_774 directs the service in recovering taxes that have been refunded to use the lower overpayment interest rate to compute the amount of underpayment interest for any period for which overpayment interest was paid the refund is expected to be determined an actual computation using a future payment_date and current interest rates can be done using the taxpayer’s accounts for the years at issue in determining whether to exercise the discretion the district_director should consider the amount of the tax and potential underpayment interest as well as the taxpayer’s anticipated ability to pay that amount at the end of the audit the purpose of the bond or other security instrument is providing security for the repayment if necessary of the refunded tax and the payment of whatever underpayment interest that can be expected to have accrued on that tax key factors could be the amount of the refund the amount of underpayment interest that would have accrued at the time the expedited refund request was made the anticipated length of the audit and the amount of any additional underpayment interest that would accrue if at the end of the audit it was determined that the taxpayer was required to repay tax in the full amount of the refund the strength of the taxpayer’s position and the likelihood that the joint_committee will approve the refund the taxpayer’s financial condition the extent of the taxpayer’s business within the united_states and the amount of the taxpayer’s assets within the united_states and any events that might affect the financial well-being of the taxpayer once these factors are considered the district_director may determine that the overpayment interest is a low estimate of the underpayment interest that might be due as of a future date and therefore may be an appropriate measure of the security that is needed case development hazards and other considerations for this case we recommend that you have the agent estimate the amount of underpayment interest that would be due on the potential recovery_of the entire tax_refund as of the expected completion date for the audit the agent should also document the factors which led him to recommend that security be obtained for any part of the underpayment interest


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si - plr-113666-99 date date x llc a b c d d1 d2 d3 d4 year dear this letter responds to your date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code x is a corporation that was incorporated on d1 x made an s_corporation_election under sec_1362 effective for its year taxable_year on d2 a x’s sole shareholder sold all of x’s stock to llc a limited_liability_company whose members were b c and d b c and d were trying to insulate themselves from additional risk by creating an intervening entity llc to own the stock of x on d2 b c and d did not know and were not informed by x’s accountant that a's transfer of x stock to llc would terminate x's s election the transfer of x stock to llc was not motivated by tax_avoidance or retroactive planning on d3 b and c purchased d’s units in llc on d4 after x's new accountant learned that llc owned shares of x stock llc distributed the x stock to b and c so that llc no longer owned shares of x x llc b c and d agree to make any adjustments consistent with the treatment of x as an s_corporation that the secretary may require for the period of termination sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1361 provides that a small_business_corporation means a domestic_corporation that is not an ineligible_corporation and that does not have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the first day of the first taxable_year for which a corporation is an s_corporation such corporation ceases to be a small_business_corporation a termination of an s_corporation_election under sec_1362 is effective on and after the date of cessation sec_1362 provides that if an election under sec_1362 by any corporation was terminated under sec_1362 the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the termination steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified under sec_1362 agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary for that period then notwithstanding the circumstances resulting in such termination the corporation shall be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and the representations made we hold that x’s s_corporation_election terminated on d2 when llc an ineligible s_corporation shareholder acquired x stock we also conclude that the termination was inadvertent within the meaning of sec_1362 under the provisions of sec_1362 x will be treated as continuing to be an s_corporation during the period from d2 to d4 and thereafter provided that x’s s_corporation_election was not otherwise invalid and provided that the election was not otherwise terminated under sec_1362 additionally during the period from d2 to d4 b c and d will be treated as the owners of the x stock held by llc in proportion to their interest in llc accordingly b c and d must include their pro_rata share of the separately and nonseparately computed items of x as provided in sec_1366 if x b c or d fail to treat x as described above this ruling shall be null and void 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 requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to x sincerely yours branch j thomas hines senior technician reviewer office of the assistant chief_counsel passthroughs and special industries


t c memo united_states tax_court dale i dirkes petitioner v commissioner of internal revenue respondent docket no filed date dale i dirkes pro_se frederick w krieg for respondent memorandum opinion dawson judge this case was assigned to special_trial_judge daniel j dinan pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_183 the court agrees with unless otherwise indicated section references are to the internal_revenue_code in effect for the year in issue and rule references are to the tax_court rules_of_practice and procedure - - and adopts the opinion of the special_trial_judge which is set forth below opinion of the special_trial_judge dinan special_trial_judge this matter is before the court on respondent’s motion for summary_judgment filed pursuant to rule a petitioner filed an objection to the motion background on date respondent sent a notice_of_deficiency to petitioner determining a deficiency in his federal_income_tax for of dollar_figure and additions to tax pursuant to sec_6651 and sec_6654 of dollar_figure and dollar_figure respectively respondent determined that petitioner failed to timely file his federal_income_tax return for failed to pay estimated_taxes and failed to report the following amounts includable in his income capital_gains dollar_figure wages big_number respondent also determined that petitioner was entitled to a standard_deduction of dollar_figure and an exemption of dollar_figure petitioner timely filed his petition with the court on date in which he alleged in pertinent part the determination of the tax set forth in said notice_of_deficiency is based upon the following errors a the commissioner has erroneously alleged that the petitioner received thirty- seven thousand three hundred and twenty- three dollars dollar_figure in wages b the commissioner has erroneously alleged that the petitioner received a capital_gain of sixty thousand six hundred and twenty-eight dollars dollar_figure d the commissioner has erroneously alleged that the petitioner owes a delinquency penalty of three thousand four hundred ninety-eight dollars and fifty cents dollar_figure pursuant to internal_revenue_code sec_6651 be the commissioner has erroneously alleged that petitioner owes a penalty of six hundred seventy-one dollars and thirteen cents dollar_figure for failure_to_file guarterly estimates pursuant to internal_revenue_code sec_6654 further petitioner alleges the facts upon which petitioner relies as the basis of the petitioner’s case are as follows a to the best of petitioner’s information knowledge and belief the petitioner’s total income was less than twenty thousand dollars dollar_figure this compensation consisted of approximately eleven days of regular wages with the remaining compensation deriving from the exercise of incentive_stock_option s petitioner is without documentation sufficient to produce a more detailed analysis of said compensation c the petitioner’s failure_to_file federal_income_tax returns in a timely manner is not due to or resultant from willful neglect d the petitioner’s failure_to_file federal_income_tax returns in a timely manner is due to and resultant from reasonable_cause in his motion for summary_judgment respondent for the purpose of this motion concedes the capital_gain adjustment of the statutory_notice_of_deficiency thus this adjustment is no longer at issue the notice_of_deficiency allowed petitioner a standard_deduction of dollar_figure based on married filing separate status respondent concedes that petitioner should be allowed a standard_deduction of dollar_figure based upon single filing_status this adjustment is not at issue for the purpose of this motion respondent concedes the sec_665l1 a and a additions to tax thus these adjustments are no longer at issue before respondent filed the motion for summary_judgment petitioner filed a reply to respondent’s answer to the petition in which he avers on or about date petitioner received his w2 forms for the first time from his previous employer mci communications corporation those w2's indicate that petitioner’s total income for the calendar_year was thirty-seven thousand three hundred twenty-three dollars and eleven cents dollar_figure this income includes all incentive stock_options ico’s exercised in calendar_year the notice_of_deficiency included in petitioner’s income wages of dollar_figure for pursuant to petitioner’s admission in - - paragraph of his reply to respondent’s answer he is deemed to have conceded that amount thus these wages are no longer in issue discussion summary_judgment is appropriate if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits if any show that there 1s no genuine issue as to any material fact and that a decision may be rendered as a matter of law rule b 98_tc_518 affd 17_f3d_965 7th cir 85_tc_527 summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials see fla peach corp v commissioner 90_tc_678 78_tc_412 the moving party bears the burden of proving that there is no genuine issue of material fact and factual inferences will be made in a manner most favorable to the party opposing summary_judgment see 85_tc_812 as previously stated the issues framed by the pleadings in this case are whether petitioner failed to report capital_gain of dollar_figure whether he failed to report wages of dollar_figure whether he is allowed an exemption of dollar_figure whether he is allowed a standard_deduction of dollar_figure whether -- - he is liable for an addition_to_tax pursuant to sec_6651 of dollar_figure and whether he is liable for an addition_to_tax pursuant to sec_6654 of dollar_figure for the purpose of this motion respondent concedes the capital_gain adjustment of dollar_figure and petitioner admits having received wages of dollar_figure from mci for based on decreased adjusted_gross_income resulting from respondent’s concessions respondent concedes that petitioner is entitled to an exemption in the amount of dollar_figure this adjustment is not at issue respondent concedes that petitioner is entitled to a standard_deduction of dollar_figure based upon single filing_status this adjustment is not at issue respondent concedes that petitioner is not liable for additions to tax pursuant to sec_6651 and a conclusion for the reasons stated herein we find and hold that there is no genuine issue as to any material fact remaining for litigation in this case and that a decision may be rendered as a matter of law to reflect the foregoing an order granting respondent’s motion for summary_judgment will be issued and decision will be entered pursuant to rule


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 corp b03 plr-111518-12 date date legend parent date date date x -------------------------------------- ----------------------- -------------------------- -------------------------- --------------------------- -- company official -------------------------------------------------- ----------------------------- ------------------------------------------------------- tax professional -------------------------- ------------------------------ dear -------------- this letter responds to your letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election in particular parent is requesting an extension of time for the consolidated_group of which parent is the common parent to elect an extended carryback period the election for a consolidated_net_operating_loss cnol the material information submitted for consideration is summarized below plr-111518-12 parent is the common parent of a consolidated_group the parent group parent group incurred a cnol in the taxable_year ending date the year cnol parent seeks to carry back the year cnol x years to its taxable_year ending on date under sec_172 of the internal_revenue_code parent was required to file the election in order to carry back the year cnol to its taxable_year ending on date and to obtain the benefit of sec_56 the election was due on date but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for the parent group’s consolidated_income_tax_return for the taxable_year in which the year cnol was incurred or any subsequent taxable_year parent has represented that it is not seeking to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 at the time parent requested relief taking into account any qualified_amended_return filed within the meaning of sec_1 c and for which the new return position requires or permits a regulatory election for which relief is requested sec_172 generally permits a taxpayer to carry back a net_operating_loss nol to each of the taxable years preceding the taxable_year of the nol sec_172 permits a taxpayer to elect to carry back an applicable net_operating_loss to each of the or taxable years preceding the taxable_year of the applicable net_operating_loss in lieu of the 2-year period provided by sec_172 sec_172 provides that the term applicable net_operating_loss applicable nol means the taxpayer’s net_operating_loss for a taxable_year ending after date and beginning before date sec_172 provides that the election under sec_172 shall be made by the due_date including extension of time for filing the return for the taxpayer’s last taxable_year beginning in the election is irrevocable and in general may be made only with respect to one taxable_year sec_1502 provides that the secretary shall prescribe such regulations as he may deem necessary in order that the tax_liability of any affiliated_group_of_corporations making a consolidated_return and of each corporation in the group both during and after the period of affiliation may be returned determined computed assessed collected and adjusted in such manner as clearly to reflect the income_tax_liability and the various factors necessary for the determination of such liability and in order to prevent avoidance of such tax_liability in carrying out the preceding sentence the secretary may prescribe rules that are different from the provisions of chapter that would apply if such corporations filed separate returns plr-111518-12 sec_1_1502-21 provides that losses taken into account in determining a cnol may be carried to other taxable years whether consolidated or separate only under paragraph b of sec_1_1502-21 sec_1_1502-21 provides that nol carryovers and carrybacks to a taxable_year are determined under the principles of sec_172 and sec_1_1502-21 sec_1_1502-21t provides that a consolidated_group can elect an extended carryback period pursuant to sec_172 with regard to a cnol arising in a taxable_year ending after date and beginning before date revproc_2009_52 2009_49_irb_744 provides when and how a taxpayer may make an election under sec_172 sec_4 of revproc_2009_52 provides that the common parent of a consolidated_group makes the election for the group sec_4 and of revproc_2009_52 permit the election to be made for consolidated taxpayers by attaching a statement to the original or amended consolidated_return for the taxable_year of the applicable cnol by attaching a statement to the taxpayer’s amended consolidated_return applying the applicable cnol to the carryback_year or by attaching a statement to a claim for a tentative_carryback_adjustment on form_1139 corporation application_for tentative refund sec_4 b and b of revproc_2009_52 require the election regardless of the manner in which made to be filed no later than the due_date including extensions for filing the return for the taxpayer’s last taxable_year beginning in under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 the election by a consolidated_group to extend the carryback period under sec_172 for a cnol is a regulatory election therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent to file the election provided parent establishes to the satisfaction of the commissioner that it acted reasonably and in good_faith the requirements of sec_301_9100-1 and plr-111518-12 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company official and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election and that the request for relief was filed before the failure to timely make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the affidavits submitted and the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly provided the parent group qualifies substantively to file the election we grant an extension of time under sec_301_9100-3 until sixty days from the date on this letter for parent to file the election the time in which parent may file a form_1139 for the year cnol has expired however parent may file the election under sec_172 to carry back the year cnol to its taxable_year ending on date on form 1120x amended u s_corporation income_tax return for the taxable_year ending date according to the procedures set forth in revproc_2009_52 a copy of this letter must be attached to the form 1120x if parent files form 1120x electronically parent may satisfy the requirement of attaching a copy of this letter by attaching a statement to the parent group’s amended_return that provides the date and control number plr-111518-12 of this letter_ruling the above extension of time is conditioned on the parent group’s tax_liability if any not being lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money we express no opinion as to the parent group’s tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the income_tax returns involved except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any item discussed or referenced in this letter in particular we express no opinion with respect to whether parent qualifies substantively to make the election in addition we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the internal_revenue_code or regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in this letter plr-111518-12 for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made under penalty of perjury by parent company official and tax professional the director however should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election any penalties and interest that would otherwise be applicable continue to apply 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 the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely ______________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc