t c memo united_states tax_court amy h o’brien petitioner v commissioner of internal revenue respondent docket no 9958-02l filed date p filed a petition for judicial review pursuant to sec_6320 and sec_6330 i r c in response to a determination by r to leave in place a filed notice_of_federal_tax_lien held because the record does not establish an abuse_of_discretion by r in rejecting p’s offer_in_compromise r’s determination to proceed with collection action is sustained ansel b chaplin for petitioner nina p ching for respondent memorandum opinion wherry judge this case arises from a petition for judicial review filed in response to a notice_of_determination concerning collection action s under sec_6320 and or the issue for decision is whether respondent may proceed with collection of tax_liabilities for years through as so determined background this case was submitted fully stipulated pursuant to rule the stipulations of the parties with accompanying exhibits are incorporated herein by this reference petitioner is an artist who supported herself during the through tax years by taking odd jobs as an artist’s model she was born on date and has at all relevant times been single with no dependents on date petitioner filed late federal_income_tax returns for and showing balances due no payments were remitted with the returns respondent assessed the unless otherwise indicated section references are to the internal_revenue_code as amended and rule references are to the tax_court rules_of_practice and procedure respondent objected to certain stipulations on the grounds of relevancy and materiality to the extent we have included information from such stipulations to provide context we deem respondent’s objections moot in light of our opinion and the resolution therein reported tax_liabilities as well as delinquency additions to tax and interest for and and sent corresponding notices of balance due on date date and date respectively similarly on date petitioner filed a late income_tax return showing a balance due which was not accompanied by any payment the tax_liability additions to tax and accrued interest were assessed by respondent on date and a notice of balance due was sent for the taxable_year petitioner filed a timely return showing an overpayment and claiming an earned_income_credit respondent assessed the tax_liability on date and transferred an overpayment credit to thereafter on date respondent made additional assessments to petitioner’s account and sent a notice of balance due for tax additions to tax and interest resulting from certain uncontested adjustments after filing her through returns petitioner on date created the amy h o’brien irrevocable_trust the trust instrument designated a third party as trustee and established a support_trust for petitioner’s benefit specifically the trust instrument’s third term and condition provided as follows with regard to distributions during my lifetime the trustee shall pay the net_income from the trust property at least quarter- annually to me or for my benefit the trustee shall also pay to me or apply for my benefit so much of the principal of the trust property as she may determine in her sole discretion to be necessary or desirable for my health welfare maintenance and support in so doing she should be guided by the fact that i have no spouse or other comparably significant object of my affection and will leave no descendants or collateral descendants for whom the principal should be preserved if possible the trust also contained a spendthrift provision as its seventh term and condition at petitioner’s death the trustee was directed to distribute remaining principal and undistributed_income to a friend of petitioner’s if then living or to the friend’s descendants on the same date date petitioner executed a quitclaim_deed transferring to the trust for nominal consideration a single-family residence located on cape cod massachusetts petitioner had inherited the home from her parents on date at the time petitioner transferred the property the residence did not enjoy clear marketable title on account of an outstanding 25-percent interest that had never been obtained by the family members who were her predecessors in title after transfer of the property petitioner owned no other significant assets the home generated rental income of approximately dollar_figure per month which petitioner admittedly failed to report on her through returns in december of the trust entered into an agreement to sell the residence petitioner’s lawyer had been able to negotiate a purchase-and-sale agreement that permitted the downpayment to be used to clear title through a judicial proceeding the sale closed and the trust conveyed the property on date for a purchase_price of dollar_figure which netted the trust approximately dollar_figure after payment of expenses approximating dollar_figure to obtain marketable title the trust now consists entirely of liquid_assets on date respondent filed a notice_of_federal_tax_lien with the register’s office of new york county new york listing petitioner’s income_tax liabilities for the through years the lien reflected a total unpaid balance of dollar_figure and was recorded on date on date respondent mailed to petitioner a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 regarding the just-described lien petitioner returned to respondent a completed and signed form request for a collection_due_process_hearing with the following explanation of her disagreement it is just impossible for me to pay this amount at this time i can pay up to dollar_figure per month beginning in january ’01 i have one full-time job which pays me between dollar_figure-dollar_figure per week after rent utilities expenses i can agree to begin paying dollar_figure per month thereafter by a letter dated date respondent rejected the installment_plan as stated on the form the proposal was rejected because petitioner had defaulted on a previous installment_plan because information submitted by petitioner showed monthly expenses in excess of income and because the suggested monthly payments would be insufficient to pay her liabilities within the statute_of_limitations for collection after petitioner received this letter her representative apparently contacted respondent by telephone and discussed possible use of an offer_in_compromise respondent then sent a letter dated date confirming the telephone conversation and requesting completion of the enclosed form_656 offer_in_compromise and form 433-a collection information statement for wage earners and self-employed individuals respondent received the form_656 and form 433-a submitted by petitioner on date the form_656 asked petitioner to select as the reason for the offer either doubt as to liability doubt as to collectibility or effective tax_administration petitioner checked effective tax_administration which the form explained as meaning i owe this amount and have sufficient assets to pay the full amount but due to my exceptional circumstances requiring full payment would cause an economic hardship or would be unfair or inequitable petitioner proposed to pay a total of dollar_figure by remitting dollar_figure for the first month and dollar_figure per month for each of the next months the form_656 indicated that the source of the funds would be the amy h o’brien irrevocable_trust account at fidelity investments on date respondent sent a letter rejecting petitioner’s offer_in_compromise the letter explained that because the tax_liabilities of approximately dollar_figure could be collected from the at least dollar_figure remaining in the body of the trust the offer of dollar_figure was not acceptable due to the fact that the taxpayer has the means to satisfy the entire debt at this time petitioner submitted additional information supporting her offer_in_compromise on date specifically she provided bank statements for the period of may to date a renewal lease for her apartment a telephone bill and a utility bill then in a letter dated date petitioner requested further review of respondent’s decision to reject her offer on grounds that respondent failed to address mitigating factors weighing in petitioner’s favor in response respondent sent a letter reiterating the reasons for the rejection by a final letter dated date petitioner’s representative continued to argue for acceptance of her offer on date respondent issued to petitioner the notice_of_determination concerning collection action s under sec_6320 and or sustaining use of the lien as an appropriate collection action the notice consistent with the earlier correspondence was premised primarily on the inadequacy of collection alternatives in light of petitioner’s ability to pay her tax_liabilities in full from the assets of the trust petitioner’s petition challenging this notice was filed with the tax_court on date and reflected an address in new york new york i collection actions--general rules discussion sec_6321 imposes a lien in favor of the united_states upon all property and rights to property of a taxpayer where there exists a failure to pay any_tax liability after demand for payment the lien generally arises at the time assessment is made sec_6322 sec_6323 however provides that such lien shall not be valid against any purchaser holder of a security_interest mechanic’s_lienor or judgment lien creditor until the secretary files a notice of lien with the appropriate public officials sec_6320 then sets forth procedures applicable to afford protections for taxpayers in lien situations sec_6320 establishes the requirement that the secretary notify in writing the person described in sec_6321 of the filing of a notice of lien under sec_6323 this notice required by sec_6320 must be sent not more than business days after the notice of tax_lien is filed and must advise the taxpayer of the opportunity for administrative review of the matter in the form of a hearing before the internal_revenue_service office of appeals sec_6320 and sec_6320 and c grants a taxpayer who so requests the right to a fair hearing before an impartial appeals officer generally to be conducted in accordance with the procedures described in sec_6330 d and e sec_6330 addresses the matters to be considered at the hearing sec_6330 matters considered at hearing --in the case of any hearing conducted under this section-- requirement of investigation --the appeals officer shall at the hearing obtain verification from the secretary that the requirements of any applicable law or administrative procedure have been met issues at hearing -- a in general --the person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy including-- i appropriate spousal defenses ii challenges to the appropriateness of collection actions and iii offers of collection alternatives which may include the posting of a bond the substitution of other assets an installment_agreement or an offer-in-compromise b underlying liability --the person may also raise at the hearing challenges to the existence or amount of the underlying tax_liability for any_tax period if the person did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability once the appeals officer has issued a determination regarding the disputed collection action sec_6330 allows the taxpayer to seek judicial review in the tax_court or a u s district_court in considering whether taxpayers are entitled to any relief from the commissioner’s determination this court has established the following standard of review where the validity of the underlying tax_liability is properly at issue the court will review the matter on a de novo basis however where the validity of the underlying tax_liability is not properly at issue the court will review the commissioner’s administrative determination for abuse_of_discretion 114_tc_604 ii contentions of the parties the parties have stipulated that petitioner’s only argument in this case is that respondent abused his discretion by failing to accept her offer_in_compromise accordingly petitioner’s underlying tax_liabilities for the through years are not at issue in the instant proceeding in arguing that rejection of her offer was an abuse_of_discretion petitioner on brief takes the position that she cannot afford to pay her liabilities in full agrees that the respondent has the naked power to reach and apply the trust assets but contends that it would be grossly unfair to do so in other words and as summarized by petitioner although the o’brien trust assets can be reached to satisfy the tax_liability it was an abuse_of_discretion to ignore her over-all financial situation and reject her offer-in-compromise which acknowledged an indebtedness but sought recognition that to deplete her trust would not be in the public interest conversely respondent asserts that standards reflected in sec_7122 and regulations promulgated thereunder regarding evaluation of offers in compromise support respondent’s rejection of petitioner’s offer in this connection and relying on principles set forth in caselaw and in revrul_55_210 1955_1_cb_544 respondent maintains that petitioner’s interest in the trust is properly reachable by federal_tax_lien and that petitioner therefore has sufficient assets to pay her liabilities in full respondent further contends that petitioner has failed to establish economic hardship or to present compelling public policy or equity considerations as described in the applicable regulations discussed below that would show any abuse_of_discretion in respondent’s actions against these trust assets iii analysis sec_7122 as pertinent here authorizes the secretary to compromise any civil case arising under the internal revenue laws sec_7122 then addresses standards for evaluation of offers as follows the secretary shall prescribe guidelines for officers and employees of the internal_revenue_service to determine whether an offer-in-compromise is adequate and should be accepted to resolve a dispute in accordance with this directive sec_301_7122-1t b temporary proced admin regs fed reg date sets forth three grounds for compromise of a liability doubt as to liability doubt as to collectibility or promotion of effective tax_administration sec_301_7122-1t b temporary proced admin regs supra the provision relevant here reads as follows promote effective tax_administration if there are no grounds for compromise under paragraphs b and of this temporary_regulation a compromise may be entered into to promote effective tax_administration when-- i collection of the full liability will create economic hardship within the meaning of sec_301_6343-1 or ii regardless of the taxpayer’s financial circumstances exceptional circumstances exist such by their terms the temporary regulations apply to offers in compromise submitted on or after date through date sec_301_7122-1t j temporary proced admin regs fed reg date the temporary regulations thus were effective throughout the period during which petitioner’s offer was under consideration by respondent final regulations which do not differ materially in substance were subsequently issued and are applicable for offers pending on or submitted on or after date sec_301_7122-1 proced admin regs temporary regulations are entitled to the same weight and binding effect as final regulations peterson marital trust v commission102_tc_790 affd 78_f3d_795 2d cir that collection of the full liability will be detrimental to voluntary compliance by taxpayers and iii compromise of the liability will not undermine compliance by taxpayers with the tax laws iv special rules for evaluating offers to promote effective tax_administration -- a the determination to accept or reject an offer to compromise made on the ground that acceptance would promote effective tax_administration within the meaning of this section will be based upon consideration of all the facts and circumstances including the taxpayer’s record of overall compliance with the tax laws b factors supporting but not conclusive of a determination of economic hardship under paragraph b i include-- taxpayer is incapable of earning a living because of a long term illness medical_condition or disability and it is reasonably foreseeable that taxpayer’s financial resources will be exhausted providing for care and support during the course of the condition although taxpayer has certain assets liquidation of those assets to pay outstanding tax_liabilities would render the taxpayer unable to meet basic living_expenses and although taxpayer has certain assets the taxpayer is unable to borrow against the equity in those assets and disposition by seizure or sale of the assets would have sufficient adverse consequences such that enforced collection is unlikely c factors supporting but not conclusive of a determination that compromise would not undermine compliance by taxpayers with the tax laws include-- taxpayer does not have a history of noncompliance with the filing and payment requirements of the internal_revenue_code taxpayer has not taken deliberate actions to avoid the payment of taxes and taxpayer has not encouraged others to refuse to comply with the tax laws for purposes of appraising respondent’s exercise of discretion we consider petitioner’s circumstances as presented to the appeals_office in light of the foregoing standards the regulations emphasize economic hardship and petitioner throughout these proceedings has generally asserted her lack of ability to pay economic hardship is defined as an inability to meet reasonable basic living_expenses sec_301_6343-1 proced admin regs petitioner in her form 433-a alleged an estimated monthly income of dollar_figure comprising dollar_figure in earnings as an artist’s model and dollar_figure in distributions from the trust the form 433-a further showed estimated monthly expenses of dollar_figure including dollar_figure for food clothing and miscellaneous dollar_figure for housing and utilities dollar_figure for transportation dollar_figure for health care dollar_figure for taxes and dollar_figure for other expenses yet petitioner submitted bank statements reflecting miscellaneous expenditures and cash withdrawals of at least dollar_figure to dollar_figure per month which amounts apparently exclude rental expenses a number of the outlays are to establishments that provide other than basic necessities such as castle wine spirits sea grape wine spirits ryan’s irish pub rockefeller center cafe borders books music tower records world of video triton video radio shack the gap and speedo authentic fitness the discrepancy between the seeming amount of discretionary expenditures shown by the form 433-a and the bank statements is unexplained and leaves the record ambiguous as regards petitioner’s basic living_expenses or her ability to meet them similarly the record contains no evidence of any illness medical_condition or disability that would render petitioner incapable of earning a living or would exhaust all of her financial resources although on brief petitioner references uninsured medical_expenses incurred in such uncorroborated information never raised in the administrative_proceeding falls short of revealing any abuse_of_discretion see 118_tc_488 considering only arguments issues and other matters that were raised at the collection hearing or otherwise brought to the attention of the appeals_office turning to petitioner’s assets we note at the outset that no dispute between the parties exists as to whether the trust is reachable for collection of petitioner’s federal tax_liabilities further this view would appear to accord with relevant authorities state law determines the existence of property rights to which federal tax consequences such as a tax_lien may then attach 363_us_509 550_f2d_797 2d cir as this court has recognized the court in in re rosenberg’s will n e n y cert_denied 298_us_669 held that the interest of a beneficiary under a new york spendthrift trust may be reached by the united_states under an income_tax lien mahler v commissioner tcmemo_1987_64 the court_of_appeals for the second circuit to which appeal in the instant case would normally lie has indicated that where under state law a beneficiary can force a trustee to act as in a support_trust the beneficiary has an interest in property subject_to federal_tax_lien magavern v united_states supra pincite in this context the court_of_appeals has also explained that new york law clearly establishes that an aggrieved trust_beneficiary can enforce his right to trust property or income against a trustee who refuses to exercise his discretion as directed in the trust instrument id citing in re rosenberg’s will supra further the new york court_of_appeals has included taxes within the definition of the term ‘support’ in a case involving enforcement of a federal_tax_lien against a beneficiary’s rights in a spendthrift trust id citing in re rosenberg’s will supra see also 217_f3d_59 n 1st cir 550_f2d_682 1st cir revrul_55_210 1955_1_cb_544 at the time petitioner’s offer_in_compromise was under consideration the trust corpus was approximately dollar_figure her tax debt approximated dollar_figure the evidence fails to establish that collection against less than one-thirteenth of the asset’s value would leave petitioner unable to meet basic living costs in the immediately foreseeable future needs over the longer term would be no more than rampant speculation hence the totality of the financial information in the record does not show that respondent committed an abuse_of_discretion in concluding that the disputed lien would not create economic hardship in addition while the regulations also provide that collection that will prove detrimental to voluntary compliance may be inappropriate regardless of financial circumstances petitioner’s overall compliance history does not weigh in favor of compromise petitioner repeatedly failed to file timely federal tax returns and to pay taxes due she annually omitted from her returns significant rental income from the cape cod residence prior to its sale the record also suggests that petitioner defaulted on an earlier installment_agreement against this background and in the absence of other unique or compelling circumstances alleged by petitioner considerations of policy or fairness do not require that petitioner be relieved of her tax_liabilities to summarize the evidence before us does not indicate that in rejecting petitioner’s offer_in_compromise respondent acted arbitrarily capriciously or without sound basis in fact or law see 112_tc_19 respondent considered petitioner’s circumstances in light of the prescribed guidelines for accepting offers respondent then reasonably concluded that the information presented fell short of establishing either the requisite economic hardship or other exceptional factors demonstrating that compromise of the liability will not undermine voluntary compliance with the tax laws the court will sustain respondent’s collection action to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date department of the treasury washington dc third party communication none date of communication not applicable index number person to contact id no telephone number refer reply to cc tege eb qp3 plr-t-101793-15 date date l u o taxpayer hra plan u 401_k_plan o dear this letter is in response to your ruling_request dated date as supplemented by correspondence dated date date and date for a private_letter_ruling concerning the hra plan and the 401_k_plan the following facts and representations have been submitted under penalties of perjury in support of your request pursuant to a collective bargaining agreement taxpayer proposes to amend two plans the first is a medical expense reimbursement plan for retirees known as the hra plan funded through a_trust trust that the taxpayer represents is a veba as described in sec_501 of the internal_revenue_code the code each participant has a retiree hra that is funded by mandatory_contributions from each employee's salary each retiree hra is only usable by the employee on or after his or her retirement to provide reimbursement of qualified_medical_expenses under sec_213 plr-t-101793-15 the second plan is a defined contribution retirement_plan called the 401_k_plan the 401_k_plan is a collectively-bargained plan intended to be a tax qualified defined_contribution_plan pursuant to the collective bargaining agreement each employee accrues a certain amount of paid time off each year the total amount of paid time off allowed to an employee for any year is determined pursuant to a formula and such total amount includes a certain number of days of paid vacation for each vacation year a vacation year runs from may of each year through april of the following year under the collective bargaining agreement any unused vacation time at the end of a vacation year may not be carried over any unused vacation time up to days is forfeited and the excess of any unused vacation time over days is paid out as regular wages for purposes of this ruling the term annual unused vacation refers only to the unused vacation up to days that may not be carried over and is not paid out as regular wages pursuant to a collective bargaining agreement taxpayer is proposing to amend the hra plan and 401_k_plan to allow each employee covered under such collective bargaining agreement to make an annual irrevocable election before the start of the calendar_year in which the leave is earned that is before the start of the calendar_year in which the vacation year begins to have the dollar equivalent determined under a formula set forth in the collective bargaining agreement of the annual unused vacation up to days contributed by taxpayer into the 401_k_plan the employee's retiree hra or a combination of both an employee may not make this election with respect to any unused vacation in excess of days such amounts are paid to the employee as regular wages in the event that any amount attributable to any employee’s annual unused vacation cannot be contributed to the 401_k_plan due to the annual limitations under sec_401 and sec_415 the taxpayer will contribute the dollar equivalent of the excess_amount to the employee’s retiree hra at the same time that the taxpayer would have made such contribution to the 401_k_plan in the event that an employee fails to make an employee election by the end of the calendar_year preceding the vacation year the dollar equivalent of the entirety of such annual unused vacation will be contributed as an employer_contribution to the 401_k_plan and any excess amounts above the annual limitations will be contributed to the retiree hra based on the above facts and representations you request the following rulings the proposed amendment to the 401_k_plan will not cause the plan to offer an additional cash_or_deferred_arrangement pursuant to sec_401 such that the taxpayer's contributions of accrued vacation amounts are considered employee pre-tax contributions subject_to the annual limitation under sec_402 and plr-t-101793-15 the proposed amendment to the trust and payments made from the trust to the hra plan that are used to reimburse qualified_medical_expenses as defined in sec_213 of retired employees their spouses and their dependents are excludable from the gross_income of retired employees their spouses and dependents under sec_105 and sec_106 with respect to the first ruling_request sec_401 provides that a_trust created or organized in the united_states and forming part of a stock bonus pension or profit- sharing plan of an employer for the exclusive benefit of its employees or their beneficiaries constitutes a qualified_trust under that section if a series of conditions are met sec_401 provides as one of those conditions that the contributions or benefits provided under the plan do not discriminate in favor of highly compensated employees within the meaning of sec_414 a plan maintained pursuant to a collective bargaining agreement is deemed to satisfy the nondiscrimination requirements sec_401 provides that a_trust will not constitute a qualified_trust unless under the plan of which the trust is a part each employee is subject_to the annual sec_401 compensation limit sec_401 provides in pertinent part that a qualified_cash_or_deferred_arrangement is any arrangement which is part of a profit sharing plan or stock_bonus_plan a pre-erisa_money_purchase_plan or a rural_cooperative_plan which meets the requirements of sec_401 and under which a covered_employee may elect to have the employer make payments as contributions to a_trust under the plan on behalf of the employee or to the employee directly in cash sec_402 provides in part that the elective_deferrals of any individual for any taxable_year shall be included in such individual’s gross_income to the extent the amount of such deferrals for the taxable_year exceeds the applicable_dollar_amount sec_402 provides that the term elective_deferrals includes in part with respect to any taxable_year any employer_contribution under a qualified_cash_or_deferred_arrangement as defined in sec_401 to the extent not includible under sec_402 sec_415 provides that a_trust which is part of a pension profit-sharing or stock_bonus_plan shall not constitute a qualified_trust under sec_401 if of a defined_contribution_plan contributions and other additions under the plan with respect to any participant for any taxable_year exceed the limitation of sec_415 in the case sec_415 provides that contributions and other additions with respect to a participant exceed the limitation of sec_415 if wnen expressed as an annual plr-t-101793-15 addition to the participant’s account the annual_addition is greater than the lesser_of the applicable annual dollar limitation or percent of the participant’s_compensation sec_1_401_k_-1 of the income_tax regulations the regulations provides that a cash or deferred election is any election by an employee to have the employer either a provide an amount to the employee in the form of cash or some other taxable benefit that is not currently available or b contribute an amount to a_trust or provide an accrual or other benefit under a plan deferring the receipt of compensation sec_1_401_k_-6 defines non-elective contributions as employer contributions other than matching_contributions with respect to which the employee may not elect to have the contributions paid to the employee in cash or other_benefits instead of being contributed to the plan sec_1_401_k_-6 defines elective contributions as contributions made pursuant to a cash or deferred election under a cash_or_deferred_arrangement sec_1_415_c_-1 generally defines the term annual_addition as the sum credited to a participant’s account for any limitation_year of a employer contributions b employee contributions and c forfeitures revrul_2009_31 2009_39_irb_395 provides that annual employer non- elective contributions of the dollar equivalent of unused paid time off to a qualified profit- sharing plan that vary for each employee will not cause the plan to fail to meet the qualification requirements of sec_401 provided that the contributions satisfy the applicable_requirements of sec_401 and sec_415 and where applicable other requirements of the code under the 401_k_plan amounts attributable to unused accrued vacation contributions up to a stated limit may only be distributed and therefore made available to employees in the future while employees are permitted to make an annual irrevocable election as to which plan the contributions are to be made to they are not permitted to elect to have the contributions paid in cash or other taxable benefit accordingly the proposed amendment to the 401_k_plan will not cause the plan to offer an additional cash_or_deferred_arrangement pursuant to sec_401 such that the taxpayer's contributions of annual unused vacation are considered employee pre-tax contributions subject_to the annual limitation under sec_402 with respect to the second ruling_request sec_61 and sec_1_61-21 provide that except as otherwise provided in subtitle a gross_income includes compensation_for services including fees commissions fringe_benefits and similar items sec_106 provides that gross_income of an employee does not include employer_provided coverage under an accident_or_health_plan sec_1_106-1 provides that the gross_income of an employee does not include contributions which the employee’s plr-t-101793-15 employer makes to an accident_or_health_plan for compensation through insurance or otherwise to the employee for personal injuries or sickness incurred by the employee or the employee’s spouse or dependents as defined in sec_152 the employer may contribute to an accident_or_health_plan either by paying the premium on a policy of accident_or_health_insurance covering one or more of the employees or by contributing to a separate trust or fund which provides accident or health benefits directly or through insurance to one or more of the employees however if the insurance_policy trust or fund provides other_benefits in addition to accident or health sec_106 applies only to the portion of the contributions allocable to accident or health benefits sec_105 states that except in the case of amounts attributable to and not in excess of deductions allowed under sec_213 relating to medical_expenses for any prior taxable_year gross_income does not include amounts attributable to employer- provided coverage if such amounts are paid directly or indirectly to the taxpayer to reimburse the taxpayer for expenses_incurred by the taxpayer for the medical_care as defined in sec_213 of the taxpayer or the taxpayer’s spouse or dependents as defined in sec_152 determined without regard to subsections b b and d b and any child as defined in sec_152 who has not attained age as of the end of the taxable_year sec_1_105-2 provides that only amounts that are paid specifically to reimburse the taxpayer for expenses_incurred by the taxpayer for the prescribed medical_care are excludable from gross_income thus sec_105 does not apply to amounts that the taxpayer would be entitled to receive irrespective of whether or not the taxpayer incurs expenses for medical_care in revrul_2002_41 2002_2_cb_75 an employer sponsors a health_reimbursement_arrangement hra that is paid for solely by the employer and not through salary reduction contributions the hra reimburses substantiated medical_care expenses as defined in sec_213 of participating employees and their spouses and dependents as defined in sec_152 up to a maximum annual reimbursement amount unused amounts from one coverage period are carried forward to subsequent coverage periods participating employees have no right to receive cash or any other benefit in lieu of medical expense reimbursements in situation of revrul_2002_41 the maximum reimbursement amount under the hra that is not applied to reimburse medical_care expenses before an employee retires or otherwise terminates employment continues to be available after retirement or termination for any medical_care expense under sec_213 incurred by the former employee or the former employee’s spouse and dependents the ruling concludes that coverage and reimbursements made under the hra are excludable from the gross_income of participating employees under sec_106 and sec_105 notice_2002_45 2002_2_cb_93 provides that an hra is an arrangement that is paid for solely by the employer and not pursuant to salary reduction reimburses the employee for medical_care expenses as defined in sec_213 incurred by the employee and the employee’s spouse and dependents as defined in sec_152 and provides that any unused portion of the maximum dollar amount available during the plr-t-101793-15 coverage period is carried forward to subsequent periods notice_2002_45 also provides that benefits under an hra must be limited to reimbursements of sec_213 expenses and that all such expense reimbursements must be substantiated to be excludable under sec_105 notice_2002_45 further provides that medical_care expense reimbursements under an hra are excludable under sec_105 if the reimbursements are provided to the following individuals current and former employees including retired employees their spouses and dependents as defined in sec_152 as modified by the last sentence of sec_152 and the spouses and dependents of deceased employees under the collectively bargained hra plan if the employee timely elects to have annual unused vacation contributed to his or her retiree hra such amounts are paid solely by taxpayer and not pursuant to salary reduction elections or otherwise the amounts will be used to provide benefits that reimburse eligible post-retirement medical_expenses and will not be used to provide for the payment of death_benefits bonuses or separation pay nor may amounts be used to provide other taxable or nontaxable benefits thus the collectively bargained hra plan meets the requirements of revrul_2002_41 and notice_2002_45 and the amounts are excludable from the gross_income of retired employees their spouses and dependents under sec_105 and sec_106 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 based upon the assumption that the 401_k_plan satisfies the qualification requirements set forth in sec_401 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent 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 plr-t-101793-15 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely ingrid grinde senior tax law specialist qualified_plans branch tax exempt government entities cc


t c memo united_states tax_court timothy vincent tipp petitioner v commissioner of internal revenue respondent docket no 541-o1l filed date timothy vincent tipp pro_se rollin g thorley and susan b watson for respondent memorandum opinion panuthos chief special_trial_judge this matter is before the court on respondent’s motion to dismiss for failure to state a claim upon which relief can be granted as explained in detail below we shall grant respondent’s motion background on date petitioner filed a federal_income_tax return for reporting a tax_liability of dollar_figure respondent subsequently entered assessments against petitioner for reflecting the tax reported due additions to tax for failing to pay estimated_taxes and failing to pay the amount reported due and interest respondent applied overpayment credits from and to petitioner’s outstanding tax_liability for in addition petitioner made a number of payments against his tax_liability for during the period to on date petitioner filed a federal_income_tax return for reporting a tax_liability of dollar_figure on date respondent issued a notice_of_deficiency to petitioner determining a deficiency of dollar_figure in his federal_income_tax for petitioner did not file a petition for redetermination with the court challenging the notice_of_deficiency on date respondent mailed to petitioner a final notice_of_intent_to_levy and notice of your right to a hearing pursuant to sec_6331 ' the notice stated that petitioner owed taxes penalties and interest totaling dollar_figure for the unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure - - taxable years and and that respondent was preparing to collect this amount by levy the notice stated that petitioner had days to request a collection_due_process_hearing with respondent's appeals_office on date petitioner filed a request fora sec_6330 hearing with respondent's appeals_office on date the appeals_office conducted a hearing in petitioner’s case on date respondent's appeals_office issued to petitioner a notice_of_determination concerning collection action s under sec_6320 and or the determination_letter the determination_letter stated that the appeals_office would proceed with collection with respect to the amount due for but that petitioner was not liable for any amount for respondent’s determination to abate the assessments entered against petitioner for produced a credit of dollar_figure for that year which respondent applied to petitioner’s outstanding tax_liability for on date petitioner filed with the court an imperfect petition for lien or levy action under sec_6320 b or d on date petitioner filed an amended petition which included nothing but frivolous and groundless - at the time the petition was filed petitioner resided in las vegas nevada q4e- allegations that petitioner is not liable for taxes under the uniform commercial code in response respondent filed a motion to dismiss for failure to state a claim upon which relief may be granted this matter was called for hearing at the court's motions session held in washington d c counsel for respondent appeared at the hearing and presented argument in support of respondent's motion no appearance was made by or on behalf of petitioner at the hearing following the hearing respondent filed a supplement to his motion to dismiss asserting that the collection review procedures set forth in sec_6320 and sec_6330 are limited to lien and levy actions and do not preclude respondent from applying an available credit to a taxpayer’s outstanding tax_liability petitioner filed an affidavit which stated that petitioner denied the existence of various entities including the united_states of america the united_states tax_court and the internal_revenue_service discussion in the internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_685 congress enacted new sec_6320 pertaining to liens and pertaining to levies to provide protections for taxpayers in tax collection matters sec_6330 generally provides that the - - commissioner cannot proceed with the collection_of_taxes by way of a levy on a taxpayer's property until the taxpayer has been given notice of and the opportunity for an administrative review of the matter in the form of an appeals_office hearing and if dissatisfied with judicial review of the administrative determination in either the tax_court or federal district_court sec_6330 b provides that neither the existence nor the amount of the underlying tax_liability can be contested at an appeals_office hearing unless the taxpayer did not receive a notice_of_deficiency for the taxes in question or did not otherwise have an earlier opportunity to dispute such tax_liability sec_6330 a provides that a taxpayer may file a petition for review of the commissioner's administrative determination with the tax_court in 114_tc_176 we explained that sec_6330 provides for an appeals_office hearing to address collection issues such as spousal defenses the appropriateness of the commissioner's intended collection action and possible alternative means of collection the taxpayer in goza v commissioner supra had received a notice_of_deficiency yet failed to file a petition for redetermination with the court when the taxpayer subsequently attempted to use the court's collection review procedure as a forum to assert frivolous and groundless constitutional arguments against the federal income -- - tax the court dismissed the petition for failure to state a claim upon which relief can be granted in the instant case the record indicates that following an appeals_office hearing respondent determined that he would proceed with collection against petitioner as to taxes due for and he would abate the assessments entered against petitioner for respondent asserts that the assessment for is based on the return as filed and that the tax penalty and interest due for is the balance after application of a credit applied from to petitioner does not dispute this assertion respondent did not issue a notice_of_deficiency to petitioner for a circumstance which normally would permit petitioner to challenge his underlying tax_liability for in this collection review proceeding as was the case in goza v commissioner supra petitioner failed to raise a spousal defense or challenge respondent's proposed levy by offering a less intrusive means for collecting the taxes in either the appeals_office hearing or in his petition for review filed with the court sec_6330 a moreover as indicated the petitioner failed to assert a valid claim for relief see 116_tc_60 holding that the court had jurisdiction in a collection review proceeding regardless of whether a deficiency was determined where the underlying liability related to federal_income_tax given the nature of petitioner’s frivolous claims we conclude that petitioner failed to assert a valid claim for relief as to the underlying liability - amended petition contains nothing but frivolous and groundless arguments relating to the uniform commercial code petitioner is deemed to have conceded all issues not raised rule b under the circumstances we conclude that the petition fails to state a claim for relief and we shall grant respondent’s motion to dismiss as supplemented to reflect the foregoing an appropriate order and decision will be entered for respondent


t c memo united_states tax_court diep n hoang petitioner v commissioner of internal revenue respondent docket no filed date w michael thornton specially recognized for petitioner francis c mucciolo and lauren b epstein for respondent memorandum findings_of_fact and opinion vasquez judge respondent determined a dollar_figure deficiency in petitioner’ sec_2001 federal_income_tax the issues for decision are what amount of the dollar_figure in interest petitioner at trial mr thornton appeared on behalf of petitioner mr thornton however did not sign the briefs filed by petitioner received from bank one n a bank one in is taxable and what amount of the ira_distributions totaling dollar_figure petitioner received from janus capital group janus in is taxable findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the referenced exhibits are incorporated herein by this reference at the time he filed the petition petitioner resided in orlando florida interest petitioner held three certificates of deposit cds with bank one that matured in during petitioner received interest payments from bank one of dollar_figure dollar_figure and dollar_figure ira_distributions as of date petitioner had a balance of dollar_figure in a strong funds strong ira account on date petitioner established a traditional_ira account with janus with funds transferred from the strong ira account petitioner filled out a janus traditional_ira application and under the heading traditional_ira he checked the box for transfer of existing traditional_ira from another custodian during petitioner received ira_distributions from janus of dollar_figure dollar_figure dollar_figure and dollar_figure janus sent petitioner forms 1099-r distributions from pensions annuities retirement or profit-sharing_plans iras insurance contracts etc for these distributions the forms 1099-r listed the taxable amounts of these distributions as dollar_figure dollar_figure dollar_figure and dollar_figure during petitioner also held a non-ira account with janus tax_return on hi sec_2001 federal_income_tax return petitioner reported dollar_figure in interest dollar_figure of ordinary dividends zero of total ira_distributions and zero of taxable ira_distributions the reported interest was from first union and huntington national bank the reported ordinary dividends were from invesco fidelity american century janus vanguard and pbhg notice_of_deficiency in a notice_of_deficiency respondent determined that petitioner failed to report dollar_figure in interest and a dollar_figure taxable ira distribution respondent did not seek to increase the deficiency by the amounts of the interest dollar_figure and the ira distribution dollar_figure in excess of the amounts determined in the notice_of_deficiency respondent rounded the figures reported to the internal_revenue_service down to whole dollars in his computations opinion petitioner has neither claimed nor shown that he satisfied the requirements of sec_7491 a to shift the burden_of_proof to respondent with regard to any factual issue accordingly petitioner bears the burden_of_proof see rule a interest gross_income includes all income from whatever source derived including interest sec_61 petitioner stipulated that during he received dollar_figure of interest from bank one petitioner relies on his own testimony to establish that a portion of the interest he received in from bank one is not taxable we found petitioner’s testimony to be general vague conclusory and or questionable in certain material respects petitioner claims he earned only dollar_figure in interest from bank one in because the total value of the cds was dollar_figure and the annual interest rate was percent accordingly petitioner conceded dollar_figure of the dollar_figure in interest determined by respondent it is unclear however how petitioner calculated the dollar_figure he claims he received interest for only days until date the date the three cds matured in and unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure dollar_figure is the interest on dollar_figure for days petitioner claimed he was an accrual basis taxpayer and that he should report the interest when it was earned rather than when he received it the amount of any item_of_gross_income shall be included in the gross_income for the taxable_year in which it is received by the taxpayer unless under the method_of_accounting used by the taxpayer the amount is properly accounted for as of a different period sec_451 petitioner presented no credible_evidence that he used the accrual_method of accounting additionally petitioner testified that in previous years he reported interest_income as he received it and as it was reported to him on forms 1099-int interest_income furthermore petitioner failed to report any interest from bank one on hi sec_2001 return petitioner was vague absentminded and nonresponsive when answering certain questions about the bank one cds despite having clear memories of events from the 1980s and 1990s and the exact maturity_date of the bank one cds petitioner claimed memory loss as to the amount he received in from the bank one cds he was unwilling to admit or deny whether he received the interest from the bank one cds in even though he signed the stipulation of facts on the day of trial stipulating he received dollar_figure in interest from bank one in under the circumstances we are not required to and generally do not rely on petitioner’s testimony to sustain his burden of establishing error in respondent’s determinations see 877_f2d_624 7th cir affg tcmemo_1987_295 440_f2d_688 9th cir affg per curiam tcmemo_1969_159 87_tc_74 accordingly we sustain respondent’s determination regarding petitioner’s interest_income for ira_distributions petitioner stipulated that he received distributions totaling dollar_figure from the janus ira in petitioner admitted that the growth of his ira is taxable however he contends that a portion of the ira_distributions is not taxable sec_408 provides generally that any amount_paid or distributed out of an individual_retirement_plan shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 the term individual_retirement_plan includes an ira sec_7701 all distributions during any taxable_year are treated as one distribution and the value of the contract the income_on_the_contract and the investment_in_the_contract are computed as of the close of the calendar_year in which the taxable_year begins see sec_408 generally taxpayers have no basis in an ira sec_1 a income_tax regs a taxpayer has a basis in ira contributions to the extent the contributions are considered an investment_in_the_contract sec_72 sec_408 alpern v commissioner tcmemo_2000_246 nondeductible_contributions to an ira minus any prior withdrawals or distributions of nondeductible_contributions constitutes a taxpayer’s investment_in_the_contract sec_72 108_tc_54 nondeductible_contributions however must be designated as such and reported on form_8606 nondeductible_ira_contributions ira basis and nontaxable ira_distributions in the manner prescribed by the internal_revenue_code sec_408 alpern v commissioner supra petitioner admitted that he lacked a complete paper trail for his iras petitioner relies on his own testimony to establish that a portion of the ira_distributions in was not taxable petitioner claimed that in mellon bank inappropriately converted an account he held there from a regular account to an ira account and it was these funds that he eventually transferred to the strong ira we found petitioner’s testimony to be general vague conclusory and or questionable in certain material respects petitioner’s testimony was contradictory as to when he opened this alleged non-ira account at mellon bank the late 1980s or and as to what kind of alleged non-ira account it was a savings account a cd or a timed deposit petitioner also testified that the strong account he opened was not an ira account even though he stipulated to the contrary the documentary_evidence is to the contrary and he testified that he sent the money from mellon bank to strong as an ira direct transfer under the circumstances we are not required to and generally do not rely on petitioner’s testimony to sustain his burden of establishing error in respondent’s determinations see lerch v commissioner supra geiger v commissioner supra tokarski v commissioner supra the court is not required to accept petitioner’s unsubstantiated testimony see 338_f2d_602 9th cir affg 41_tc_593 the court need not accept at face value a witness’s testimony that is self-interested or otherwise questionable see 227_f2d_270 5th cir affg a memorandum opinion of this court 221_f2d_152 8th cir affg tcmemo_1954_51 schroeder v commissioner tcmemo_1986_467 there is no evidence that petitioner filed forms the evidence does not establish the initial source of the funds in the janus ira or that petitioner has any basis investment_in_the_contract in the janus ira accordingly we sustain respondent’s determination regarding petitioner’s ira_distributions for conclusion we note that petitioner attached documents to his posttrial briefs evidence must be submitted at trial documents attached to briefs and statements made therein do not constitute evidence and will not be considered by the court rule b 48_tc_704 affd per curiam 413_f2d_1047 9th cir lombard v commissioner tcmemo_1994_154 affd without published opinion 57_f3d_1066 4th cir accordingly these documents are not in evidence to reflect the foregoing decision will be entered for respondent


department of the treasury internal_revenue_service washington d c date number info release date cc tege eoeg et1 - genin-146139-02 uilc memorandum for director internal_revenue_service center kansas city mo attn entity control from subject office of division counsel associate chief_counsel tax exempt and government entities cc tege eoeg et1 - genin-146139-02 railroad retirement act tax status in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business ceased to be an employer under the railroad retirement act and the railroad unemployment insurance act effective date we have reviewed the opinion of the rrb and based upon the information submitted to the rrb we also conclude that ceased to be an employer under the railroad_retirement_tax_act effective date please take the appropriate action regarding this business will e mcleod cc