t c memo united_states tax_court geraldine h pearson petitioner v commissioner of internal revenue respondent docket no filed date marc k sellers for petitioner ann m murphy for respondent memorandum findings_of_fact and opinion colvin judge respondent determined deficiencies in petitioner's federal_income_tax of dollar_figure for dollar_figure for and dollar_figure for and additions to tax of dollar_figure for for negligence under sec_6653 and dollar_figure for and dollar_figure for for failure to timely file under sec_6651 after concessions the sole issue for decision is whether petitioner operated her farm with an actual and honest profit objective in and we hold that she did not section references are to the internal_revenue_code in effect for the years in issue rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and are so found a petitioner petitioner lived in oregon city oregon when she filed her petition petitioner's parents and grandparents were farmers petitioner is experienced and knowledgeable about farming she learned how to handle farm animals and equipment and how to ride and show horses competitively when she was a teenager at age petitioner was designated to manage her family's farm while her father served in world war ii petitioner has lived on a farm since petitioner qualified and was nominated for the american olympic equestrian team in petitioner graduated from the university of oregon in she taught riding and philosophy in pennsylvania from to petitioner worked on a montana cattle ranch during part petitioner conceded that she is not entitled to deduct dollar_figure for employee business_expenses that she claimed on her return respondent conceded that petitioner is not liable for additions to tax under sec_6651 for and or under sec_6653 for of from to she held short-term or part-time positions with several employers including kgon radio h richard sellars advertising bg record distributors white stag manufacturing hood river distillers and enterprise courier petitioner has raised livestock since from to the time of trial petitioner's farm activities included caring for cattle and sheep and breeding showing and selling horses petitioner's farm consists of her parents' acre farm which they gave her in acres petitioner bought in which adjoin her parents' farm and acres petitioner has leased since petitioner used the acres as a farm from until the time of trial the farm consists entirely of pasture land petitioner’s farm is in oregon city oregon petitioner taught at mt angel college from to and at portland community college from to during the first years petitioner taught hours per week after several years of teaching petitioner did special projects at home or at other locations not disclosed in the record in or petitioner had a 180-day contract as a member of the staff of the president of portland community college in and petitioner took a leave of absence from teaching to pursue graduate work at oregon state university petitioner lived on her farm and commuted days each week to school petitioner spent year on her farm writing her dissertation petitioner has never employed anyone to help her with the farm petitioner has managed horse shows and trials worked on farms in oregon and montana acted as an agent in the sale of cattle sheep and horses managed a big_number head experimental goat herd for the oregon health sciences center and raised and sold horses to the american olympic team petitioner decreased her cattle and sheep holdings in because market conditions were poor she expanded her operations in to include horticultural products there are two houses on petitioner's farm petitioner lived in one and rented the other to carl schaeffer schaeffer in schaeffer was not a farmer schaeffer lived at the house for less than year during the years in issue petitioner had about sheep to head of cattle and tons of hay on her farm petitioner kept to horses on the farm for breeding petitioner worked full time on her farm during academic breaks and summers during the school year petitioner did farm work mornings and evenings during the week and all day on weekends petitioner cut raked and bailed hay hauled manure reseeded pastures trimmed weeded sprayed irrigated maintained the barn repaired buildings and fences bought and sold hay and grain and cultivated petitioner also fed castrated docked inoculated trained marketed shipped and sold her livestock b petitioner's employment in virginia in date petitioner signed a 5-year contract to serve as headmistress of the foxcroft girls' academy foxcroft in middleburg virginia at that time petitioner intended to remain in virginia for years before leaving for foxcroft petitioner entered into an oral contract with jan stockfleth stockfleth stockfleth owned a farm in canby oregon stockfleth agreed to supervise and maintain petitioner's livestock operation petitioner agreed to give stockfleth the hay the proceeds of the wool crop and one- half of the proceeds of the lamb crop petitioner received the other half of the proceeds of the lamb crop petitioner agreed to pay any extraordinary expenses such as veterinary bills petitioner did not agree to pay stockfleth a salary or fee stockfleth however billed petitioner dollar_figure for her services petitioner paid this amount stockfleth visited petitioner's farm twice a week while petitioner was in virginia during lambing season stockfleth or her daughter visited petitioner's farm every day other friends and neighbors of petitioner also helped or were available to help with the farm if there were any emergencies darrel terry a neighboring farmer was available for emergency assistance for the cattle terry tosney a neighboring farmer was available to help with the sheep elizabeth dixon dixon a friend cared for the horses petitioner called dixon a couple of times from virginia to discuss the farm petitioner called the people responsible for her farm at least twice a week while she was in virginia petitioner sold a horse named fraulein oneonta for dollar_figure to an oregon buyer in date petitioner began working at foxcroft on date petitioner left some unmarketable horses in oregon and took four horses to virginia petitioner intended to have the horses she left behind shipped to her to sell after they attained marketable age petitioner was injured in date she suffered from reflex sympathetic dystrophy and could not complete her duties as headmistress of foxcroft in date the foxcroft board_of directors relieved petitioner of her position petitioner entered into a termination agreement with foxcroft on date c petitioner's post-foxcroft activities petitioner lived at salem farm in upperville virginia from march to date petitioner went to her farm in oregon twice between january and date in date petitioner permanently returned to her farm petitioner gave two horses to gerth christensen christensen in date the record does not indicate why petitioner gave the horses to christensen from until the time of trial petitioner received pension payments completed some consulting contracts and taught some classes petitioner bought equipment to help her avoid injury from her physical condition petitioner made capital and fencing improvements cared for cattle and sheep marketed horses and expanded operations to include horticultural products petitioner suffered unexpected losses during the years in issue including theft of livestock a decline in the sheep market and unanticipated repairs petitioner's farm was producing cattle sheep and hay at the time of trial d petitioner's records history of losses and tax returns petitioner did not have a separate bank account for her farm petitioner marked an asterisk on stubs of checks she used for farm expenses she maintained a separate ledger for her farm petitioner's farm records were adequate to prepare her tax returns petitioner did not keep or analyze her records to evaluate how her farm performed petitioner reported no federal_income_tax liability from until the time of trial petitioner's tax returns were prepared by william holdner a certified_public_accountant c p a petitioner had income deductions and net farming losses as shown in the chart below deductions before net_loss before net_loss including year income depreciation depreciation depreciation depreciation dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number the amounts for to are correct in the stipulation but the totals are incorrect the totals here are correct big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number petitioner lost money on her farm in of the years that she operated it opinion a requirement that petitioner have a profit objective sec_183 disallows certain deductions for activities not conducted for profit in this context profit means economic profit independent of tax savings 85_tc_237 84_tc_564 81_tc_210 an activity is conducted for profit if the taxpayer engages in the activity with an actual and honest profit objective surloff v commissioner supra 78_tc_642 affd without published opinion 702_f2d_1205 d c cir the burden_of_proof is on the taxpayer 72_tc_411 affd without published opinion 647_f2d_170 9th cir we give greater weight to objective facts than to a taxpayer's statement of intent 89_tc_986 seaman v commissioner supra b whether petitioner had a profit objective sec_1_183-2 income_tax regs lists nine factors we may consider in deciding whether an activity is engaged in for profit these factors are the manner in which the taxpayer conducts the activity the expertise of the taxpayer or his advisers the time and effort expended by the taxpayer in carrying on the activity the success of the taxpayer in carrying on other similar or dissimilar activities the taxpayer's history of income or loss with respect to the activity the amount of occasional profit if any which is earned the expectation that the assets used in the activity may appreciate in value the financial status of the taxpayer and whether elements of personal pleasure or recreation are involved no single factor controls 86_tc_360 golanty v commissioner supra manner in which the taxpayer conducts the activity conducting an activity similarly to comparable businesses which are profitable may indicate that a taxpayer engaged in the activity for profit 72_tc_659 sec_1_183-2 income_tax regs maintenance of complete and accurate records may indicate that the taxpayer has a profit objective 90_tc_960 affd without published opinion 899_f2d_18 9th cir petitioner contends that her activities were businesslike because she maintained a separate ledger for her farm made notations on her checks indicating that they were for business_expenses and had a c p a prepare her tax returns we disagree petitioner did not use her records to evaluate how her farm performed when asked if her farm was profitable based upon its history of income and expenses petitioner testified as follows i just don't know that i am really capable of analyzing those figures it's not my field at all i really hate to get into something that is so alien to me as accounting that's why i've always given all my things to an accountant to do i've never made out my own income_tax returns i really don't feel capable of even analyzing these charts petitioner testified that her position at foxcroft increased her ability to sell her horses we disagree petitioner sold a horse month before becoming the headmistress of foxcroft to an oregon buyer and gave two horses away in date but she did not introduce any convincing evidence that she tried to sell horses in virginia petitioner's agreeing to a 5-year commitment in virginia and her failure to show that she tried to sell her horses while in virginia detract from her claim that she ran her farm with a profit objective petitioner contends that the fact that she reduced the amount of her livestock in in response to changing market conditions and added horticultural products in shows that she had a profit objective petitioner introduced no evidence that these changes produced any income it is true that the discontinuation of an unprofitable operation may suggest that the activity was conducted in a businesslike manner see seebold v commissioner tcmemo_1988_183 however petitioner's reduction of her livestock in and her addition of horticultural products in are not sufficient changes in her operations to show that she had a profit objective petitioner has not shown that she ran her farm in a manner similar to comparable businesses this factor favors respondent the expertise of the taxpayer or the taxpayer's advisers efforts to gain experience and a willingness to follow expert advice can indicate that a taxpayer has a profit objective see engdahl v commissioner supra pincite respondent concedes that petitioner has farming expertise this factor favors petitioner the taxpayer's time and effort the fact that a taxpayer devotes a substantial amount of time and effort to conduct an activity may indicate that the taxpayer has a profit objective sec_1_183-2 income_tax regs however the fact that a taxpayer devotes little or no time to an activity does not necessarily mean that the taxpayer lacks a profit objective if the taxpayer arranges for qualified persons to carry on the activity sec_1_183-2 income_tax regs see hughes v commissioner tcmemo_1989_528 palmer v commissioner tcmemo_1981_354 petitioner devoted a substantial amount of time to farm activities while she was in oregon petitioner estimated that she spent big_number hours in big_number hours in and big_number hours in working on the farm she estimated that she worked hours per day on days that she worked away from the farm and hours per day during weekends vacations and other days that she had no outside work in contrast petitioner devoted relatively little time and effort to her farm from date to date when she was in virginia petitioner contends that her moving to virginia does not show that she lacked a profit objective because she arranged for friends to manage her farm she testified that she contacted persons responsible for the various farm operations and livestock in her absence by telephone at least twice a week while in virginia stockfleth visited petitioner's farm twice a week during lambing season stockfleth or her daughter visited petitioner's farm every day we cannot reconcile the small amount of time stockfleth or anyone else spent at the farm during petitioner's absence with the substantial amount of time petitioner estimated she spent working on the farm if petitioner spent the time working on the farm stated above then it appears that the arrangement with stockfleth and petitioner's neighbors was inadequate conversely if stockfleth's occasional visits and the availability of others to help in emergencies were sufficient to run the farm petitioner has not adequately explained why she had to devote as much time to the farm as she did this factor favors petitioner somewhat taxpayer's success in other activities the fact that a taxpayer has previously engaged in similar activities and converted them from unprofitable to profitable may indicate that he or she has a profit objective even though the activity is presently unprofitable sec_1_183-2 income_tax regs petitioner points out that she has successfully managed horse shows and trials worked on farms in oregon and montana acted as an agent in the sale of cattle sheep and horses managed a big_number head experimental goat herd for the oregon health sciences center raised and sold horses to the american olympic team and was nominated for the american olympic equestrian team petitioner has had many impressive accomplishments however she has not shown that she operated businesses profitably or converted similar activities from unprofitable to profitable sec_1_183-2 income_tax regs petitioner has not introduced any credible_evidence that any of her prior endeavors were financially successful this factor favors respondent taxpayer's history of income or losses a history of substantial losses may indicate that the taxpayer did not conduct the activity for profit golanty v commissioner t c pincite sec_1_183-2 income_tax regs however a taxpayer may have a profit objective even if the activity has a history of losses without any profit 45_tc_261 affd 379_f2d_252 2d cir petitioner's farm generated substantial losses from to petitioner's farm lost dollar_figure not counting depreciation and dollar_figure counting depreciation during the years in issue to petitioner lost dollar_figure not counting depreciation and dollar_figure counting depreciation craig gee gee the revenue_agent who audited petitioner's returns testified that petitioner said during the audit that she had a profit in only of the years she ran the farm that profit was for a year in the 1970's gee's testimony was based on his contemporaneous written notes petitioner said that she did not recall making this statement we see no reason to doubt gee's testimony in light of the fact that he based it on contemporaneous notes and petitioner has no contrary recollection this factor strongly favors respondent amount of occasional profits if any small occasional profits with large continuous losses may indicate that a taxpayer does not have a profit objective sec_1_183-2 income_tax regs petitioner had no profits in any year from to and she apparently had a profit in only of the years she ran the farm petitioner correctly contends that a profit objective may be present even if there is no profit and that she must have only an actual and honest profit objective not a reasonable expectation of profit petitioner cites siegal v commissioner tcmemo_1992_334 in siegal the taxpayers bought a deteriorated citrus grove and an overgrown pasture the taxpayers put the property into good condition although the taxpayers had losses from to we held that they had a bona_fide profit objective during the years in issue to id respondent's case is much stronger here than in siegal v commissioner supra petitioner's farm had no profitable years from to and had a profit in only year out of the years that she operated it petitioner contends that she made money from selling three horses good mixture in or for dollar_figure rimrock in for dollar_figure and thatcher in for dollar_figure petitioner's claim that these sales show that she had a profit objective is unconvincing those isolated sales in view of her losses do not show that she operated the farm with a profit objective petitioner points out that she had unexpected losses during the years in issue from the theft of livestock a decline in the sheep market and unanticipated equipment repairs unforeseen losses beyond the control of the taxpayer are considered in deciding whether the taxpayer conducted the activity for profit sec_1_183-2 income_tax regs petitioner has not shown however that without these losses her farm would have been profitable this factor favors respondent petitioner also sold fraulein oneonta for dollar_figure in taxpayer's expectation of appreciation in value whether the taxpayer expects the property used in the activity to appreciate in value is considered in deciding whether the taxpayer has a profit objective 748_f2d_890 4th cir revg tcmemo_1983_165 see 77_tc_1326 ndollar_figure a taxpayer may intend to derive a profit from an activity even if the activity is not currently profitable if the taxpayer expects income from the activity and appreciation of the assets used in the activity to exceed the expenses of the activity sec_1_183-2 income_tax regs petitioner contends that counting appreciation in the value of her land she has shown that she had an actual and honest profit objective we disagree because she has not proven that the appreciation in the value of her farm plus farm income exceeded her farm_losses or that she expected it to do so petitioner submitted at best inconclusive evidence about the value of the acres of land she bought in for dollar_figure petitioner offered a letter from a j caragol sr an associate broker with the residential real_estate department of coldwell banker caragol letter the caragol letter stated that the fair_market_value of petitioner's farm is dollar_figure the letter is not dated it does not state the fair_market_value of petitioner's parents' land when she received it it does not state how the land was appraised and it does not distinguish between the value of the land and the improvements to the land we did not admit the caragol letter into evidence because it was not available at trial much le sec_15 days before trial as required by the standing_pretrial_order it is important for us to know the fair_market_value of petitioner's land when she acquired it because without that value we would be comparing the fair_market_value of petitioner' sec_147 acres during the years in issue to the dollar_figure petitioner paid for acres in such a comparison inflates the appreciated value of petitioner's farm the value of the land when petitioner acquired it is the amount for which she could have sold the land if she did not farm it we evaluate how much the land appreciated while she farmed it even if we had admitted the caragol letter into evidence it would not have shown how much petitioner's land has appreciated while she operated the farm the record does not show the fair_market_value of the acres when petitioner acquired it and there is no evidence about how caragol made the estimate the clackamas county department of assessment and taxation sent several letters to petitioner in which give the real market land value of petitioner's land on date the letters do not define real market land value and we do not know how it compares to fair_market_value the court gave petitioner an opportunity to seek a stipulation with respondent after trial relating to the admission of documents such as this letter the parties did not so stipulate petitioner's land is listed by the clackamas county department of assessment and taxation as four separate lots the following chart shows the assessed values of the lots in and lot acres assessed value assessed value dollar_figure not in record dollar_figure dollar_figure dollar_figure dollar_figure big_number big_number dollar_figure big_number big_number dollar_figure big_number big_number we cannot meaningfully compare these figures because the record does not contain the assessed value for lot petitioner testified that the assessed value of her farm increased by dollar_figure from to petitioner's calculation however mixes apples with oranges petitioner subtracted the assessed value for from the real market land value while the record does not define real market land value we know that it is different than assessed value because the tax statement issued by the clackamas county tax collector lists these values separately even if petitioner's land appreciated by dollar_figure from to petitioner has not shown that amount exceeded her losses petitioner's net losses from to were dollar_figure not counting depreciation and dollar_figure counting depreciation the record does not show the amount of petitioner's losses before we do not speculate as to the amounts of petitioner's losses before but we note that petitioner had losses in out of years petitioner has not shown that she in fact ever considered whether land appreciation would more than offset her losses much less that it did so this factor favors respondent financial status of taxpayer substantial income from sources other than the activity especially if the losses generate substantial tax benefits may indicate that the taxpayer is not conducting the activity for profit sec_1_183-2 income_tax regs petitioner contends that because she is not wealthy her purpose in having a farm was not to offset substantial income from other sources we disagree while petitioner is not wealthy her farm_losses enabled her to avoid paying federal income taxes from to petitioner's farm_losses compared to her other income5 are as follows year schedule f losses nonfarm income dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number this includes gross_income from foxcroft oregon state board_of higher education interest and dividend income and income from pensions from the state of oregon public employees retirement_system and portland community college for the years for which we have petitioner's tax returns petitioner's nonfarm income exceeds her farm_losses by only dollar_figure petitioner's farm_losses have generated substantial tax benefits this factor favors respondent elements of personal pleasure the presence of recreational or personal motives in conducting an activity may indicate that the taxpayer is not conducting the activity for profit sec_1_183-2 income_tax regs see faulconer v commissioner f 2d pincite 59_tc_312 suffering is not a prerequisite to deductibility however for losses from an activity to be deductible the taxpayer's objective in conducting the activity must be to realize a profit bessenyey v commissioner t c pincite petitioner testified that she did not farm for fun but we think the objective facts show otherwise she suggested no reason other than enjoyment to explain why she conducted an activity which lost money for out of years this factor favors respondent c conclusion while no one factor controls abramson v commissioner t c pincite we find it significant that petitioner's farm had a long history of losses that petitioner derived substantial tax benefits from these losses and that petitioner left her farm in oregon to work in virginia we hold that petitioner did not operate her farm for profit in and to reflect the foregoing and concessions decision will be entered under rule


internal_revenue_service number release date index number ---------------------------- --------------------------- --------------------------------------------- ---------------------------------- -------------------------------------- ty -------- ty -------- dear ------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc intl bo3 plr-132496-10 date september corp a ----------------------------------------------------------------------------------------------- ------------------------ country b -------- country c ---------- country d ------------------ business e region f ---------------- region g ---------------- region h ------------------ ---------------------------------------------------------------- this is in response to your letter dated date in which you request consent for corp a to revoke effective for corp a’s tax_year and for all subsequent taxable years its elections to use the safe_harbor method described in sec_1 2a c in determining the amount of foreign_income_tax paid_or_accrued by corp a to country b and country c the information submitted for consideration is substantially as set forth below the rulings contained in this letter are based upon information and representations you submitted and accompanied by your penalty of perjury statement while this office has not verified any of the material submitted in support of the request for a ruling it is subject_to verification on examination corp a files its tax_return on a calendar_year basis and is the common parent of an affiliated_group_of_corporations that join in the filing of a consolidated u s federal_income_tax return the corp a group it uses the accrual_method of accounting the plr-132496-10 corp a group conducts business e in country d as well as is region f region g including country b and country c and region h sec_1_901-2a permits dual capacity taxpayers in computing foreign tax_credits for qualifying levies of each country to use either a facts and circumstances method or a safe_harbor method to determine the amount of a levy that is not paid in exchange for a specific_economic_benefit sec_1_901-2a describes the manner in which taxpayers may elect and revoke the safe_harbor method sec_1_901-2a provides that the safe_harbor method election may not be revoked without the consent of the commissioner the commissioner will normally give consent provided the conditions set forth in the regulation are satisfied the regulation provides that an application_for consent to revoke the election must be made not later than days before the due_date including extensions for the filing of the income_tax return for the first taxable_year for which the revocation is sought to be effective with certain exceptions not applicable to this situation the commissioner may make his consent to any revocation conditioned upon adjustments being made in one or more taxable years so as to prevent the revocation from resulting in a distortion of the amount of any item relating to tax_liability in any taxable_year the commissioner will normally consent to a revocation under the circumstances described in sec_1_901-2a through vi sec_1_901-2a provides that the commissioner will normally consent to a revocation of a safe_harbor election if the election has been in effect with respect to at least three taxable years prior to the taxable_year for which the revocation is to be effective corp a filed safe_harbor elections for country b and country c with its tax_return for it sec_2001 tax_year with respect to both countries the safe_harbor method has been used consistently for all qualifying levies since corp a’s application_for consent to revoke the safe_harbor election with respect to qualifying levies of country b and country c was made not later than days before date the due_date including extensions for corp a’s u s consolidated federal_income_tax return for its tax_year and the applicable safe_harbor election has been in effect with respect to at least corp a’s last three taxable years prior to its tax_year accordingly consent is granted to corp a to revoke its safe_harbor elections with respect to qualifying levies of country b and country c effective for its tax_year and for all subsequent taxable years no opinion was requested and no opinion is expressed as to whether based upon all of the relevant facts and circumstances the amount if any paid pursuant to a levy or levies imposed by country b or country c is not an amount_paid in exchange for a specific_economic_benefit plr-132496-10 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to corp a the taxpayer 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 alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by you and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely richard l chewning senior counsel branch office of associate chief_counsel international enclosure copy for purposes


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s div i s i o n contact person telephone number identification_number employer_identification_number number release date date date no third party contact legend t- w- x- y- z- dear ------------------ we have considered your ruling_request regarding the tax consequences associated with the corporate_reorganization described below w is recognized as exempt under sec_501 of the code and classified as an organization described in sec_509 of the code w operates as a parent_corporation to x and y as well as other health care entities w was established to carry out the purposes of x which operates an acute care hospital and other ancillary health care services for the benefit of the general_public x is recognized as exempt under sec_501 of the code and classified as an organization described in sec_509 b a iii of the code x operates multi- specialty general and surgical hospital and a general acute care hospital y is a subsidiary of w that operates t hospital y is recognized as exempt under sec_501 and classified as an organization described in sec_509 b a iii of the code t hospital is a specialty hospital in long-term care services and it offers pain management outpatient surgery services ophthalmology and podiatry services as the number of hospitals operated by w entities has increased w sought greater efficiency and consistency among its subsidiaries and their respective hospitals and health care services w hired consultants to undertake a study of the corporate and management structure of the various corporations and health care facilities associated with w and to recommend a governance and management structure that best serves and promotes the health needs of the community the consultants recommended retaining x and y to operate the various hospital and ancillary health systems the consultants recommend centralization of the planning aspect and the implementation of certain administrative function by w as opposed to redundant and duplicative performances of these functions by x and y thus w would have greater planning and administrative control_over the hospitals the functions that would be planned and implemented by w include compliance internal audit decisions support finance the foundation government relations human resources legal services managed care patient financial services policy development public relations marketing real_estate management revenue management and strategic planning under the restructure w would be responsible for the planning of clinical functions and non- clinical support functions however the implementation of clinical operations and support functions would be the responsibility of x and y for example the medical staff functions remain under the control of x and y while each hospital’s medical staff operates independently of each other the medical staffs are unified by similar bylaws rules and regulations approved by the respective subsidiary corporation’s board_of directors with respect to w additionally x and y credentials its own physicians w is still governed by a community board_of directors the chiefs of staff of each of the hospitals operated by w’s subsidiaries will hold ex officio positions on the board with full voting privileges however no more than of the board may be comprised of practicing physicians directors of w receive no compensation w’s primary functions after the restructure are to determine the objectives and major policies of w x and y and related entities with relation to community needs w will continue to review the responsibilities programs physical resources and funds and allocate such resources and personnel to the various subsidiaries of w based upon health care needs of the public and resources available provide overall strategic direction and strategic planning for w x and y and related entities w is responsible for studying the health care needs of the community served by its subsidiaries reviewing and analyzing public health statistics and determining whether community needs are being met w reviews the existence of additional services resulting from technological and medical advances and evaluates whether the community needs these services and what is the most efficient way to offer these services establish and operate special activities where patients or customer needs dictate and or where a centralized services will be more cost effective and pro-competitive facilitate capital development and long range financial planning and approve the annual budget of x y and related entities expand existing or assume new managerial and operational activities with respect to the affiliated corporate entities as sound business practices may dictate w continually evaluates its role with respect to the management and daily operational activities of the affiliated corporate entities in circumstances where business practice dictates as may be evidenced by demographic shifts technological advances and other factors w may assume a more direct role in the management and operations of the various subsidiaries including for example appointing the chief executive and operating officers within w and importing employed personnel at the subsidiary level to implement w’s goals and strategies pursuant to the restructuring x and y have virtually identical bylaws according to their bylaws x and y need to obtain approval from w before taking such action as selling mortgaging encumbering or disposing of all or substantially_all of its assets in addition w must approval the assignment or subleasing of property of x and y w must also approve any plan of merger consolidation dissolution or liquidation as well as any amendment of x and y’s articles of incorporation or bylaws x and y are both governed by a board_of directors that includes as ex-officio members the chiefs of staff that are part of x and y x and y’s bylaws provide that w shall approve each organization’s board_of directors a for-profit corporation was formed to hold and manage various real_estate ventures of w while the for-profit corporation is a wholly owned subsidiary of w the activities of the for-profit corporation are not substantially related to the exempt purposes of w thus the for-profit corporation will be operated separately from w and w’s other subsidiary corporations maintaining all corporate formalities through its own policies procedures and daily operations while w will initially provide capitalization to the for-profit corporation to carry out its activities any funds and assets of the for-profit corporation will not be combined and commingled with funds or assets of w’s other subsidiaries likewise the for-profit corporation will pay for all administrative services provide by w x and y the for-profit’s governing board is appointed by w as the sole shareholder however the majority of the board is not comprised of persons who are current officers or directors of w the for-profit corporation has the authority and discretion to conduct its day-to-day business pursuant to the judgment of its governing board and its officers you are requesting the following rulings the transactions described above will not adversely affect the sec_501 status of w x and y the transactions described above will not result in w x and y being treated as a private_foundation under sec_509 and the such organizations will continue to be treated as publicly supported charities and other than private_foundation sec_3 contributions to w x and y will be deductible to the donor under sec_170 or of the code subject_to the percentage limitation specified therein the net_revenues of w x and y may be directly contributed to or loaned to the other exempt_organizations in the structure without giving rise to unrelated_business_taxable_income under sec_511 through of the code the operation and organization of the for-profit corporation ownership of the capital stock of the corporation by the system and the receipt of dividends on such stock by w will not affect the tax-exempt status of the w x and y under sec_501 of the code and will not give rise to unrelated_business_taxable_income under sec_511 through of the code sec_501 of the code provides in part for the exemption from federal income revrul_69_545 1969_2_cb_117 sets forth standards under which a nonprofit_hospital tax of organizations that are organized and operated exclusively for religious charitable scientific or educational_purposes provided no part of their net_earnings inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the income_tax regulations provides that the term charitable is used in code sec_501 in its generally accepted legal sense the promotion of health has long been recognized as a charitable purpose see restatement second of trusts sec_368 sec_372 iv scott on trusts sec_368 sec_372 3rd ed and revrul_69_545 1969_2_cb_117 may qualify for recognition of exemption under sec_501 of the code this revenue_ruling gave consideration to two separate hospitals only one of which was determined to qualify for exempt status under sec_501 by weighing all the relevant facts and circumstances the revenue_ruling analyzed whether both the control and use of the hospitals were for the benefit of the public or for the benefit of private interests the hospital that qualified for exemption was found to be organized and operated to further the charitable purpose of promoting health by satisfying a community benefit standard that included among other factors a board_of directors that broadly represented the interests of the community the hospital that did not qualify for recognition of exemption was found to be operating for the private benefit of those who controlled it rather than for the benefit of the public assistance to organizations exempt under sec_501 of the code may qualify for exemption under sec_501 revrul_67_149 1967_1_cb_131 holds that an organization providing only financial revrul_69_463 1969_2_cb_131 holds that the leasing of its adjacent office building and the furnishing of certain office services by an exempt hospital to a hospital based medical group is not unrelated_trade_or_business income under sec_513 of the code where the medical group performs important health services for the hospital accumulate and hold funds to pay malpractice claims against the hospital qualified for exemption under sec_501 of the code as an integral part of the hospital the hospital provided the funds for the trust and the banker-trustee was required to make payments to claimants at the direction of the hospital the organization conducted an activity that the hospital could perform itself revrul_78_41 1978_1_cb_148 concludes that a_trust created by a hospital to sec_509 of the code generally excludes from the definition of private sec_509 of the code provides that the term private_foundation means a domestic or foreign organization described in sec_501 other than an organization described in sec_170 other than in clauses vii and viii foundation an organization that normally receives more than one-third of its support in each taxable_year from any combination of i gifts grants contributions or membership fees and ii gross_receipts from admissions sales of merchandise performance of services or furnishing of facilities in an activity which is not an unrelated_trade_or_business within the meaning of sec_513 and normally receives not more than one-third of its support in each taxable_year from the sum of i gross_investment_income and ii the excess of the amount of the unrelated_business_taxable_income over the amount of the tax imposed by sec_511 of the code sec_509 of the code generally excludes from the definition of private_foundation an organizations which is organized and at all times thereafter is operated exclusively for the benefit of to perform the functions of or to carry out the purposes of one or more organizations classified under sec_509 or a b is operated supervised or controlled by or in connection with one or more organizations described in sec_509 or a and c is not controlled directly or indirectly by one or more disqualified persons as defined in sec_4946 other than foundation managers and other than one or more sec_509 or a organizations organizations exempt from federal_income_tax under sec_501 sec_512 of the code defines the term unrelated_business_taxable_income as gross_income derived by an organization from any unrelated_trade_or_business regularly carried on by it less the deductions directly attributable to such business activity sec_511 of the code imposes a tax on the unrelated_business_taxable_income of sec_513 of the code defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of the organization for income or funds or the use it makes of the profits derived to the exercise or performance by an organization of the purpose or function constituting the basis for its exemption sec_1_513-1 a of the regulations defines unrelated_business_taxable_income to mean gross_income from any unrelated_trade_or_business regularly carried on sec_1 b states that the phrase trade_or_business includes activities carried on for the production_of_income and which possess the characteristics of a trade_or_business within the meaning of sec_162 of the code finally sec_1_513-1 explains that regularly carried on has reference to the frequency and continuity of the conduct of an activity and the manner in which the activity is pursued exempt purposes only where the conduct of the business activity has a causal relationship to the achievement of any exempt_purpose and is substantially related for purposes of sec_513 only if the causal relationship is a substantial one thus for the conduct_of_a_trade_or_business from which a particular amount of gross_income is derived to be substantially related to sec_1_513-1 of the regulations provides that a trade_or_business is related to w has been previously recognized as a supporting_organization after the sec_514 of the code provides for the taxation under sec_512 of the code of purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes income from debt-financed_property sec_514 of the code however provides that the definition of debt-financed_property does not include any property substantially_all the use of which is substantially related to the exercise or performance by such organization of its charitable purposes constituting the basis for its exemption under sec_501 after the reorganization occurs w will assume the managing and performing functions that x and y individually performed see revrul_78_41 1978_1_cb_148 therefore w will continue to qualify for exemption as an organization described in sec_501 because the assumption of these functions further the exempt purposes of x and y the exempt status of x and y will not change because both organizations will continue to carry on its charitable activities and exempt purposes of providing hospital care and promoting health within the meaning of sec_501 reorganization it will continue to meet the organizational and operational requirements for classification as supporting_organization under sec_509 furthermore the transferring of administrative services to w will not change the functions of x and y as health care providers as described in sec_509 b a iii of the code the deductibility of contributions to donors to w x and y under sec_170 of the code will not be affected by the restructuring since w x and y remain exempt from federal_income_tax under sec_501 of the code accomplishing their exempt purposes will not give rise to the receipt of unrelated_business_income under sec_511 through of the code you have stated that the for-profit corporation is expected to operate certain activities that would be taxable in nature its after-tax profits will be accumulated for future use in its activities or will be distributed as a dividend to w its sole owner since sec_512 excludes dividends from the computation of unrelated_business_taxable_income such distributions to w will not result in recognition of unrelated_business_taxable_income all corporate formalities through its own policies procedures and daily operations w will appoint all directors of the for-profit corporation and be its sole shareholder however w will not control the day-to-day operations of the for-profit corporation this authority does not make the for-profit corporation an arm agent or integral part of w not of w x or y a majority of the for-profit corporation’s board consists of persons who are not currently an officer or director of w x or y therefore the ownership of the stock by w will not jeopardize its exempt status or adversely affect the exempt status of w x and y and will not the for-profit corporation will be operated separately from w x and y and it will maintain employees of the for-profit corporation will be employees of the for-profit corporation and the contribution and loaning of funds between w x and y for the purpose of give rise to unrelated_business_taxable_income under sec_511 through of the code accordingly we rule as follows the transactions described above will not adversely affect the sec_501 tax- exempt status of w x and y the transactions described above will not result in w x and y being treated as a private_foundation under sec_509 and the such organizations will continue to be treated as publicly supported charities and other than private_foundation sec_3 contributions to w x and y will be deductible to the donor under sec_170 or of the code subject_to the percentage limitation specified therein the net_revenues of w x and y may be directly contributed to or loaned to the other exempt_organizations in the structure without giving rise to unrelated_business_taxable_income under sec_511 through of the code the operation and organization of the for-profit corporation ownership of the capital stock of the corporation by the system and the receipt of dividends on such stock by w will not affect the tax-exempt status of the w x and y under sec_501 of the code and will not give rise to unrelated_business_taxable_income under sec_511 through of the code this ruling will be made available for public inspection under sec_6110 of the code if you have any questions about this ruling please contact the person whose name and this ruling is directed only to the organization that requested it sec_6110 of the after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice code provides that it may not be used or cited by others as precedent telephone number are shown in the heading of this letter enclosure notice steven b grodnitzky acting manager exempt_organizations technical group sincerely


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-115649-04 date date legend taxpayer ---------------------------------------------------- parent ----------------------- ---------------------------------- ----------------------------------------------------- --------------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------ -------------------------------------------------------------------------- plant ------------------------------------------------------------------------------------------------------ location commission ------------------------------------------------ law order ------------------------------------------------------------------------------- method f ------------------------------------------------------------------------------------------------------------- ------------------------------------ ------------------------------------ -------------------------------- -------------------------------------------------------------------- --------------------- ------ ------------------------------------------------------------------------------------------ ------------------ ---- ------------------ ------------------------------------ ---- a b c d e g h i j k l n m ----------- ------------------------------------------------------------------------------------------ this letter responds to the request submitted on behalf of taxpayer dated plr-115649-04 ------------------------------------------------------------------------------------------------------------- dear ------------- date for a revised schedule of ruling amounts in accordance with sec_1_468a-3 of the income_tax regulations taxpayer was previously granted a revised schedule of ruling amounts on a information was submitted pursuant to sec_1_468a-3 taxpayer files a consolidated federal_income_tax return with parent taxpayer directly owns a b percent undivided_interest in the plant which is situated in location the method for decommissioning the plant is the method taxpayer is subject_to the jurisdiction of commission we understand the facts as presented by taxpayer to be as follows pursuant to law taxpayer is permitted to recover the cost of decommissioning plant through a separate nonbypassable charge collected from all retail customers on c commission issued order in which commission determined that the estimated cost of decommissioning the plant is dollar_figured this amount escalated at e percent annually results in a cumulative future estimated decommissioning cost of dollar_figuref of which taxpayer's share is dollar_figureg pursuant to order decommissioning costs attributable to plant will be included by commission in taxpayer's cost of service for the period h the funding_period extends i ------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------ therefore the level_funding limitation period is not applicable to commission's jurisdictional portion of the nuclear decommissioning fund fund the after-tax rate of return to be earned by the assets of the fund is assumed to be k percent the qualifying percentage for commission was calculated pursuant to sec_1_468a-3 of the regulations the estimated period for which the fund will be in effect is l the estimated_useful_life of the plant is m therefore the qualifying percentage is n percent there are no proceedings pending before commission that would result in an increase or decrease in the amount of decommissioning costs to be included in taxpayer's cost of service deduct the amount of payments made to a qualified nuclear decommissioning fund however sec_468a limits the amount_paid into the fund for any_tax year to the sec_468a of the internal_revenue_code provides that a taxpayer may elect to plr-115649-04 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 tax_year or the ruling_amount applicable to this 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_tax year is defined under sec_468a 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 tax_year if the payment is made on account of this tax_year within months after the close of the tax_year sec_1_468a-1 of the regulations provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 is a taxpayer that has a qualifying interest in a nuclear power plant as defined under sec_1_468a-1 a qualifying interest is among other things a direct ownership_interest including an interest held as a tenant in common or joint tenant cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the lesser_of the cost of service amount applicable to the nuclear decommissioning fund for such tax_year or the ruling_amount applicable to the nuclear decommissioning fund for such tax_year ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax 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 sec_1_468a-3 bases the schedule of ruling amounts 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 sec_88 of the code and the sec_1_468a-3 of the regulations provides that in general a schedule of sec_1_468a-2 of the regulations provides that the maximum amount of sec_1_468a-3 of the regulations permits the internal_revenue_service plr-115649-04 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 tax_year to provide a schedule of ruling amounts 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 specified in a schedule of ruling amounts for any_tax year in the level_funding limitation period shall not be less than the ruling_amount specified in such schedule for any earlier tax_year under sec_1_468a-3 the level_funding limitation period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the tax_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 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 sec_1_468a-3 of the regulations provides that the ruling_amount sec_1_468a-3 of the regulations provides that the amount of sec_1_468a-3 of the regulations provides that in general the total sec_1_468a-3 of the regulations provides that a taxpayer's share of the 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 total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant 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 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 provides that the internal revenue plr-115649-04 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 the 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_tax 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 any public_utility commission 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 sec_1_468a-3 the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a tax_year in response to a request for a schedule of ruling amounts that is filed after the deemed deadline date for such tax_year we have examined the representations and data submitted by the company in relation to the requirements set forth in the code and the regulations based solely on these representations of the facts we reach the following conclusions the taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 and of the regulations the taxpayer as one of the owners of the plant has calculated its share of the total decommissioning costs under sec_1 468a- d of the regulations commission has determined the amount of 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 the taxpayer has proposed schedules 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 commission 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 for that jurisdiction taxpayer has determined under sec_1_468a-3 of the plr-115649-04 regulations that the qualifying percentage for commission is n percent the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the lesser amount of the cost of service amount applicable to the fund or the ruling_amount applicable to the fund as set forth under sec_1 468a- b of the regulations 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 approved schedule of ruling amounts --------------------------------------------------- year amount -------------- ------- ---------- ------------------------------------------------------------ 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 ruling amounts was received 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 as stated earlier payments made to such fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to such fund or the ruling amounts applicable to this fund in the tax_year the code provides it may not be used or cited as precedent this ruling is directed only to the taxpayer who requested it section 6ll0 k of the approved schedule of ruling amounts is relevant only to those payments plr-115649-04 in accordance with the power_of_attorney on file with this office the original of this letter is being sent to taxpayer's authorized representative with copies to the taxpayer and the second authorized representative we are also sending a copy of this letter_ruling to the industry director natural_resources and construction lm nrc 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 return for each tax_year in which the taxpayer claims a deduction for payments made to the fund cc- peter c friedman assistant to the branch chief branch office of associate chief_counsel passthroughs and special industries sincerely yours


t c summary opinion united_states tax_court richard mark hansen petitioner v commissioner of internal revenue respondent docket no 6815-04s filed date richard mark hansen pro_se michael w berwind for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_6330 and sec_7463 of the internal_revenue_code in effect at the time that the petition was filed unless otherwise indicated subsequent section references are to the internal_revenue_code as amended rule references are to the tax_court rules_of_practice and procedure the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority this proceeding arises from a petition for judicial review filed in response to a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination sent to petitioner pursuant to sec_6320 and sec_6330 petitioner seeks review of respondent’s determination to proceed with collection of his income_tax liabilities which were dollar_figure for dollar_figure for and dollar_figure for at the time of the notice_of_determination the issue for decision is whether the settlement officer abused his discretion in sustaining as an appropriate collection measure the filing of a notice_of_federal_tax_lien nftl on petitioner’s property and rights to property the stipulation of facts and the exhibits received into evidence are incorporated herein by reference petitioner resided in los angeles california at the time the petition was filed background a petitioner’s tax_return sec_1 petitioner’s tax_return petitioner a self-employed real_estate broker timely filed form_4868 application_for automatic_extension of time to file u s individual_income_tax_return for petitioner then timely filed without remittance a form_1040 u s individual_income_tax_return for attached to petitioner’s return was a schedule c profit or loss from business reflecting that petitioner utilized the cash_method_of_accounting the return reflected income_tax due of dollar_figure in date respondent assessed the tax_shown_on_the_return as well as additions to tax for failure to pay estimated_tax and failure_to_pay_tax of dollar_figure and dollar_figure respectively including interest petitioner’s outstanding tax_liability for was dollar_figure as of date the date of the filing of the nftl on date petitioner filed a form 1040x amended u s individual_income_tax_return for which reflected a net_operating_loss_carryback from and a total_tax reduction of dollar_figure the irs accepted petitioner’s form 1040x and adjusted his tax accordingly petitioner has not made any payments toward his liability for petitioner’s tax_return petitioner filed his form_1040 on date reflecting a total_tax of dollar_figure respondent assessed the tax_shown_on_the_return as well as additions to tax for failure to pay estimated_tax failure_to_pay_tax and failure_to_file timely of dollar_figure dollar_figure and dollar_figure respectively including interest petitioner’s outstanding tax_liability for was dollar_figure a sec_1sec b permits a 2-year carryback of net operating losses from the year of the loss of the date of the filing of the nftl petitioner has not made any payments toward his liability for petitioner’s tax_return petitioner timely filed a form_4868 for petitioner filed his form_1040 for on date reflecting a total_tax of dollar_figure respondent assessed the tax_shown_on_the_return as well as an addition_to_tax for failure_to_pay_tax of dollar_figure respondent also credited to petitioner’s account dollar_figure for the immediate tax relief credit on date including interest petitioner’s outstanding tax_liability for was dollar_figure as of the date of the filing of the nftl petitioner has not made any other_payments toward his liability for on date respondent filed an nftl regarding petitioner with respect to and in the office of the county recorder for the county of los angeles california on date respondent sent petitioner a letter notice_of_federal_tax_lien filing by certified mail in response to the letter petitioner timely filed with respondent a form request for a collection_due_process_hearing cdp hearing b petitioner’s offer_in_compromise petitioner submitted a form_656 offer_in_compromise oic and a form 433-a collection information statement for wage earners and self-employed individuals seeking to compromise his liabilities for tax years through on the grounds of doubt as to collectibility and effective tax_administration petitioner’s oic was assigned to revenue_officer glen mcduffie mr mcduffie for consideration mr mcduffie was contacted by settlement officer patrick lin mr lin who informed him that petitioner had filed a form and that mr lin was retaining jurisdiction over the case mr lin asked mr mcduffie to complete his investigation of petitioner’s oic but informed him that mr lin would make the final_determination whether to accept or reject the oic mr mcduffie sent petitioner a preliminary analysis of his oic in which mr mcduffie determined that petitioner had the ability to pay a total of dollar_figure based on the equity in petitioner’s home and that petitioner could pay his tax_liabilities in full petitioner offered dollar_figure to satisfy his outstanding liabilities of dollar_figure mr mcduffie forwarded petitioner’s case to mr lin for review and reconsideration c petitioner’s hearing at his conference with mr lin petitioner agreed to list his residence for sale and remit the sales proceeds by certain deadlines and to enter into an installment_agreement for the remaining balance mr lin sent petitioner a confirmation letter setting forth the terms to which petitioner had agreed as well as a requirement that petitioner timely file his tax_return for and pay in full any_tax due for that year mr lin warned petitioner that his case might be closed and the collection action sustained if he failed to to satisfy the conditions in the letter petitioner failed to satisfy the conditions by the deadline instead he telephoned mr lin and requested an abatement of additions to tax and interest mr lin faxed petitioner an updated listing of his outstanding tax_liabilities for through and a copy of the relevant provisions of the internal_revenue_manual regarding reasonable_cause for penalty relief in response petitioner faxed mr lin a letter in which he explained that he does not believe that he owes anything for because his tax attorney changed his accounting_method from accrual to cash he also stated that all additions to tax for tax years through should be waived because he exercised ordinary business care and prudence and the additions to tax were causing undue_hardship attached to the letter were copies of petitioner’s schedules c profit or loss from business for through and a copy of the first page of petitioner’s responses to a request for admissions from a lawsuit in which petitioner was a plaintiff mr lin recommended that petitioner’s oic be rejected because petitioner had the ability to satisfy his tax_liabilities in full and because petitioner was not current in making his estimated_tax payments by letter petitioner was advised that his proposed oic was not acceptable d the petition the petition filed with the court covered tax years and because the notice_of_determination addressed only and respondent’s motion to dismiss for lack of jurisdiction and to strike as to the remaining years was granted in his petition petitioner states release of lien abatement of penalties and interest and discharge of dollar_figure for taxes there was no need for the lien i was not properly notified and i was working with the irs at the time to resolve these issues doubt as to liability doubt as to collectibility econemic sic hardship and unfair and inequitable i believe i do not owe dollar_figure for taxes this is based on bad advice ignorance and mistakes made by my tax attorney i believe i qualify for the offer_in_compromise and or penalty and interest abatement a petitioner’s underlying liabilities discussion sec_6320 entitles a taxpayer to notice of the taxpayer’s right to request a hearing after a notice of lien is filed by the commissioner in furtherance of the collection from the taxpayer of unpaid federal taxes the taxpayer requesting the hearing may raise any relevant issue with regard to the commissioner’s intended collection activities including spousal defenses challenges to the appropriateness of the commissioner’s intended collection action and alternative means of collection sec_6320 c c see 114_tc_604 114_tc_176 the taxpayer may raise challenges to the existence or amount of the underlying tax_liability however only if he did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability sec_6330 petitioner did not receive notices of deficiency for or therefore pursuant to sec_6320 and sec_6330 petitioner was entitled to challenge the existence or amount of the underlying tax_liabilities for and at his appeals_office hearing see 119_tc_140 if the validity of those underlying tax_liabilities is properly at issue the court reviews the matter de novo 122_tc_280 sego v commissioner supra pincite respondent assessed the tax shown on the tax returns petitioner submitted for and petitioner testified that he does not disagree with the amounts of tax respondent assessed for and he does however dispute the tax_liability for and the penalties and interest assessed on the outstanding tax_liability for each of the years petitioner contends that he does not owe taxes for because his tax attorney improperly changed his method_of_accounting from accrual to cash petitioner contends that if he had remained on the accrual basis he would not have a tax_liability for petitioner filed his form_1040 and his form 1040x using the cash_method petitioner did not challenge his tax_liability for in his oic at trial petitioner contended that the change in his method_of_accounting from an accrual to a cash_basis caused an overstatement of his income for petitioner claims he received a large settlement in a lawsuit that year that related to monies owed for the prior five years petitioner contends that if he had remained on the accrual basis he would not have included the entire settlement in income in petitioner provided no evidence to corroborate his testimony assuming the facts to be as stated by petitioner however the year of inclusion would not change see sec_1_451-1 income_tax regs under an accrual_method of accounting_income is includible in gross_income when all the events have occurred which fix the right to receive such income and the amount thereof can be determined with reasonable accuracy see also 437_f2d_1067 7th cir 123_f2d_382 6th cir affg 40_bta_798 the court finds that petitioner has not presented and the record does not show any evidence to demonstrate that his tax_liability for was incorrect respondent’s determination is sustained b additions to tax sec_6651 respondent determined that petitioner is liable for additions to tax under sec_6651 for of dollar_figure and for of dollar_figure respondent also determined that petitioner is liable for additions to tax under sec_6651 for of dollar_figure for of dollar_figure and for of dollar_figure sec_6651 imposes an addition_to_tax for failure_to_file a federal_income_tax return by its due_date determined with regard to any extension of time for filing previously granted the addition_to_tax equal sec_5 percent for each month that the return is late not to exceed percent sec_6651 sec_6651 provides for an addition_to_tax for failure to pay taxes shown on a return on or before the payment due_date the addition_to_tax is one-half percent of the amount shown as tax on a return for each month or fraction thereof during which the failure to pay continues not exceeding percent in the aggregate sec_6651 the additions to tax under sec_6651 and do not apply however if the failure is due to reasonable_cause and not due to willful neglect 469_us_241 864_f2d_1521 10th cir affg 86_tc_492 92_tc_899 reasonable_cause requires the taxpayer to demonstrate that he exercised ordinary business care and prudence united_states v boyle supra pincite willful neglect is defined as a conscious intentional failure or reckless indifference id pincite petitioner does not dispute that his returns for and were not filed timely and that he has not fully paid his tax_liabilities shown as due on the returns for the subject years petitioner has not produced any evidence that he had reasonable_cause or a lack of willful neglect in failing to timely file his returns for and and failing to pay the taxes shown on his and returns respondent’s determination is sustained sec_6654 respondent also determined that petitioner is liable for additions to tax under sec_6654 for of dollar_figure and of dollar_figure sec_6654 imposes an addition_to_tax for failure to make timely estimated income_tax payments sec_6654 contains several computational exceptions to application of the addition_to_tax petitioner bears the burden of proving that he paid estimated_tax or that any of the exceptions excuse him from paying estimated_tax see rule a the addition_to_tax for failure to pay estimated_tax is mandatory unless petitioner can show that he qualifies for one of the exceptions 75_tc_1 citing 33_tc_1071 petitioner has failed to show that he paid estimated_tax or that any of the exceptions apply respondent’s determination of additions to tax under sec_6654 therefore is sustained c abatement of interest if as part of a cdp hearing a taxpayer makes a request for abatement of interest the court has jurisdiction over the request for abatement of interest that is the subject of the commissioner’s collection activities 115_tc_329 generally the court considers only arguments issues and other matters that were raised by the taxpayer at the cdp hearing or otherwise brought to the attention of the appeals_office 118_tc_488 115_tc_582 n affd per curiam 21_fedappx_160 4th cir sego v commissioner t c pincite the record before the court establishes that petitioner raised the interest abatement issue at his cdp hearing with regard to the carryback_year petitioner argued that the interest accrued prior to the carryback on the amount of the carryback should be eliminated a taxpayer however is liable for interest on a deficiency until the deficiency is paid or otherwise abated sec_6601 provides that a reduction in tax by reason of a carryback of an nol does not affect the computation of statutory interest due for the period ending with the filing_date for the taxable_year in which the nol arose see also 338_us_561 121_tc_147 n 111_tc_90 the court considers petitioner’s request for abatement of the interest for and to be a request for abatement of interest under sec_6404 and the court has jurisdiction under sec_6404 to consider that request see 120_tc_114 ndollar_figure katz v commissioner supra pincite the court concludes that petitioner has failed to prove that respondent abused his discretion in failing to abate interest petitioner failed to establish any unreasonable error or delay attributable to respondent in performing a ministerial or managerial act requiring the abatement of interest with respect to the taxable years and see sec_6404 petitioner has not alleged or proven that the settlement officer abused his discretion in finding that petitioner had the ability to pay his tax_liabilities in full because petitioner has failed to present grounds on which this court could find that the settlement officer abused his discretion in sustaining the notice_of_federal_tax_lien on petitioner’s property the court sustains respondent’s administrative determination to proceed with collection against petitioner reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered for respondent