t c summary opinion united_states tax_court larry keith hodges petitioner v commissioner of internal revenue respondent docket no 20606-09s filed date larry keith hodges pro_se dennis r onnen for respondent morrison 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 all section references are to the internal_revenue_code_of_1986 as amended background pursuant to sec_6330 larry keith hodges asks this court to review the notice_of_determination issued by the irs appeals_office sustaining the filing of a notice_of_federal_tax_lien to collect income taxes he owes for and on date the irs filed a notice_of_federal_tax_lien to collect hodges’ income_tax_liability for the years and the irs mailed a notice of this filing to hodges on date hodges requested an administrative hearing with the appeals_office in his request he asked the appeals_office to consider an offer-in-compromise and to withdraw the lien notice in a date letter the appeals_office requested documents to substantiate hodges’ assets debts income and expenses on date the appeals_office sent hodges a letter scheduling a telephone conference with him for date pincite p m and giving him the option of appearing in person the letter requested the following financial documents copies of bank statements and canceled checks for the last six months documentation of loan balances and the amount of the monthly payments and documentation of medical_expenses on date settlement officer penny of the appeals_office called hodges at the scheduled time hodges told penny he could no longer afford an offer-in-compromise hodges instead asked that collection activity be suspended penny asked hodges for the same financial documents requested in the date letter hodges did not submit the requested financial documents as a result the appeals_office determined that a suspension of collection efforts based upon hodges’ inability to pay was not justified by a notice dated date the appeals_office sustained the filing of the notice_of_federal_tax_lien hodges filed a petition with the tax_court to challenge the determination hodges resided in kansas when he filed his petition rules governing collection hearings discussion when a taxpayer fails to pay any federal_income_tax liability after demand sec_6321 imposes a lien in favor of the united_states on all the property of the delinquent taxpayer and sec_6323 authorizes the irs to file notice of that lien however within five business days after filing a notice_of_federal_tax_lien the irs must provide written notice of that filing to the taxpayer sec_6320 after receiving such a notice the taxpayer may request an administrative hearing before the appeals_office sec_6320 b administrative review is carried out by a hearing before the appeals_office pursuant to sec_6330 and c at the hearing the appeals officer must verify that the requirements of applicable law and administrative procedure have been met consider the issues properly raised by the taxpayer and consider whether the proposed collection action balances the need for efficient collection_of_taxes with the taxpayer’s concern that any collection action be no more intrusive than necessary sec_6330 a taxpayer dissatisfied with the outcome of the hearing may appeal the notice_of_determination to the tax_court under sec_6330 as hodges has done where the underlying liability is not at issue we review the determination of the appeals_office for abuse_of_discretion that is we decide whether the determination was arbitrary capricious or without sound basis in fact or law see 125_tc_301 affd 469_f3d_27 1st cir since the underlying liability is not at issue in this case we review the determination of the appeals_office for abuse_of_discretion the appeals_office did not abuse its discretion by deciding not to declare hodges’ tax_liabilities in currently-not- collectible status the notice_of_determination stated that the appeals_office verified that the requirements of applicable law and administrative procedure had been met and hodges does not dispute that the requirements were met the issue hodges raised concerns collection alternatives hodges requested that the appeals_office suspend collection activity against him on the ground of financial hardship suspension of collection activity is in the parlance of the governing statutory provisions a collection alternative that the taxpayer may propose see sec_6330 and that the appeals_office must take into consideration sec_6330 pitts v commissioner tcmemo_2010_101 slip op pincite the internal_revenue_manual irm makes provision for a taxpayer’s account to be declared currently not collectible in cases of hardship see irm pts dollar_figure date policy statement date however the regulations state that taxpayers will be expected to provide all relevant information requested by appeals including financial statements for its consideration of the facts and issues involved in the hearing sec_301 e proced admin regs it could hardly be otherwise for a taxpayer to justify suspension of collection on the ground that the account should be deemed currently not collectible -- ie that the taxpayer cannot afford to pay the liability--the taxpayer must of course show an inability to pay the liability to do so the taxpayer must reveal what money is available and what expenses must be borne to obtain this information the appeals_office made two requests for financial documents from 1this irm provision seems to indicate that currently-not- collectible status is a collection alternative to a levy action not a lien action we review hodges’ entitlement to currently- not-collectible status nonetheless because the notice_of_determination considered it hodges--but hodges failed to submit the documents in the absence of those documents the appeals_office did not abuse its discretion by declining to put hodges’ account into currently- not-collectible status see also pitts v commissioner supra other issues the appeals_office was required to consider whether the intrusiveness of filing a notice of tax_lien against hodges was balanced by the need to collect the unpaid taxes see sec_6330 the notice_of_determination says that this consideration was taken into account by the appeals_office nothing in the record indicates otherwise in addition there is no evidence that any of the circumstances permitting the withdrawal of the notice of lien exist see sec_6323 conclusion the appeals_office did not abuse its discretion when it denied currently-not-collectible status to hodges and upheld the filing of the notice of a federal_tax_lien to reflect the foregoing decision will be entered for respondent 2hodges testified that he has suffered from strokes that have periodically handicapped him he did not testify that his condition prevented him from sending the requested financial documents to the irs


department of the treasury internal_revenue_service p o box irs cincinnati oh number release date date date employer id number contact person id number contact telephone number form you must file tax years uil dear this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final because you don’t qualify as a tax-exempt_organization under sec_501 of the code donors can’t deduct contributions to you under sec_170 of the code you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we'll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don’t need to take any further action we’ll also notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed determination_letter under sec_6104 of the code you should contact your state officials if you have questions about how this determination will affect your state responsibilities and requirements letter rev catalog number 47632s if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 sincerely stephen a martin director exempt_organizations rulings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 redacted letter final adverse determination under sec_501 c - no protest letter rev catalog number 47632s department of the treasury internal_revenue_service cincinnati oh legend b date c state d date e date dear date date employer id number contact person id number contact telephone number contact fax number uil dollar_figure-05 dollar_figure we considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code irc sec_501 we determined that you don’t qualify for exemption under sec_501 this letter explains the reasons for our conclusion please keep it for your records issues do you qualify for exemption under sec_501 of the code no for the reasons stated below facts you formed as a nonprofit corporation on b c of the code in d on e you were subsequently revoked for failure_to_file form_990 for three consecutive tax periods you then filed form_1023 to reinstate your exempt status in the state of c you were recognized as exempt under section your articles of incorporation state that your purpose is charitable educational social and literary they are silent regarding how your assets will be distributed upon your dissolution your form_1023 indicates you maintain or will maintain separate_accounts for any contributor under which the contributor has the right to advise on the use or distribution of funds your form_1023 attachments show you are a community service agency that wishes to provide various services including a food and clothing program health support services counseling programs and short-term shelter options the attachments also indicate that you are dedicated to helping students between the age of that you have a -person volunteer board and will be funded through gifts grants and contributions with projects and education in addition your form_1023 states and we wrote a letter requesting that an authorized person sign the form_1023 the letter also explained that you must amend your articles of incorporation to meet the organizational_test under sec_501 of the code as well as requested an explanation concerning your statement that you maintain or will maintain separate_accounts for any contributor under which the contributor has the right to advise on the use or distribution of these funds you subsequently only submitted the signed form_1023 but you did not provide proof that you have filed the articles of amendment nor an explanation concerning your statement that you maintain or will maintain separate_accounts for any contributor under which the contributor has the right to advise on the use or the distribution of funds we wrote another letter requesting this information we also attempted to contact you by phone multiple times however you never submitted the articles of amendment showing proof they were filed with your state or an explanation concerning your statement that you maintain or will maintain separate_accounts for any contributor under which the contributor has the right to advise on the use or distribution of funds law sec_501 of the code provides for the recognition of exemption of organizations that are organized and operated exclusively for religious charitable or other purposes as specified in the statute no part of the net_earnings may inure to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 states that in order to be exempt as an organization described in sec_501 of the code an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 provides that an organization is organized exclusively for one or more exempt purposes only if its articles of organization a limit the purposes of such organization to one or more exempt purposes and b do not expressly empower the organization engage otherwise than as an insubstantial part of its activities in activities that in themselves are not in furtherance of one or more exempt purposes sec_1_501_c_3_-1 holds that an organization is not organized exclusively for one or more exempt purposes unless its assets are dedicated to an exempt_purpose an organization’s assets will be considered dedicated to an exempt_purpose for example if upon dissolution such assets would by reason of a provision in the organization’s articles or operation of law be distributed for one or more exempt purposes sec_1_501_c_3_-1 provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 of the code an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 defines the term charitable as including the relief of the poor and distressed or of the underprivileged and the promotion of social welfare by organizations designed to lessen neighborhood tensions to eliminate prejudice and discrimination or to combat community deterioration the term charitable also includes lessening of the burdens of government revproc_2019_5 ilr b sec_3 states that a determination_letter or ruling on exempt status is issued based solely upon the facts and representations contained in the administrative record the applicant is responsible for the accuracy of any factual representations contained in the application section and its predecessors provides that a favorable determination_letter or ruling will be issued to an organization only if its application and supporting documents establish that it meets the particular requirements of the section under which exemption from federal_income_tax is claimed letter rev catalog number 47628k in 372_fsupp_770 e d cal the court concluded that one seeking a tax exemption has the burden of establishing his right to a tax-exempt status pius xii academy v commissioner tcmemo_1982_97 provides that an organization must establish through the administrative record that it operates as an exempt_organization denial of exemption may be based solely upon failure to provide information describing in adequate detail how the operational_test will be met in 82_tc_215 the administrative record did not demonstrate that the organization would operate exclusively in furtherance of an exempt_purpose therefore denial of organization’s request for tax-exempt status was reasonable 70_fedclaims_782 was an action for declaratory_judgment that the petitioner brought to challenge the denial of his application_for exempt status the court in finding that the actual purposes displayed in the administrative record supported the service’s denial stated it is well- accepted that in initial qualification cases such as this gaps in the administrative record are resolved against the applicant the court noted that if the petitioner had evidence that contradicted these findings it should have submitted it as part of the administrative process the court also highlighted the principle that exemptions from income_tax are matters of legislative grace application of law a ruling on exempt status is based solely on facts and representations in the administrative file you have not provided supporting documentation to establish you meet the requirements of sec_501 of the code sec_501 sets forth two main tests for qualification for exempt status as stated in sec_1_501_c_3_-1 an organization must be both organized and operated exclusively for purposes described in sec_501 your articles of incorporation do not limit your purposes to those described in sec_501 of the code or dedicate your assets to an exempt_purpose upon your dissolution furthermore you did not provide a filed articles of amendment containing these provisions that were requested multiple times as a result you have not satisfied the organizational_test described in sec_1_501_c_3_-1g and c - b you do not meet the operational_test under sec_501 of the code because you have not demonstrated that you are operating exclusively for charitable purposes as required under sec_1 c - c because you did not provide an explanation about the fact you indicated that you maintain or plan to maintain separate_accounts for any contributor under which the contributor has the right to advise on the use or the distribution of funds as provided in sec_1_501_c_3_-1 you have not established that your operations accomplish exclusively charitable purposes you have not submitted sufficient information establishing you are operated exclusively for c purposes see universal life church pius xii academy la verdad and new dynamics foundation you have not provided any specific details regarding the fact that you maintain or plan to maintain separate_accounts for any contributor under which the contributor has the right to advise on the use or the distribution of funds therefore there is not sufficient documentation to establish that you are exempt from taxation as required by sec_501 of the code and revproc_2019_5 as in universal you have the burden of establishing that you qualify for tax exemption_letter rev catalog number 47628k in pius la verdad and new dynamics it was established that an organization must establish through its administrative record that it meets the requirements for exemption because you failed to provide sufficient information in your initial application and subsequently failed to provide additional documentation that we requested multiple times you have not established that you meet the requirements for exemption under sec_501 of the code as provided in new dynamics any gaps in the administrative record will be resolved against the applicant conclusion based on the information submitted you have failed to establish that you are organized and operated exclusively for exempt purposes within the meaning of sec_501 of the code and the related_income tax regulations therefore based on the administrative record you fail to qualify for exemption under sec_501 of the code if you agree if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements if you don't agree you have a right to protest if you don’t agree with our proposed adverse determination to do so send us a protest within days of the date of this letter you must include your name address employer_identification_number ein and a daytime phone number a statement of the facts law and arguments supporting your position a statement indicating whether you are requesting an appeals_office conference the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative the following declaration for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i have examined this request or this modification to the request including accompanying documents and to the best of my knowledge and belief the request or the modification contains all relevant facts relating to the request and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if they haven’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney letter rev catalog number 47628k we’ll review your protest statement and decide if you gave us a basis to reconsider our determination if so we’ll continue to process your case considering the information you provided if you haven’t given us a basis for reconsideration we’ll send your case to the appeals_office and notify you you can find more information in publication how to appeal an irs decision on tax-exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court later because the law requires that you use the irc administrative process first sec_7428 where to send your protest send your protest form_2848 if applicable and any supporting documents to the applicable address u s mail street address for delivery service internal_revenue_service eo determinations quality assurance mail stop p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street mail stop cincinnati oh you can also fax your protest and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that they received it you can get the forms and publications mentioned in this letter by visiting our website at www irs gov forms- pubs or by calling 800-tax-form if you have questions you can contact the person listed at the top of this letter contacting the taxpayer_advocate_service the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or if you’ve tried but haven’t been able to resolve your problem with the irs if you qualify for tas assistance which is always free tas will do everything possible to help you visit www taxpayeradvocate irs gov or call sincerely stephen a martin director exempt_organizations rulings and agreements letter rev catalog number 47628k


internal_revenue_service number release date index number 468a -------------------- ---------------------------------------- ---------------------------------- --------------------------------- ------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc psi b06 plr-117585-06 date date re revised schedule of ruling amounts ------------------------------------------------- taxpayer ------------------------------------------------------------------------------------------- ------------------------ ---------------------------------------------- ------------------------------ ----------------------------------------------- ------------------------------------------------------------ ----------------------------------------------------- --------------------------------- ------------------------------------------ plant location commission a commission b commission c station fund dear ------------- this letter responds to the taxpayer s request filed date as modified by submission dated date for a revised schedule of ruling amounts in accordance with sec_1_468a-3 of the income_tax regulations relating to the plant's nuclear decommissioning fund afund taxpayer was previously granted a schedule of ruling amounts on --------------------------- the request for a revised schedule of ruling amounts is the result of commissions a and b reducing the amount of decommissioning costs to be included in cost of service information for the schedule of ruling amounts was submitted on behalf of the taxpayer pursuant to sec_1 468a- h plr-117585-06 - - taxpayer represents the facts and information relating to its request for a revised schedule of ruling amounts as follows situated in location taxpayer has a direct ownership_interest of ----- percent in plant which is plant’s renewed operating license is set to expire on ------------------------- taxpayer is subject_to the jurisdiction of commission a which covers --------percent of taxpayer’s total electric sales commission b which covers -------- percent commission c which covers -------percent for a total of ----------percent the total is slightly above --- ----- percent due to the fact that each commission determines its jurisdictional percentage at a different point in time these percentages may vary slightly from year to year a portion of taxpayer’s wholesale operations consist of sales to the joint owners of station the rates charged for supplemental sales to the joint owners are set through contractual agreements which were approved by commission c taxpayer maintains its records as prescribed by commission c ------percent of taxpayer’s total electric sales from sales to the joint owners of station and -------percent of taxpayer’s total electric sales from other customers the estimated base cost for decommissioning plant is based on an independent study and is premised on the prompt removal dismantling method in ---------------------------------- commission a included decommissioning costs for taxpayer’s plant in taxpayer’s cost of service for ratemaking purposes in the annual amount of dollar_figure------------- in determining the amount of decommissioning costs commission a determined the total estimated base cost of decommissioning taxpayer’s interest in plant to be dollar_figure---------------- ------- dollars the base cost for decommissioning plant was escalated at the rate of -----percent annually to ------- resulting in an estimated future decommissioning cost of dollar_figure------------------ ------- dollars commission b in ----------------------------included decommissioning costs for taxpayer’s plant in taxpayer’s cost of service for ratemaking purposes in the annual amount of dollar_figure----------- commission c included decommissioning costs for taxpayer’s plant in taxpayer’s cost of service for ratemaking purposes in the annual amount of dollar_figure--------- the funding_period of plant extends from ------- to ------- and the level_funding limitation period for plant extends from ------- through ------ the estimated period for which the fund will be in effect is --- years ------- through ------- the assumed after tax_rate of return expected to be earned by the assets of the fund is -----percent taxpayer has calculated its qualifying percentage to be --------percent plr-117585-06 - - sec_468a of the internal_revenue_code provides that a taxpayer may elect to deduct the amount of payments made to a qualified nuclear decommissioning fund however former ' 468a b limited the amount_paid into the fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to the fund that is included in the taxpayer's cost of service for ratemaking purposes for the taxable_year or the ruling_amount applicable to that year sec_468a of the code provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any taxable_year is defined under ' 468a d as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the nuclear power plant as the period for which the fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a of the code provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of the taxable_year if the payment is made on account of the taxable_year within months after the close of the taxable_year sec_1_468a-1 of the regulations provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under ' 468a of the code an eligible_taxpayer as defined under ' 468a-1 b is a taxpayer that has a qualifying interest in a nuclear power plant as defined under ' 468a-1 b a qualifying interest is among other things a direct ownership_interest including an interest held as a tenant in common or joint tenant sec_1_468a-2 of the regulations provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any taxable_year shall not exceed the lesser_of i the cost of service amount applicable to the nuclear decommissioning fund for such taxable_year or ii the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year sec_1_468a-3 of the regulations provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the taxable years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund plr-117585-06 - - sec_1_468a-3 of the regulations provides that each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission s in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes taking into account amounts that are otherwise required to be included in the taxpayer's income under ' of the code and the regulations thereunder each schedule of ruling amounts shall be based on the public_utility commission's reasonable assumptions concerning i the after-tax rate of return to be earned by the amounts collected for decommissioning ii the total estimated cost of decommissioning the nuclear power plant and iii the frequency of contributions to the nuclear decommissioning fund for a taxable_year sec_1_468a-3 of the regulations permits the internal_revenue_service to provide a schedule of ruling amounts that is identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of this section sec_1_468a-3 of the regulations provides that the ruling_amount specified in a schedule of ruling amounts for any taxable_year in the level_funding limitation period shall not be less than the ruling_amount specified in such schedule for any earlier taxable_year under ' 468a-3 b the level_funding limitation period begins on the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes sec_1_468a-3 of the regulations provides that the funding_period for a nuclear decommissioning fund is the period that begins on the first day of the first taxable_year for which a deductible payment is made or deemed to be made to such nuclear decommissioning fund and ends the later of i the last day of the taxable_year that includes the estimated date on which decommissioning costs of the nuclear power plant to which the nuclear decommissioning fund relates will no longer be included in the taxpayer's cost of service for ratemaking purposes or ii the last day of the taxable_year that includes the estimated date on which the nuclear power plant to which the nuclear decommissioning fund relates will no longer be included in the taxpayer's rate base for ratemaking purposes sec_1_468a-3 of the regulations provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage plr-117585-06 - - sec_1_468a-3 of the regulations provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 of the regulations provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning the plant multiplied by the taxpayer's qualifying interest in the plant sec_1_468a-3 of the regulations provides that the qualifying percentage for any nuclear decommissioning fund is equal to the fraction the numerator of which is the number of taxable years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of taxable years in the estimated_useful_life of the applicable nuclear power plant sec_1_468a-3 of the regulations provides that the estimated period for which a nuclear decommissioning fund is to be in effect begins on the later of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund or deemed made or the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to ' 468a-3 e the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 of the regulations provides that the estimated_useful_life of a nuclear power plant begins on the first day of the taxable_year that includes the date that the plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to ' 468a-3 e the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable plr-117585-06 - - public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 of the regulations provides that if two or more public_utility commissions establish or approve rates for electric energy generated by a single nuclear power plant then the schedule of ruling amounts shall be separately determined pursuant to the rules of 468a-3 a through e for each public_utility commission that has determined the amount of decommissioning costs to be included in the cost of service for ratemaking purposes for this plant under ' 468a-3 f this separate determination shall be based on the reasonable assumptions and determinations used by the relevant public_utility commission and shall take into account only that portion of the total estimated cost of decommissioning that is properly allocable to the ratepayer whose rates are established or approved by the public_utility commission according to ' 468a-3 f the ruling amounts for any taxable_year is the sum of the ruling amounts for such taxable_year determined under the separate schedules of ruling amounts sec_1_468a-3 of the regulations provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant to which the nuclear decommissioning fund relates has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount sec_1_468a-3 of the regulations enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 of the regulations provides that a taxpayer is required to request a revised schedule of ruling amounts for a nuclear decommissioning fund if a any public_utility commission that establishes or approves rates for the furnishing or sale of electric energy generated by a nuclear power plant to which the nuclear decommissioning fund relates increases the proposed period over which decommissioning costs of the nuclear power plant will be included in cost of service for ratemaking purposes adjusts the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes or reduces the amount of decommissioning costs to be included in cost of service for any taxable_year and b the taxpayer's most recent request for a schedule of ruling amounts did not provide notice to the service of such action by the public_utility commission plr-117585-06 - - sec_1_468a-3 of the regulations provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of ' 468a-3 h the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in the ' 468a of the code and the regulations thereunder based solely on these representations of the facts we reach the following conclusions commissions a b and c have determined the amount of taxpayer has determined that pursuant to sec_1_468a-3 of the taxpayer has a qualifying interest in the plant and is therefore an eligible taxpayer under sec_1_468a-1 of the regulations decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations regulations the qualifying percentage is --------percent taxpayer has proposed a schedule of ruling amounts which meets the requirements of sec_1_468a-3 and of the regulations the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by the commissions and will result in a projected fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund fund during any taxable_year is restricted to the lesser amount of the decommissioning costs applicable to the fund or the ruling_amount applicable to the fund as set forth under sec_1_468a-2 of the regulations taxpayer subject_to the jurisdiction of three public_utility commissions for ratemaking purposes has calculated its share of the total decommissioning costs allocable to commissions a b and c as required by sec_1_468a-3 of the regulations the maximum amount of cash payments made or deemed made to the plr-117585-06 - - based on the above determinations we conclude that the taxpayer's proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code commissions a b and c1 approved schedule of ruling amounts taxable years ------- through ------- year comm a comm b ------------ comm c-------- total ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------ comm c ------------------------------------ ------------------------------------------------------------------------------------------------------------ --------- ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ --------- ------------------------------------------------------------------------------------------------------------ --------- ------------------------------------------------------------------------------------------------------------ --------- ------------------------------------------------------------------------------------------------------------ --------- --------- ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ --------- ------------------------------------------------------------------------------------------------------------ --------- ------------------------------------------------------------------------------------------------------------ --------- amounts for commission c are not specifically reviewed herein and are merely reprinted to arrive at the amount for the total annual ruling_amount for purposes of the review and revision under sec_1_468a-3 of the regulations the date of the schedule of ruling amounts approved by the service on ---------------------------- governs the review period for the commission c ruling amounts plr-117585-06 - - comm c ----------------------------------------------------------------------------------------------------------- year comm a comm b ------------ comm c-------- total ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time the current ruling is issued if any of the events described in sec_1_468a-3 of the regulations occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first tax_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the 10th tax_year following the close of the tax_year in which the most recent schedule of rulings amounts was received the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code effective date amendments were made to sec_468a by the energy tax incentives act of publaw_109_58 119_stat_594 regulations based on these amendments are being developed but have not yet been proposed because the period to which the schedule of ruling amounts above relates began prior to the effective date of these amendments the discussion above is based on the law in effect prior to date however this ruling will be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in the letter_ruling see section dollar_figure of revproc_2006_1 2006_1_irb_1 however when the criteria in section dollar_figure of revproc_2006_1 2006_1_irb_49 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances the ruling is directed only the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent pursuant to sec_1_468a-7 of the regulations a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax plr-117585-06 - - return for each tax_year in which the taxpayer claims a deduction for payments made to the fund in accordance with the powers of attorney a copy of this letter_ruling is being sent to your authorized representatives a copy of this letter_ruling also is being sent to the appropriate industry director sincerely yours peter c friedman peter c friedman senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries


t c summary opinion united_states tax_court andrea ready petitioner v commissioner of internal revenue respondent docket no 18113-09s filed date andrea ready pro_se robert talbert little h barton thomas jr and mayer y silber for respondent summary opinion laro judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code 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 respondent determined deficiencies of dollar_figure and dollar_figure in petitioner’s and federal income taxes respectively and accuracy-related_penalties under sec_6662 of dollar_figure and dollar_figure respectively following respondent’s concessions that petitioner is not liable for the accuracy-related_penalties we decide two issues first we decide whether petitioner a dual citizen_of_the_united_states and the united kingdom residing in france may exclude from her income any wages that she earned as a flight attendant pursuant to the convention for the avoidance of double_taxation and the prevention of fiscal evasion with respect to taxes on income and capital u s -fr date u n t s tax_treaties cch par convention we hold she may not second we decide whether petitioner may exclude from her income wages attributable to service sec_1unless otherwise indicated subsequent section references are to the applicable version of the code and rule references are to the tax_court rules_of_practice and procedure dollar amounts are rounded performed in the united_states or in international airspace under sec_911 we hold she may not background the parties submitted this case to the court for decision without trial under rule the stipulation of facts and the exhibits submitted therewith are incorporated herein by this reference we find the stipulated facts accordingly petitioner resided in paris france paris when the petition was filed petitioner is a dual citizen_of_the_united_states and the united kingdom and she was a resident of france during the years at issue at all relevant times she worked for united airlines inc united as a flight attendant she has been employed with united since at least united transferred petitioner to work from paris charles de gaulle airport at roissy cdg in and she took residence in paris at that time in united transferred petitioner again this time from cdg to london heathrow airport lhr in london england london despite the transfer petitioner continued to reside in paris and she commuted between paris and london at her own expense during each of the years at issue petitioner serviced roundtrip flights departing from cdg or lhr petitioner earned wages of dollar_figure and dollar_figure from united in and respectively and she reported those amounts on her federal_income_tax returns for those years and returns attached to each of the and returns was form 2555-ez foreign_earned_income_exclusion claiming that all of petitioner’s wages for those years were foreign_earned_income excluded from gross_income under sec_911 neither return disclosed petitioner’s position that her income was excluded pursuant to the convention see sec_6114 a taxpayer claiming that a treaty overrules or modifies a federal tax law must disclose that position to the commissioner the parties stipulated that with respect to dollar_figure of petitioner’s wages was attributable to services performed in france in the united kingdom or in the airspace over a foreign_country and dollar_figure was attributable to services performed in the united_states or in international airspace the parties also stipulated that with respect to dollar_figure of petitioner’s wages was attributable to services performed in france in the united kingdom or in the airspace over a foreign_country and dollar_figure was attributable to services performed in the united_states or in international airspace finally the parties stipulated that petitioner did not pay any creditable income war profits or excess profits taxes for or following an audit of the and returns respondent issued to petitioner a notice_of_deficiency increasing her taxable_income by dollar_figure and dollar_figure respectively the notice_of_deficiency acknowledged petitioner’s status as a flight attendant who is a member of a flight crew but stated that the portion of income from performing services within over international waters and airspace is not earned in a foreign_country and therefore not excludable the notice_of_deficiency explained that respondent adjusted petitioner’s foreign_earned_income_exclusion amounts because much of the income that she earned was not from foreign sources in response to the notice_of_deficiency petitioner petitioned the court on date and she amended the petition on date on date petitioner sought relief from the french ministry of finance under article paragraph of the convention on the ground that she had been subjected to double_taxation in france and the united_states her 2these adjustments have since decreased by virtue of the parties’ stipulations that petitioner performed greater services in france in the united kingdom or in the airspace over a foreign_country than originally determined 3the convention allows a person who considers the actions of france and or the united_states to be in violation thereof to present his or her case to the competent_authority of the country in which that person resides or is nationalized convention art para at the discretion of the competent_authority to which the request is made the american and french competent_authorities will endeavor to resolve any perceived inconsistency by way of mutual agreement id para continued competent_authority request was assigned to samia abdelghani-arras ms abdelghani-arras informed petitioner that her request for mutual_agreement_procedure was on the agenda for the date meeting between the u s department of the treasury and the french ministry of finance at some point before date the french competent_authority requested commencement of mutual agreement discussions with respect to petitioner’s request for assistance as this case was docketed before the court the u s competent_authority sought the consent of the associate chief_counsel international with respect to the request for assistance see revproc_2006_54 sec 2006_2_cb_1035 on or about date the associate chief_counsel international declined to accept petitioner’s request for competent_authority assistance continued where an agreement is reached that decision is implemented without regard to any contrary domestic laws see id 4on brief petitioner states that an individual with the internal_revenue_service irs contacted her by telephone on date and stated that the irs would mail her a letter about the possibility of refiling her competent_authority request as of date petitioner had not received that letter discussion petitioner first contends that income which she earned during each of the years at issue is excluded from federal income_taxation pursuant to article paragraph of the convention concerning dependent_personal_services respondent replies that because petitioner is a u s citizen article paragraph is superseded by the saving clause of the convention article paragraph and that her federal_income_tax consequences are determined under the code we agree with respondent we begin our analysis with the relevant provisions of the convention article paragraph provides that remuneration derived by a resident of a contracting state in respect of an employment exercised as a member of a regular complement of a ship or aircraft operated in international traffic shall be taxable only in that state reading article paragraph in isolation from the remainder of the convention supports petitioner’s claim that income she earned while in international traffic and as a french resident is taxable in france alone however as respondent justly points out the scope of article paragraph has limited application_for a u s citizen by virtue of the saving clause of article paragraph the saving clause specifies that the united_states may tax its residents and citizens as if the convention had not come into effect subject only to the provisions of article paragraph relating to among other things relief from double_taxation the saving clause preserves the right of the united_states to tax its own citizens in accordance with its own laws 74_tc_406 the effect of a tax treaty’s saving clause is to nullify the application of other treaty provisions for a u s citizen such as petitioner see 86_tc_971 canadian treaty filler v commissioner t c pincite french treaty priebe v commissioner tcmemo_1986_162 t c m p-h para big_number pincite canadian treaty see also treasury_department technical explanation of the convention technical explanation tax_treaties cch para at big_number explaining article cf 85_tc_376 holding that the saving clause of the u s -canada income_tax treaty was not applicable to an expatriate who had relinquished his u s citizenship the federal_income_tax consequences to petitioner a u s citizen on income she earned while residing in france are determined under the code and not the convention before deciding petitioner’s federal tax treatment under the code we must first address petitioner’s claim that she is being subjected to double_taxation in contravention of the goals of the convention according to petitioner elevating the saving clause above the dependent_personal_services provision ignores the systemic difference in how the united_states and france raise revenue while we recognize the differences in treatment between the u s and french tax systems we decline to conclude that the convention is being violated france and the united_states agreed to take certain measures to relieve their residents and or citizens from double_taxation and memorialized that agreement in article of the convention to achieve this goal the united_states uses foreign tax_credits whereas france employs a combination of foreign tax_credits and exemptions see technical explanation tax_treaties cch para at big_number the credits which the united_states consented to under the convention are determined under the provisions and subject_to the limitations of u s law so long as the general principle of article ie allowance of the credit is respected id more specifically under paragraph b of article the united_states agreed to allow as a credit against the united_states income_tax only the amount of the french income_tax paid france on the other hand agreed to allow in the case of compensation_for dependent_personal_services a credit equal to the amount of french tax attributable to such income see convention art para a the united_states relies upon sec_901 through to fulfill its commitment under article subject_to the limitation of sec_904 sec_901 and b authorizes a u s citizen to elect to claim a foreign_tax_credit against his or her federal_income_tax liability for the amount of any income_war_profits_and_excess_profits_taxes paid_or_accrued during the taxable_year to any foreign_country the supreme court concluded long ago that the u s foreign_tax_credit mitigates the evil of double_taxation 285_us_1 see also am chicle co v united_states 316_us_450 in filler v commissioner t c pincite we decided whether a u s citizen residing in france was subjected to double_taxation on the portions of his income allocated to u s sources under the version of the convention presented with a similar argument from the taxpayer in filler we concluded that rules in the version of the convention regarding relief from double_taxation were not violated because a fair reading of the saving clause indicates that the taxpayer is entitled to a tax_credit from france and not the united_states in respect of compensation_for services performed in the united_states id pincite in the light of the supreme court’s opinion on the matter and our decision in filler we reject petitioner’s claim that she is being unfairly subjected to double_taxation in violation of the convention it follows that because petitioner did not pay french income_tax she is not entitled to a foreign_tax_credit from the united_states under the convention or sec_901 in her amended petition petitioner asserts that all of her wages are excludable from federal income_taxation as foreign_earned_income under sec_911 respondent counters that while petitioner may exclude income earned in or over a foreign_country as foreign_earned_income she may not exclude income earned in the united_states or in international airspace we agree with respondent it is a fundamental principle of tax law that u s citizens are subject_to federal income_taxation on their worldwide income see 265_us_47 135_tc_222 the fact that a u s citizen maintains dual citizenship does not preclude the united_states from taxing that individual see 79_tc_298 gamal-eldin v commissioner tcmemo_1988_150 t c m p-h para big_number pincite n aff’d without published opinion 876_f2d_896 9th cir petitioner as a u s citizen is subject_to federal income_taxation on her worldwide income as provided by the code 5although petitioner claims on brief that she paid one euro of symbolic french income_tax she is not entitled to a credit under sec_901 because she failed to submit evidence that she paid the tax see rule sec_142 sec_122 sec_1 imposes an income_tax on the taxable_income of every individual who is a citizen or resident_of_the_united_states see sec_1_1-1 income_tax regs sec_63 generally defines taxable_income as gross_income less allowable deductions sec_61 in turn provides that gross_income includes all income from whatever source derived unless excludable under a specific provision of the code compensation_for services such as wages is an enumerated gross_income item sec_61 sec_911 provides one exclusion_from_gross_income in that it permits a qualifying_individual to elect to exclude foreign_earned_income sec_911 specifies that the term foreign_earned_income means income received by an individual from sources within a foreign_country which constitutes earned_income attributable to services performed during the period in which the individual was a bona_fide_resident of a foreign_country for an uninterrupted period of at least one year or physically present in a foreign_country for at least full days during any period of consecutive months see sec_911 and b the regulations under sec_911 specify that earned_income is from sources within a foreign_country if it is attributable to services performed by an individual in a foreign_country or countries sec_1_911-3 income_tax regs the parties agree that petitioner is a qualifying_individual to whom sec_911 applies and they apparently agree that she properly elected to exclude her foreign-sourced income they do not agree however whether income earned in the united_states or in international airspace is compensation attributable to services performed in a foreign_country we conclude it is not the term foreign_country for purposes of sec_911 is defined by regulation in a geographical sense specifically a foreign_country includes any territory under the sovereignty of a government other than that of the united_states and the air space over the foreign_country as well as other locales sec_1 h income_tax regs sec_861 provides that compensation_for labor or personal services performed in the united_states is sourced to the united_states accordingly we hold that petitioner must include income attributable to services performed in the united_states in her gross_income we similarly conclude that petitioner must include in gross_income without exclusion compensation attributable to services performed in international airspace in rogers v commissioner tcmemo_2009_111 97_tcm_1573 sec_1_911-7 income_tax regs provides that a taxpayer elects to exclude foreign_earned_income under sec_911 and the housing_cost_amount under sec_911 on form_2555 foreign_earned_income or a comparable form we concluded that income earned by a flight attendant while in international airspace was not foreign_earned_income and had to be included in the taxpayer’s gross_income the taxpayer in rogers like petitioner was a u s citizen residing abroad and working as a flight attendant for united in holding that the taxpayer in rogers could not exclude income earned while in international airspace we reasoned that income earned in international airspace was akin to income earned in international waters id we see no cause for disturbing our holding in rogers and we rely upon its reasoning to hold that petitioner may not exclude income earned in international airspace under sec_911 the parties agree that petitioner earned wages attributable to services performed in the united_states or in international airspace of dollar_figure and dollar_figure in and respectively those amounts are includible in gross_income by virtue of sec_61 and for the reasons stated above are not excludable under sec_911 the parties also agree that petitioner earned wages attributable to services performed in foreign countries or over the airspace of a foreign_country 7petitioner does not assert and we do not conclude that income earned in international airspace is non-u s -source income under sec_862 cf 119_tc_317 income earned by a u s citizen and resident of american samoa from personal services performed in international waters was u s source income aff’d 370_f3d_1228 d c cir of dollar_figure and dollar_figure in and respectively these amounts are excludable as foreign-source income because they are attributable to services performed in a foreign_country and do not exceed the limitations imposed by sec_911 respondent’s determination as it will be modified in a rule computation to reflect adjustments to petitioner’s foreign_earned_income and her nonliability for the accuracy-related_penalties is sustained we have considered all arguments made by petitioner for a contrary holding and to the extent not discussed above we find them to be irrelevant moot or without merit to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc intl br6 plr-119659-99 date date do ty ein legend activity a company date a date b date c date d date e date f date g date h parent parent state a year year dear this letter responds to your date request for a private_letter_ruling as to whether company a remote subsidiary of parent as of the date of your request timely filed its election for possessions_corporation status under sec_936 and sec_30a of the internal_revenue_code code pursuant to the circumstances described below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination facts and representations parent has provided the following facts and representations in its submission company was incorporated under state a law in year and has since then engaged in activity a in puerto rico since year company has filed its tax returns using the accrual_method of accounting on the basis of a calendar_year company’s issued and outstanding shares were held indirectly by parent the common parent of an affiliated_group for a period of approximately twenty years company elected possessions_corporation treatment election under code sec_936 and e this election remained in effect until it was revoked for company’s tax_year ending date a prior to its tax_year ending date a company had not been included in the consolidated_return of the affiliated_group of which it was a member because as a corporation it was not an includible_corporation under code sec_1504 and sec_1504 subsequent to revoking it sec_936 election company was included in parent 1’s consolidated_return for consecutive tax years ending date a and date b and for its short tax_year ending date d on date d all of parent 1’s assets were acquired by parent in what has been represented as a statutory merger company became an indirect subsidiary of parent as a result of the merger parent filed a short-period consolidated_income_tax_return covering a three month period from date c to date d and included company on this consolidated_return as a result company began a new short tax_year on date e a day immediately following date d with its new short tax_year ending date f on march year in the year following the date d merger parent filed a form_7004 application_for automatic_extension of time to file corporation income_tax return requesting an automatic six month extension of time until september year to file its federal_income_tax return for its tax_year ending date f which included the date d merger the request for an automatic_extension of time included company as well as other members of parent 2’s affiliated_group company was not included in parent 2’s form_851 affiliation schedule or its form_1122 authorization and consent of subsidiary_corporation to be included in consolidated_income_tax_return for its new short tax_year ending date f parent represents that when it filed the form_7004 on march year for its new short tax_year ending date f it was not familiar with the international operations of parent and additionally was unaware that company would satisfy the requirements for treatment as a possessions_corporation for tax_year ending date f parent claims that it became aware of a possible election for company subsequent to the filing of form_7004 for tax_year ending date f parent represents that company was an existing credit claimant on date as required by code sec_936 and that it is therefore able to elect possessions_corporation treatment pursuant to code sec_936 and sec_30a for its new short tax_year ending date f provided its election were deemed timely filed parent claims that company filed a form_5712 election to be treated as a possessions_corporation under sec_936 on date g a date before september year and that company’s form_1120 was filed on date h a date before september year additionally parent represents that company did not join in the consolidated_return for parent 2’s tax_year ending date f and that company timely filed separate forms u s_corporation income_tax return form_5712 and possessions_corporation tax_credit under sec_936 and sec_30a for its new short tax_year ending date f finally parent represents that company has met all requirements to qualify for an automatic_extension to file a federal_income_tax return rulings requested parent has requested the following rulings whether the form_7004 filed by parent on march year constitutes a request for an extension for company to timely file a separate_income tax_return for its new short tax_year beginning date e and ending date f whether the form_7004 filed by parent on march year requires company to join in the filing of a consolidated_return with parent for the consolidated tax_year ending date f whether an election to claim the tax_credit under code sec_936 and sec_30a for company’s tax_year beginning date e and ending date f is a timely election if filed by company on or before september year law and analysis a background company revoked its possessions_corporation election while indirectly owned by parent as a result company was included on parent 1’s consolidated_return for two taxable years and a short-period reflecting the three months prior to parent 2’s date d acquisition of parent 1’s assets including company parent now requests a ruling as to whether an election under code sec_936 and sec_30a was timely filed for company’s new short tax_year beginning date e and ending date f following company’s acquisition by parent sec_936 and e provide for an election for a corporation to be treated as a possessions_corporation under sec_936 sec_936 generally provides a credit against u s income_tax in an amount equal to tax attributed to non-u s source taxable_income from the active_conduct_of_a_trade_or_business within a u s possession the small_business and job protection act of enacted certain provisions that phase out sec_936 of the code over ten years eliminating it entirely for taxable years beginning after date sec_936 states that except as otherwise provided in sec_936 the sec_936 possessions credit does not apply to any_tax year beginning after date sec_936 further provides that existing credit claimants may continue to elect the credit under sec_936 or sec_30a under limited conditions for those taxpayers operating in puerto rico who have not elected the percentage limitation under sec_936 the rules of sec_30a apply for tax years beginning after date the rules of sec_936 are to be used in applying sec_30a sec_30a states that the provisions of sec_936 including any applicable election thereunder shall apply in the same manner as if the credit under sec_30a were a credit under sec_936 sec_30a provides that the credit under sec_30a is treated in the same manner as the credit under sec_936 sec_30a provides that a corporation to which sec_30a applies shall be treated as if it were a corporation electing sec_936 finally sec_30a provides that any term used in sec_30a shall have the meaning given such term by sec_936 here parent has represented that company qualifies for the puerto rico economic activity credit under sec_30a and that company is an existing credit claimant under code sec_936 whether company’s sec_936 election was timely made for its tax_year ending date f depends on the following first whether the form_7004 filed by parent is deemed to include company in the request for an extension to file a federal_income_tax return and form_5735 and second whether the form_7004 filed by parent requires company to join in the consolidated_return with parent for tax_year ending date f b form_7004 automatic extensions of time to file a federal_income_tax return code sec_6012 requires the filing of income_tax returns by corporations subject_to tax under subtitle a code sec_6072 provides in part that returns of corporations under sec_6012 made on the basis of a calendar_year must be filed on or before the 15th day of march following the close of the calendar_year pursuant to sec_6081 the secretary has authority to grant extensions of up to six months for the filing of returns sec_1_6081-3 provides that if the following three requirements are met a corporation will be allowed an automatic_extension of time to file its income_tax return to the 15th day of the sixth month following the month in which falls the date prescribed for the filing of its income_tax return first the application_for extension must be prepared on a form_7004 and be signed by a person authorized by the corporation to request the extension second the application must be filed on or before the date prescribed for filing the return of the corporation third the corporation must make a remittance on or before the date prescribed for payment of the amount of the properly estimated unpaid tax_liability sec_1_6081-3 provides in part that the filing of an application_for an automatic_extension of time for a consolidated_return shall be made by a person authorized by the parent_corporation to request such an extension a statement listing the name and address of each member of the affiliated_group for which such consolidated_return will be made must be attached to the application upon the timely filing of the form_7004 with the service the six month extension shall be considered as granted to the affiliated_group for the filing of its consolidated_return or for the filing of each member’s separate_return in this case company became a remote subsidiary of parent on date d as a result of a statutory merger in which parent acquired the assets of parent subsequently parent filed form_7004 to extend the date for filing its tax_return for its tax_year ending date f attached to the form_7004 was a statement listing the members of the affiliated_group including company both company and parent file their income_tax returns on the basis of the calendar_year under sec_1_6081-3 the filing of form_7004 grants an extension both for the filing of a consolidated_return and for the filing of separate returns by members of the affiliated_group thus provided the requirements of sec_1_6081-3 were satisfied the form_7004 filed by parent was a valid extension request and as a result company was granted a six month extension to file its separate_return for tax_year ending date f thus the due_date for company to file its tax_return for its tax_year ending date f is september year filing a consolidated_return for an affiliated_group code sec_1501 provides that an affiliated_group_of_corporations shall have the privilege of making a consolidated_return with respect to the income_tax imposed by chapter for the tax_year in lieu of filing separate returns the making of a consolidated_return shall be upon the condition that all corporations which at any time during the tax_year have been members of the affiliated_group consent to all the consolidated_return_regulations prescribed under sec_1502 prior to the last day prescribed by law for the filing of such return in the case of a corporation which is a member of the affiliated_group for a fractional part of the year the consolidated_return shall include the income of such corporation for such part of the year as it is a member of the affiliated_group code sec_1504 provides that an affiliated_group includes a common parent and includible corporations which meet certain ownership requirements not at issue herein sec_1504 provides that for purposes of chapter consolidated_returns the term includible_corporation does not include a corporation with respect to which an election under sec_936 is in effect for the tax_year sec_1_1502-76 provides that if a corporation becomes or ceases to be a member of a group during a consolidated_return_year it becomes or ceases to be a member at the end of the day on which its status as a member changes and its tax_year ends for all federal_income_tax purposes at the end of that day sec_1_1502-75 provides that a group remains in existence for a tax_year if the common parent remains as the common parent and at least one subsidiary that was affiliated with it at the end of the prior year remains affiliated with it at the beginning of the year whether or not one or more corporations have ceased to be subsidiaries at any time after the group was formed based on the facts presented and representations made by parent parent 1’s consolidated_group terminated at the end of the day on date d and the tax period of company and all other members of parent 1’s group closed at the end of the day on date d the date of the acquisition of parent 1’s assets by parent sec_1_1502-75 b ii a new short tax_year of company began on date e and ended on date f the mere inclusion of company on the form_7004 filed by parent is not considered an exercise of the privilege of making a consolidated_return revrul_55_560 1955_2_cb_379 nevertheless if company had been an includible_corporation for its new short tax_year ending date f it would have been compelled to join in the filing of any consolidated_return of parent sec_1501 if however on or before september year company properly elected treatment as a possessions_corporation under sec_936 and sec_30a for its new short tax_year ending date f company will have become a corporation that was not includible in the parent affiliated_group for new short tax_year ending date f sec_1504 a possessions_corporation is not an includible_corporation under code sec_1504 and sec_1504 thus company would be ineligible to join in a consolidated_return with parent for the tax period ending date f sec_1504 c electing the puerto rico economic activity credit under sec_936 and sec_30a as previously noted parent has represented that company is an existing credit claimant and that company otherwise meets the requirements to elect the puerto rico economic activity credit under sec_936 and sec_30a sec_1_936-1 provides that a domestic_corporation shall make an election under code sec_936 for any_tax year beginning after date by filing form_5712 on or before the later of the date on which such corporation is required pursuant to code sec_6072 and sec_6081 to file its federal_income_tax return for the first tax_year for which the election is made or date here we conclude that company was required to file its federal_income_tax return on or before september year based on the form_7004 filed by parent on march year as noted above the form_7004 granted an extension for both the filing of parent 2’s consolidated_return for its tax_year ending date f as well as company’s filing of its separate_return for its new short tax_year beginning date e and ending date f company was not required to join in parent 2’s consolidated_return based on parent 2’s representations that company met all requirements to qualify for an automatic six month extension to file its short_period income_tax return the election will have been timely filed where company’s form sec_5712 and federal_income_tax return for its new short tax_year were filed on or before september year rulings based on the facts and representations received and subject_to the caveats below we rule as follows the filing of form_7004 by parent on march year is considered a request for an extension of time to file a separate_income tax_return by company for its new short tax_year beginning date e and ending date f the filing of form_7004 by parent on march year does not require company to join in the filing of a consolidated_return with parent for the consolidated tax_year ending date f the making of an election as described in sec_936 and e by company on or before september year is a timely election of the tax_credit under sec_936 and sec_30a for the new short tax_year of company beginning date e and ending date f we express no opinion as to the federal_income_tax treatment of the proposed transaction under 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 that are not specifically covered by the ruling we specifically express no opinion as to whether the date d acquisition by parent of all the assets of parent qualifies for reorganization treatment under sec_368 further this ruling is effective only to the extent that the date d acquisition by parent of all the assets of parent was not a reverse_acquisition as defined in sec_1_1502-75 additionally we express no opinion as to whether company meets the requirements for the sec_936 and sec_30a credit nor do we opine on whether company qualifies as an existing credit claimant 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 a copy of this letter must be attached to any income_tax return to which it is relevant in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer and its authorized representative sincerely anne p shelburne assistant to the branch chief cc intl br6