internal_revenue_service number release date index number 468a ---------------------------------- ------------------------------------------------------------ - --------------------------- -------------------------- -------------------------------- - department of the treasury washington dc person to contact ----------------------- id no ------------- telephone number - --------------------- refer reply to cc psi b06 - plr-140094-05 date november legend taxpayer company holding_company --------------------------- ----------------------- ------------------------------ ----------------------- ----------------------------------------- -------------------------------- -------- -------------- newco state a state b plant ---------------------------------------------------------- commission a commission b commission c commission d a -------------------------- ----------------------------------------------------- ------------------------------------------- -------------------------------------------------- --------------------------------------------------- ------------------------------------------------------ plr-140094-05 dear -------------------- this letter responds to your request for private_letter_ruling dated date you requested that we rule on certain tax consequences under sec_468a of the internal_revenue_code to taxpayer and newco and the qualified nuclear decommissioning fund with respect to plant of the reorganization discussed below facts taxpayer has represented the following facts and information relating to the ruling_request taxpayer a registered public_utility holding_company is the parent of an affiliated_group of subsidiary corporations company is a subsidiary of taxpayer company a regulated_public_utility corporation organized in state a is engaged in the generation transmission and distribution or electricity to customers in state a company is the owner and operator of plant as well as the concomitant obligation to decommission plant company represents that it has a qualifying interest in plant as defined in sec_1_468a-1 of the treasury regulations of percent company has established a qualified nuclear decommissioning trust the qdt to fulfill its obligation to decommission plant taxpayer and company propose to undertake a two-step process of restructuring on a under step one company will convert into holding_company a corporation organized under the laws of state b taxpayer represents that this conversion will qualify as a tax-free reorganization under sec_368 of the internal_revenue_code in step holding_company will contribute inter alia plant and the concomitant qdt to newco a limited_liability_company llc formed under the laws of state b holding_company will own all of the common membership interest in newco taxpayer represents that step of the restructuring will qualify as a tax-free_exchange under sec_351 the restructuring will take place after necessary regulatory approval is obtained from commissions a b c and d newco will be a regulated_public_utility subject_to the jurisdiction of commissions b and d taxpayer has requested the following rulings requested ruling the qdt will not be disqualified by reason of either the conversion of company into holding_company or the transfer of the qdt from holding_company to newco in the course of the proposed restructuring thus the qdt will continue to be treated as a qdt that satisfies the requirements of sec_468a and sec_1_468a-6 of the regulations thereunder requested ruling the qdt will not recognize any gain_or_loss or otherwise take any income_or_deduction into account as a result of the conversion of plr-140094-05 company into holding_company or the transfer of the qdt from holding_company to newco in the course of the proposed restructuring requested ruling neither taxpayer company holding_company nor newco will recognize any gain_or_loss or take any income_or_deduction into account as a result of the transfer of the qdt from holding_company to newco in the course of the proposed restructuring requested ruling pursuant to sec_1_468a-6 after the restructuring the qdt will have a tax basis in each of their assets that is the same as the tax basis in those assets immediately prior to the proposed restructuring law and analysis sec_1_468a-5 sets out the qualification requirements for nuclear decommissioning funds it provides in part that a qualified nuclear decommissioning fund must be established and maintained pursuant to an arrangement that qualifies as a_trust under state law sec_1_468a-5 provides that an electing taxpayer can establish and maintain only one qualified nuclear decommissioning fund for each nuclear power plant if a nuclear power plant is subject_to the ratemaking jurisdiction of two or more public_utility commissions and any such public_utility commission requires a separate fund to be maintained for the benefit of ratepayers whose rates are established or approved by the public_utility commission the separate funds maintained for such plant whether or not established and maintained pursuant to a single trust agreement shall be considered a single nuclear decommissioning fund sec_1_468a-6 provides rules applicable to the transfer of an interest in a nuclear power plant and transfer of the qualified nuclear decommissioning fund where certain requirements are met specifically sec_1_468a-6 provides that sec_1_468a-6 applies if-- immediately before the disposition the transferor maintained a qualified nuclear decommissioning fund with respect to the interest disposed of and immediately after the disposition-- plr-140094-05 i the transferee maintains a qualified nuclear decommissioning fund with respect to the interest acquired ii the interest acquired is a qualifying interest of the transferee in the nuclear power plant iii either a proportionate amount which could include all of the assets of the transferor’s qualified nuclear decommissioning fund is transferred to a qualified nuclear decommissioning fund of the transferee or the transferor’s entire qualified nuclear decommissioning fund is transferred to the transferee provided in the latter case or if the transferee receives all of the assets in the transferor’s qualified nuclear decommissioning fund but not the transferor’s qualified nuclear decommissioning fund that the transferee acquires the transferor’s entire qualifying interest in the plant and iv the transferee continues to satisfy the requirements of sec_1_468a-5 which permits an electing taxpayer to maintain only one qualified nuclear decommissioning fund for each plant sec_1_468a-6 provides that a disposition that satisfies the requirements of sec_1_468a-6 will have the following tax consequences at the time it occurs neither the transferor nor the transferor’s qualified nuclear decommissioning fund will recognize gain_or_loss or otherwise take any income into account by reason of the transfer of a proportionate amount of the assets of the transferor’s qualified nuclear decommissioning fund to the transferee’s qualified nuclear decommissioning fund or by reason of the transfer of the transferor’s entire qualified nuclear decommissioning fund to the transferee for purposes of the regulations under sec_468a this transfer or the transfer of the transferor’s qualified nuclear decommissioning fund will not be considered a distribution of assets by the transferor’s qualified nuclear decommissioning fund neither the transferee nor the transferee’s qualified nuclear decommissioning fund will recognize gain_or_loss or otherwise take any income into account by reason of the transfer of a proportionate amount of the assets of the transferor’s qualified nuclear decommissioning fund to the transferee’s qualified nuclear decommissioning fund or by reason of the transfer of the transferor’s entire qualified nuclear decommissioning fund to the transferee for purposes of the regulations under sec_468a this transfer or the transfer of the transferor’s qualified nuclear decommissioning fund will not constitute a payment or a contribution of assets by the transferee to its qualified nuclear decommissioning fund plr-140094-05 transfers of assets of a qualified nuclear decommissioning fund to which this section applies do not affect basis thus the transferee’s qualified nuclear decommissioning fund will have a basis in the assets received from the transferor’s qualified nuclear decommissioning fund that is the same as the basis of those assets in the transferor’s qualified nuclear decommissioning fund immediately before the distribution under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a conclusions based on the information submitted by taxpayer we reach the following conclusions the conversion of company into holding_company and the transfer of the qdt from holding_company to newco in the course of the proposed restructuring qualify as dispositions under the general provisions of sec_1_468a-6 accordingly pursuant to sec_1_468a-6 and sec_1_468a-6 the qdt will not be disqualified by reason of the conversion of company into holding_company and the transfer of the qdt from holding_company to newco in the course of the proposed restructuring in addition taxpayer company holding_company newco and the qualified nuclear decommissioning trust will not recognize any gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the interests in the qualified nuclear decommissioning trust funds further pursuant to sec_1_468a-6 after the restructuring newco’s qualified nuclear decommissioning fund will have a basis in the assets held equal to the basis of such assets in the qualified nuclear decommissioning fund immediately prior to the transfer of the interests in the qualified nuclear decommissioning funds while it owns interests in plant newco is eligible to maintain the qualified nuclear decommissioning fund except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above this letter_ruling is directed only to the taxpayer that requested it sec_6110 provides that this ruling may not be used or cited as precedent plr-140094-05 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 we are also sending a copy of this letter_ruling to taxpayer and to the industry director natural_resources lm nr sincerely peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b1-plr-161034-02 date december legend x d1 state dear this responds to the letter dated date and related correspondence submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on d1 under the laws of the state x intended to be treated as an s_corporation for federal tax purposes effective d1 but the s election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election plr-161034-02 is made if the election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such an election as timely made for such taxable_year and effective as of the first day of that tax_year x did not file a timely election to be treated as an s_corporation under sec_1362 effective d1 x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being faxed to your authorized representative s dianna k miosi sincerely dianna k miosi chief branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court harm de boer petitioner v commissioner of internal revenue respondent docket no filed date harm de boer pro_se james r robb for respondent memorandum findings_of_fact and opinion beghe judge respondent determined deficiencies in petitioner's and federal income taxes of dollar_figure and dollar_figure respectively and negligence penalties under sec_6662 of dollar_figure and dollar_figure respectively the deficiencies arose from 1unless otherwise identified section references are to the internal_revenue_code in effect for the years in issue and all respondent's disallowance of net_operating_loss carryovers and schedule c deductions claimed by petitioner in connection with his drill rig activities as a result of respondent's concession on an unrelated issue brought up by petitioner's amendment of his return the only issues remaining for decision relate to the deficiency and penalty for viz whether petitioner in was engaged in a trade_or_business under sec_162 so as to be entitled to a dollar_figure net_operating_loss_carryover from whether petitioner in was entitled to deduct expenses of dollar_figure as a ordinary and necessary trade_or_business_expenses under sec_162 or b expenses_for_the_management_conservation_or_maintenance_of_property_held_for_the_production_of_income under sec_212 and whether petitioner is liable for a negligence_penalty under sec_6662 we hold petitioner was engaged in a trade_or_business in petitioner a was not engaged in a trade_or_business in but b did incur expenses in connection with property_held_for_the_production_of_income within the meaning of sec_212 and petitioner is not liable for a negligence_penalty under sec_6662 rule references are to the tax_court rules_of_practice and procedure 2see appendix for rulings on evidentiary objections findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and attached exhibits are incorporated herein when petitioner filed his petition he resided in the vicinity of fairbanks alaska petitioner has a degree in petroleum production engineering prior to beginning a drilling business in petitioner spent approximately years in the petroleum industry as a drilling engineer the first drill rig in date petitioner purchased a used hughes auger drill rig for dollar_figure and commenced a drilling business that he called de boer drilling co petitioner's rig rather than being used to drill for oil was used to drill large diameter foundation support holes for construction projects as well as the holes needed to start oil wells during the years through petitioner operated the drill rig on a contract basis for oil companies and construction companies on the north slope of alaska petitioner performed drilling work for such oil companies as alyeska oil co atlantic richfield and british 3the first drill rig is a model tap-50 approximately feet wide and feet long and weighing approximately big_number pounds this drill is capable of drilling to a depth of approximately feet petroleum and such construction companies as morrison knudsen corp and green construction co petitioner had no employment other than the operation of his drilling business during through over a 3-year period through petitioner earned approximately dollar_figure in revenues from his drilling business because of the short construction season and long alaskan winter petitioner's revenues were earned during a to 2-month period in each of those years in date petitioner moved from alaska to stavanger norway to accept employment as a drilling engineer for mobil oil co on the north sea petitioner continued to work overseas as a mobil employee until date from through petitioner returned to alaska to weeks each year during these visits he worked on his drill rig and corresponded with potential clients with the exception of a 1-week rental of the drill rig in petitioner received no revenue from de boer drilling co while he was employed by mobil the second drill rig in date soon after completing his employment with mobil petitioner returned to alaska in date petitioner purchased at auction for dollar_figure another used drill rig that had an original list price of dollar_figure and the capacity to drill deeper than the first rig petitioner also purchased diesel and electric welding equipment for dollar_figure later during the year petitioner purchased inner kelly equipment for use with the recently purchased rig at a cost of dollar_figure although the second drill rig was in working order when purchased by petitioner he spent substantial time and money renovating it and keeping it in working order from the end of date through the beginning of date petitioner had no employment other than his drilling operation and devoted the bulk of his waking hours working on the drill rig and looking for jobs on which he could use it notwithstanding that petitioner engaged in wage-earning employment after date for various employers see infra p he continued to spend substantial time on activities under the name de boer drilling co petitioner spent approximately percent of this time working on the drill rig and percent looking for drilling jobs for the purchase_price and capital costs of work done on the second drill rig from through petitioner claimed cost_recovery deductions of approximately dollar_figure petitioner also claimed expense deductions for de boer drilling co of approximately dollar_figure during through during thi sec_4the second drill rig is a hughes tool co model tap-120t also approximately feet wide and feet long and weighing approximately big_number pounds this rig is capable of drilling holes from inches in diameter to inches in diameter and can dig efficiently to a depth of feet period petitioner filed federal_income_tax returns identifying his occupation as drilling contractor with schedule c forms identifying the principal service as drilling services and the business name as de boer drilling co for the years through petitioner reported gross_receipts expenses and losses for de boer drilling co as follows tax_year gross_receipts -0- dollar_figure big_number -0- -0- -0- -0- net profit depreciation or loss expenses 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 big_number big_number big_number -0- big_number big_number -0- big_number petitioner’s net_loss for was shown on his return as a net_operating_loss for which he claimed a carryover deduction in the gross_receipts shown above for and resulted from sales of metal well casing purchased by petitioner for 5petitioner was still claiming depreciation_deductions on the first drill rig on a straight-line basis over years during this period depreciation_deductions claimed by petitioner with respect to the first drill rig and other equipment purchased during the period and the second drill rig and related equipment purchased in are as follows depreciation tax_year first drill rig dollar_figure big_number big_number big_number second drill rig total dollar_figure big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number dollar_figure in date and on which he had claimed depreciation_deductions for the years through petitioner had no other receipts or gross_income from de boer drilling co for the years petitioner received and reported wages in the following amounts on his federal_income_tax returns from through tax_year wages employer dollar_figure mobil exploration norway inc dates worked hrs wk big_number mobil expense reimbursement big_number u s army everts air fuel big_number everts air fuel big_number everts air fuel craig taylor equip co big_number big_number craig taylor equip co craig taylor equip co university of alaska in petitioner attempted to sell the second drill rig and entered negotiations to sell it at a price of approximately dollar_figure however he did not sell it during the years petitioner listed de boer drilling co in the fairbanks alaska yellow pages under the heading drilling contractors at a cost of approximately dollar_figure to 6there is no evidence in the record as to what petitioner did with the first rig after he bought the second rig and all further references herein to the drill rig are to the second drill rig dollar_figure per year petitioner also maintained business licenses and submitted written proposals to provide drilling services to oil and construction companies during the relevant period with the exception of written proposals in and petitioner did not retain written records of his efforts to find work for his drilling operation while petitioner used the drill rig to drill some holes on his own property he has never been able to obtain contracts to use the drill rig commercially for clients petitioner attributes his inability to obtain drilling business to a general depression in the level of economic activity in alaska during this period due to the decline in oil prices indeed oil prices did decline sharply in and thereafter through remained at substantially lower levels than they were at in and 7the record does not disclose the nature of petitioner's property which he characterizes as commercial and whether petitioner's drilling on the property was merely to test operative capabilities of petitioner's equipment or to benefit the property 8neither party asked the court to take judicial_notice of the decrease in oil prices or general economic activity that began in however on brief and at trial both parties referred to a decline in oil prices during the relevant period and appear to agree that it had a general depressing effect on the levels of construction and general economic activity in alaska crude_oil price summaries for the relevant periods are available and we take judicial_notice of them under fed r evid a continued petitioner is a skilled mechanic and engineer his long hours of work on the drill rig in the face of his inability to find work for it are attributable both to the profit that he expected to earn from its operation and disposition and the enjoyment he derived from working on the equipment upgrading it and keeping it in a state of readiness petitioner reported taxable_income of dollar_figure and a tax_liability of dollar_figure on his federal_income_tax return for however foreign tax_credits arising from petitioner's foreign_source_income from his work overseas reduced that liability to zero petitioner reported no taxable_income and a tax_liability of zero on each of his federal_income_tax returns for the period through continued the largest decline in the spot price of crude_oil occurred in and the price never recovered during the relevant period to levels selected domestic prices per barrel follow price year average dollar_figure average dollar_figure average dollar_figure average dollar_figure average dollar_figure average dollar_figure average dollar_figure average dollar_figure energy information administration historical monthly energy review pincite petitioner's federal_income_tax returns were examined by respondent the examination resulted in petitioner’s receipt in date of respondent’s no-change report and letter with respect to his reported income and deductions opinion sec_162 allows as a deduction all ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business sec_172 allows sec_162 deductions in excess of gross_income to be carried forward as a net_operating_loss for years following the taxable_year of the loss sec_167 provides in part for depreciation_deductions with respect to property used in a trade_or_business respondent determined that petitioner did not engage in the drilling business during the taxable years and with the intent to earn a profit respondent disallowed the deductions in attributable to petitioner's drill rig activity maintaining that petitioner was not in business in and that petitioner's drilling equipment was not in business use in or respondent concedes that if petitioner was engaged in business in he incurred a net_operating_loss of dollar_figure that he can carry forward to the year before us without regard to his later trade_or_business status and the proper treatment of the losses he claimed for the intervening years if petitioner was engaged in the drilling business in the net_operating_loss_carryover taken as a deduction in was proper because the loss would have been incurred in the operation of a trade_or_business see eg 33_tc_506 respondent maintains that the business begun by petitioner in ended in when petitioner accepted overseas employment and that upon returning from norway petitioner began a new activity that never became a trade_or_business petitioner maintains that his business continued from through and thereafter and that his purchase of and work on the second drill rig and efforts to obtain contracts for its use were a continuation of his preexisting business it is sometimes necessary to decide whether a taxpayer has terminated his business so that expenditures to reenter the area are not incurred in carrying on the business or has only suspended business activities temporarily in which event the taxpayer's status continues for purposes of sec_162 bittker 9respondent in her notice_of_deficiency determined that petitioner was not engaged in business in and therefore disallowed the net_operating_loss from that year respondent did not determine alternatively that even if petitioner was engaged in a trade_or_business in he was not engaged in business in the intervening years through it would follow if petitioner was not engaged in business or income production during the intervening years that petitioner's income from these years would have absorbed the net_operating_loss from leaving nothing to be carried forward to respondent did not make this argument and we do not address it lokken federal taxation of income estates and gifts par pincite 2d ed issue whether petitioner was in a trade_or_business in expenses_incurred in a trade_or_business are generally fully deductible however an activity must be engaged in for income or profit in order to constitute a trade_or_business 480_us_23 this requires the taxpayer to have an actual and honest objective of making a profit 90_tc_74 78_tc_642 affd without pub op 702_f2d_1205 d c cir the taxpayer may have a bona_fide objective of making a profit even if the expectation of profit is not reasonable 91_tc_371 72_tc_28 70_tc_715 affd without published opinion 607_f2d_995 2d cir affd on another issue 615_f2d_578 2d cir whether a taxpayer has the requisite actual and honest objective of making a profit is a question of fact to be resolved on the basis of all of the facts and circumstances of the particular case 72_tc_411 affd without published opinion 647_f2d_170 9th cir dunn v commissioner t c pincite the taxpayer bears the burden_of_proof on this issue rule a viewing the record as a whole we believe that petitioner in had a bona_fide intention to derive a profit from his drilling activity petitioner had operated a successful drilling business in through prior to accepting employment in norway at the end of in the taxable years through petitioner earned approximately dollar_figure in revenues from his drilling business although the record contains no direct evidence of petitioner’s profits in the gross revenue that he earned in these years must have generated profits the existence of such profits can be inferred from the levels of annual expenses in later years for which we do have evidence because petitioner's drilling operation from through had been successful he reasonably believed that drilling work would be available upon his return to alaska in cf sec_183 the fact that a drop in oil prices coincided with petitioner's attempt to reactivate the business does not weigh against petitioner's profit objective in even if we were to conclude in the light of hindsight that petitioner's expectation of profitability was unreasonable in provided petitioner had a genuine expectation of profit during as we believe he did the possibility or probability that it may have been or become objectively unreasonable does not gainsay our conclusion that petitioner was engaged in the activity for profit in see stahnke v commissioner tcmemo_1980_369 petitioner had worked full time in his drilling operation from through from through during the period petitioner was working for mobil he returned to alaska to weeks each year during which time he worked on his drilling equipment and corresponded with potential clients in petitioner earned_income from the use of his drill rig in petitioner had no outside employment and did no work other than his drilling activity petitioner claims to have devoted big_number hours to his drilling operation in which amounts to more than hours per week even one-half of the hours claimed by petitioner would amount to a work week for the average individual during this year we deem it unnecessary to decide whether petitioner's drill rig activities in were a continuation or reactivation of his trade_or_business or an attempt to start a new business with the old business of having been terminated by petitioner's full time employment overseas with mobil we conclude that during the year petitioner engaged in the drilling activity for profit 480_us_23 respondent argues that the losses_incurred by petitioner in both of the years at issue as well as the intervening years petitioner's lack of formal operating statements or records and the recreational benefit derived by petitioner from his drilling activity are indicative of petitioner's lack of profit objective in we do not find petitioner's losses after indicative of his profit intention in in petitioner had reasonably expected continued success in the drilling business based on his earlier success moreover losses sustained because of unforeseen circumstances which are beyond the control of the taxpayer such as depressed market conditions would not be an indication that the activity is not engaged in for profit sec_1_183-2 income_tax regs petitioner maintains and respondent does not dispute that there was a decline in oil prices during the period at issue which was largely responsible for the overall decline in construction and drilling activity throughout alaska respondent argues that petitioner's activity should have been unaffected by the decline in oil prices because petitioner's drilling activity consisted only of foundation work for construction projects and oil companies respondent maintains that there was still a market for petitioner's services we find petitioner's argument more persuasive on this point as the figure of speech if it's not broken don't fix it suggests we believe that when petitioner returned from norway in he conducted his drilling activity in much the same way he had from through when he had earned large revenues and substantial profits although there had been a market for petitioner's services in through the decline in oil prices in resulted in a general economic decline with a correlative reduction in construction activity during the period after his return to alaska which obviously had an adverse effect on petitioner's ability to obtain drilling contracts petitioner admits that he enjoys working on his equipment while petitioner's drilling activity included recreational and personal elements we do not find that those aspects outweighed petitioner's profit objective a taxpayer's enjoyment of an activity does not demonstrate a lack of profit objective if the activity is in fact conducted for profit as shown by other factors 59_tc_312 sec_1_183-2 income_tax regs petitioner expended a great deal of money renovating his drill rig we do not believe that petitioner would have embarked on such a time-consuming costly labor-intensive venture without a profit objective the fact that petitioner derived a level of personal satisfaction from working on the equipment does not belie his underlying profit objective sec_1_183-2 income_tax regs although petitioner's records of his drilling activities and efforts to find work for the rig left much to be desired the absence of accurate books_and_records does not conclusively establish the lack of a profit objective see farrell v commissioner tcmemo_1983_542 we find petitioner's marketing efforts more indicative of his profit objective petitioner held himself out as a drilling contractor during the relevant period by listing his business in the telephone directory also petitioner submitted proposals to provide drilling services to oil and construction companies petitioner actively sought contracts to use the drill rig commercially finally we consider petitioner's financial status petitioner is not a wealthy individual whose unprofitable drilling activity would suggest an effort to shelter unrelated income through deliberate losses while substantial income from sources other than the activity may indicate that the activity is not engaged in for profit the fact that the taxpayer does not have substantial income from sources other than the activity tends to indicate that an activity is engaged in for profit sec_1_183-2 income_tax regs the legislative_history of the tax reform act of publaw_91_172 83_stat_487 discloses a particular concern about wealthy individuals attempting to generate paper losses for the purpose of sheltering unrelated income see h rept 1969_3_cb_200 we have no such concerns with respect to petitioner particularly with respect to the year when he had no wage income we do not believe that petitioner’s intention in when he earned no wages was to generate a large net_operating_loss that he could carry to a later period petitioner's financial status combined with the substantial amount of money he expended in renovating the drill rig weighs in favor of his profit objective we conclude that petitioner was engaged in a trade_or_business with regard to the drill rig during and is entitled to the net_operating_loss_carryover deducted in issue a whether petitioner was engaged in a trade_or_business in our finding that petitioner's activity constituted a trade_or_business under sec_162 in does not warrant a finding that petitioner was engaged in a trade_or_business in if an activity is one not engaged in for profit sec_183 provides that no deduction attributable to such activity shall be allowed except as otherwise provided in sec_183dollar_figure petitioner has not persuaded us that he continued to be engaged in a trade_or_business during our finding is based on the manner in which petitioner carried on his activity from through including part of because no one factor is determinative we are most persuaded by petitioner's continued dependence on techniques that produced no revenue while losses often occur during the 10first sec_183 allows the full amount of those deductions available without regard to the profit objective of the activity then sec_183 allows those deductions normally permitted only if such activity was engaged in for profit but limits them to the amount by which the gross_income from that activity exceeds any deductions taken under sec_183 formative years of a business the goal must be to realize a profit on the entire operation which presupposes not only future net_earnings but also sufficient net_earnings to recoup the losses which have meanwhile been sustained in the intervening years 45_tc_261 affd 379_f2d_252 2d cir before going to norway petitioner's drilling activity had been successful thus when petitioner returned from norway in his expectation of continued success in the drilling business was bona_fide however we simply are unable to impute a continuing profit objective to petitioner when he continued the activity that had generated no revenue and incurred losses for a period of consecutive years without changing the manner in which he carried it on petitioner’s continued lack of revenue and resulting losses year after year coupled with his failure to change his approach or terminate the activity supports the inference that by he had become indifferent to whether the losing trend could be reversed see 32_f3d_94 4th cir affg tcmemo_1993_396 while each case is unique and we are not willing to place a strict length-of-time requirement on when an activity is no longer carried on for profit we do not think that the profit objective petitioner had in could have continued through we sustain respondent's determination that petitioner was not engaged in a trade_or_business in issue b whether petitioner's activity was engaged in for profit within the meaning of sec_212 having concluded that petitioner was not engaged in a trade_or_business under sec_162 in we consider whether in petitioner was engaged in an activity for the production_of_income under sec_212 while both sec_162 and sec_212 allow a deduction for ordinary and necessary expenses sec_162 requires that the expenses be paid_or_incurred in carrying_on_a_trade_or_business whereas sec_212 requires only that the expenses be paid_or_incurred for the production_or_collection_of_income tybus v commissioner tcmemo_1989_309 or the management_conservation_or_maintenance_of_property_held_for_the_production_of_income sec_212 expenses paid_or_incurred in managing conserving or maintaining property_held_for_investment may be deductible under sec_212 even though the property is not currently productive sec_1_212-1 income_tax regs sec_212 was designed to allow deductions for certain nontrade or nonbusiness expenses 343_us_118 the supreme court first interpreted sec_212 in bingham’s 325_us_365 while the court in bingham’s trust stressed the parallelism between sec_212 and sec_162 it held that deductible expenses need not relate directly to the production_of_income for the business instead the effect of sec_23 the predecessor to sec_212 was to provide for a class of nonbusiness deductions that were incurred in the production_of_income or in the management or conservation of property_held_for_the_production_of_income id pincite the court rejected the commissioner’s claim that expenses can be deducted under sec_23 only if they produce immediate incomedollar_figure respondent does not dispute that the expenses listed on petitioner’s tax_return were paid_by petitioner however in her statutory_notice_of_deficiency respondent maintains that no deduction is allowable because petitioner had not placed his drill rig into business use under bingham’s trust petitioner did not need to place his drill rig into business use in in order to be entitled to deductions for expenses_incurred in maintaining his drill rig as long as he had a profit objective with respect to its ultimate disposition petitioner has expended substantial amounts of money time and effort in the renovation and maintenance of his drill rig 11see also bittker lokken federal taxation of income estates and gifts par pincite 2d ed bittker lokken suggest that the nonbusiness label for sec_212 purposes is simply an abbreviated way of referring to profit- oriented activities that are not sufficiently frequent and continuous to be a trade_or_business thus it follows that sec_162 allows deductions for expenses_incurred in a trade_or_business while sec_212 allows deductions for expenses_incurred in maintaining an income-producing asset the taxpayer may hope to derive a profit from an activity and may intend that even if no profit is derived from current operations an overall profit will result when appreciation in the value of property used in the activity is realized sec_1_183-2 income_tax regs although petitioner's work on his drill rig was a source of personal satisfaction a drill rig would hardly qualify as a recreational vehicle profit objective is to be determined on an objective basis 72_tc_659 a drill rig drills holes in the ground for purposes of starting wells or foundations of improvements to real_property thus we do not characterize a drill rig as a recreational vehicle as we would a motorcycle or sports car sec_1 b income_tax regs provides in relevant part that the term income includes income that the taxpayer may realize in subsequent taxable years and is not confined to recurring income but applies as well to gains from the disposition of property we thus find that during petitioner's drill rig was property_held_for_the_production_of_income within the meaning of sec_212 petitioner maintains that his drill rig has a present_value of dollar_figure to dollar_figure the value of a capital_asset is a function of the stream of income that it can produce and petitioner has failed to produce any revenue through the use of the drill rig nevertheless we are persuaded that the expenses_incurred by petitioner in were ordinary and necessary in helping to maintain the appreciated value of petitioner's drill rig whose original dollar_figure basis had been reduced to zero by depreciation_deductions allowed respondent questions the reasonableness of petitioner's estimate of value particularly because petitioner did not present appraisals or expert testimony of the value of the drill rig petitioner testified however that he was in negotiations to sell the drill rig in for approximately dollar_figure even a lesser increase in value would still provide petitioner with a substantial profit without the benefit of depreciation_deductions see 77_tc_1326 even though petitioner's opinion regarding the value of his drill rig may be overly optimistic there appears to be some substantial likelihood that petitioner will eventually realize some profit from the sale of the drill rig we thus find that petitioner has proven his intention to realize a profit from the time and effort expended on maintenance of the drill rig at least with respect to its ultimate sale the lack of expert testimony regarding the value of the drill rig speaks only to the extent of its appreciation respondent argues that petitioner did not hold his drill rig with the primary objective of making a profit however even if this were true sec_212 allows a deduction for expenses paid_or_incurred for the management_conservation_or_maintenance_of_property_held_for_the_production_of_income respondent appears to assert that the objective of making a profit is the same as the objective of producing income so restrictive an interpretation would be unwarranted the code is replete with instances in which the expression taxable_income is used to refer only to receipts remaining after deduction of expenses see eg sec_63 sec_161 265_fsupp_86 w d wis expenses_incurred in the maintenance of rental property were deductible under sec_212 even though the expenses exceeded receipts from the rental sec_212 refers to property_held_for_the_production_of_income not property held for the production of current taxable_income respondent cites no authority to support her view that income in sec_212 is to be so limited to current taxable_income property_held_for_the_production_of_income does not require that the property be currently productive but instead includes property_held_for_the_production_of_income from gain from its sale see 2_tc_305 upkeep expense and depreciation_deductions allowed on a vacant building that could not be currently rented in ray v commissioner tcmemo_1989_628 we held that where a taxpayer claims to hold property for investment purposes there must be some affirmative act on the part of the taxpayer to show that the property has been appropriated to an income- producing purpose because the property at issue in ray was real_property that had appreciated in value without any affirmative act by the taxpayer we held that expenses_incurred by the taxpayer were not expenses_incurred for the management_conservation_or_maintenance_of_property_held_for_the_production_of_income the case at hand is distinguishable from ray we believe that petitioner's actions have caused his drill rig to appreciate in value a major purpose of petitioner in continuing to expend the time money and effort on maintaining the drill rig in was to enhance the likelihood of obtaining a return on his investment if and when he should subsequently sell the drill rig we hold that all expenses listed on schedule c for the tax_year which we find were attributable to the management conservation or maintenance of petitioner's drill rig to be properly deductible under sec_212 under sec_67 in the case of an individual the miscellaneous_itemized_deductions for any taxable_year are allowed only to the extent that the aggregate of such deductions exceed sec_2 percent of adjusted_gross_income sec_1 1t a ii temporary income_tax regs fed reg date provides the deduction under sec_67 includes expenses_for_the_production_or_collection_of_income for which a deduction is otherwise allowable under sec_212 or thus petitioner's allowable deduction for is subject_to the 2-percent limitation of sec_67 and account should be taken of the limitation in the rule computation issue sec_6662 negligence_penalty respondent determined that petitioner is liable for a penalty for negligence pursuant to sec_6662 b and c sec_6662 imposes a penalty of percent of the portion of the underpayment to which sec_6662 applies sec_6662 provides a penalty for negligence or intentional disregard of rules or regulations sec_6662 defines negligence as including any failure to make a reasonable attempt to comply with the provisions of the code negligence is defined as the lack of due care or the failure to do what a reasonable and ordinarily prudent person would do under similar circumstances 62_f3d_1266 10th cir affg tcmemo_1993_607 939_f2d_874 9th cir affg in part and revg in part on other grounds tcmemo_1989_390 petitioner bears the burden of proving that respondent's determination of negligence is erroneous rule a 925_f2d_348 9th cir 58_tc_757 we have held for petitioner on the substantive issues of the net_operating_loss_carryover from and the expense deductions which remove both from consideration as a possible source of support for respondent's determination of negligence however on his return petitioner deducted the entire amount of expenses_incurred in as trade_or_business_expenses we have determined that petitioner's deductions for are allowed only as expenses_incurred in the production_of_income under sec_212 subject_to the 2-percent limitation imposed by sec_67 we find no affirmative evidence of negligence or disregard of the rules or regulations we have found petitioner to be an intelligent and credible witness even a taxpayer well-versed in the code requirements for carrying_on_a_trade_or_business often encounters difficulty in determining what would satisfy the requirements we find that petitioner was acting in reasonable good_faith when he concluded that the items in question were deductible as trade_or_business_expenses sec_6664 see 54_tc_1642 affd per curiam 457_f2d_369 9th cir while we have disagreed with petitioner's characterization of his expenses for and found his claims of business_expense deductions to be incorrect petitioner had a reasonable basis for his claims after audit petitioner received a no- change letter in date for the taxable_year stating that petitioner’s business deductions for that year were proper petitioner timely filed his federal_income_tax return in date shortly after receipt of the no-change letter it was reasonable for petitioner to rely on the no-change letter as an indication of respondent’s agreement that he continued to be engaged in a trade_or_business see 92_tc_351 affd 907_f2d_1173 d c cir even though the letter does not require the conclusion that he was so engaged see infra note appendix accordingly we decline to sustain the imposition of any penalty under sec_6662 b and c to reflect the foregoing decision will be entered under rule appendix the federal rules of evidence generally apply to proceedings in this court sec_7453 80_tc_1145 affd 749_f2d_1216 6th cir issue a exhibits and income_tax examination changes and no-change letter for respondent objects to the admission of the income_tax examination_report and no-change letter citing 63_tc_51 respondent maintains that the fact that there was no change to petitioner's reported income is irrelevant to the issues in this case we disagree rule of the federal rules of evidence provides that a statement is relevant if it has any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence in gordon we agreed with the commissioner that the amount of unreported wagering income determined by the commissioner in a specific year was not dependent upon the taxpayer's activities in earlier years while the years at issue in the case at hand are and we also consider petitioner's activities during the intervening years to determine whether petitioner carried on a trade_or_business in petitioner claimed deductions in for depreciation and other expenses related to his drilling operation respondent after audit concluded that petitioner's return for the tax_year should be accepted with no change in the reported taxable_income for that year respondent's concession is an admission that has a tendency to show that petitioner was engaged in a trade_or_business in exhibits and are relevant to whether petitioner was engaged in a trade_or_business in dollar_figure issue b exhibits and income_tax examination and report for respondent objects to the admission of the income_tax examination and report respondent relies on 83_tc_269 and 62_tc_324 for the proposition that the tax_court generally does not look behind the statutory_notice_of_deficiency to examine the basis of the commissioner's determination petitioner asserts that exhibits 12we should note that the no-change letter issued by respondent for the tax_year is not controlling evidence that petitioner was engaged in a trade_or_business in that year for respondent's no-change letter to be binding petitioner must show the elements of estoppel fitzpatrick v commissioner tcmemo_1995_548 or that the no-change letter amounted to a closing_agreement respondent's audit and resulting no-change letter occurred in after the relevant period thus petitioner could not have detrimentally relied on the no-change letter a key condition which a taxpayer claiming estoppel against the government must satisfy 76_tc_209 affd 810_f2d_209 d c cir in continuing his drilling activity however we have taken the letter into account in assessing the reasonableness of petitioner’s return position for the purpose of the sec_6662 penalty and explain why adjustments were made with respect to petitioner's tax_liability for and how respondent calculated the deficiency at issue we agree with respondent a trial before the tax_court is a proceeding de novo greenberg's express inc v commissioner supra pincite our decision in this case must be based on the record of the case not the record developed at the administrative level see o'dwyer v commissi28_tc_698 affd 266_f2d_575 4th cir inasmuch as petitioner has not shown that respondent's deficiency determination was arbitrary and erroneous or that the determination was not supported by the proper foundation evidence see 596_f2d_358 9th cir revg 67_tc_672 it is inappropriate for us to look behind the deficiency_notice to examine the basis for respondent's determination issue c exhibit irs settlement proposal respondent objects to the admission of an offer in settlement sent by an irs appeals officer to petitioner rule of the federal rules of evidence renders inadmissible any evidence of conduct or statements made in negotiations to compromise a claim petitioner relies on the third sentence of rule which provides that the rule does not require the exclusion of any evidence otherwise discoverable merely because it is presented in the course of compromise negotiations there is nothing in respondent's settlement offer that was otherwise discoverable within the meaning of rule we agree with respondent and have not considered the appeals officer's settlement proposal for any purpose issue d exhibits j and k petitioner's and tax returns petitioner objects on the ground of lack of relevance to the admission of his and federal_income_tax returns respondent maintains that petitioner's returns for the years and are evidence that petitioner is still earning no revenue from his drilling activity this respondent argues is relevant to the determination of whether petitioner carried on a trade_or_business petitioner maintains that the years covered in this case include years prior to and evidence relating to whether he maintained a trade_or_business should be limited to those years we agree with respondent the tax years before this court are and respondent seeks admission of the and tax returns for the purpose of showing that de boer drilling co continued to earn no revenue this evidence is relevant to whether petitioner was engaged in a trade_or_business in the immediately preceding year


significant index no department of the treasury internal_revenue_service washington d c - tax_exempt_and_government_entities_division apr re substitute mortality_table ruling taxpayer ein salaried plan hourly plan ein ein plan no plan no populations for which substitute mortality tables are requested e e salaried plan - male annuitants salaried plan - female annuitants dear this letter is to inform you that your request to use substitute mortality tables for making computations under sec_430 of the internal_revenue_code the code for the included group has been granted with respect to the populations specified in this letter effective for a period of plan years beginning with the plan_year commencing your request has been granted in accordance with sec_430 january of the code and sec_303 of the employee_retirement_income_security_act_of_1974 this approval applies to the following specific populations e e salaried plan - male annuitants including disabled participants salaried plan - female annuitants including disabled participants the taxpayer is also requesting approval for substitute mortality tables for the hourly plan’s male and female annuitant and nonannuitant populations which will be addressed in a separate ruling letter based on the information provided by the taxpayer the following population does not have credible mortality experience and therefore the standard mortality tables will be used for calculations under sec_430 of the code salaried plan - male and female nonannuitants in granting this approval we have only considered whether the substitute mortality rates were developed in accordance with sec_1_430_h_3_-2 of the treasury regulations regulations and revproc_2017_55 accordingly we are not expressing any opinion as to the accuracy or acceptability of any calculations or other material submitted with your request permission is hereby granted to use the substitute mortality rates shown in the table below for the salaried plan approved for use beginning with the plan_year commencing january substitute mortality tables base_year male annuitants female annuitant sec_2 male female annuitants annuitants male female annuitants annuitants male annuitants female annuitant sec_89 the above rates were developed based on an experience study period from january the rates were calculated with a base_year of through december by adjusting the applicable standard mortality tables in sec_1_430_h_3_-1 of the regulations using the mortality ratio and credibility weighting factor determined by aggregating male and female experience shown in the table below mortality credibility population ratio factor salaried plan - annuitants the internal_revenue_service has reviewed the substitute mortality rates and supporting information and has determined that based on the information submitted the rates were developed in accordance with sec_1_430_h_3_-2 of the regulations and revproc_2017_55 the above rates must be applied on a generational basis as provided in sec_1_430_h_3_-2 of the regulations your attention is called to sec_430 of the code and sec_1 h - d of the regulations which describe the circumstances in which the use of the substitute mortality_table will terminate before the end of the 10-year period described above in general the substitute mortality tables can no longer be used as of the earliest of fora plan using a substitute mortality_table for only one gender the first plan_year for which there is full or partial credible mortality information with respect to the other gender that had lacked credible mortality information unless an approved substitute mortality_table is used for that gender the first plan_year in which the plan fails to satisfy the requirements of sec_1_430_h_3_-2 of the regulations regarding the requirement that other plans and populations in the controlled_group must also use substitute mortality tables unless it can be demonstrated that they do not have credible mortality information taking into account the transition_period for newly affiliated companies in sec_1_430_h_3_-2 of the regulations the second plan_year following the plan_year for which there is a significant change in individuals covered by the plan as described in sec_1_430_h_3_-2 iii of the regulations the plan_year following the plan_year in which a substitute mortality_table used for a plan population is no longer accurately predictive of future mortality of that population as determined by the commissioner or as certified by the plan’s actuary to the satisfaction of the commissioner or the date specified in guidance published in the internal_revenue_bulletin pursuant to a replacement of mortality tables specified under sec_430 of the code and sec_1_430_h_3_-1 of the regulations other than annual updates to the static mortality tables issued pursuant fo sec_1_430_h_3_-1 of the regulations or changes to the mortality improvement rates pursuant to sec_1_430_h_3_-1 of the regulations in particular sec_1_430_h_3_-2 of the regulations provides that the use of substitute mortality tables must be discontinued after a significant change in coverage unless the plan’s actuary certifies in writing to the satisfaction of the commissioner that the substitute mortality tables used for the population continue to be accurately predictive of future mortality of the population taking into account the effect of the change in the population for this purpose a significant change in coverage occurs if the number of individuals covered by the substitute mortality_table for a plan_year is less than percent or more than percent of either the average number of individuals in that population over the years covered by the experience study on which the substitute mortality_table is based or the number of individuals covered by the substitute mortality_table in a plan_year for which a certification described in sec_1_430_h_3_-2 of the regulations was made this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan years for which the substitute mortality tables are used please note the information that is required to be attached to schedule sb actuarial information in accordance with the instructions to that form we have not sent a copy of this letter to your authorized representatives pursuant to a power_of_attorney form on file in this office we have sent a copy of this letter to the manager ep classification in columbus ohio and to the manager ep compliance unit in chicago lilinois if you have any questions concerning this matter please contact id yat sincerely cc david m ziegler manager employee_plans actuarial group


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division jun z014 uniform issue list company dear this letter is in response to your request for a ruling which was submitted by your authorized representative on date company is a financial services company that is a passive and active non-bank trustee and custodian of individual_retirement_accounts iras and coverdell_education_savings_accounts cesas in order for an individual to make a contribution to an existing ira or cesa from a non retirement account held at company the individual must submit a letter of authorization loa which is either a written letter from the client or his or her authorized representative or a verbal request by the client or authorized representative to a company representative which is summarized via a written document signed and dated by company the loa indicates the amount of cash contribution to the ira the non retirement account from which the funds are to be transferred and the tax_year that the contribution is designated for or if silent the contribution is treated as designated for the current_year the loa is irrevocable on receipt and company processes such loas as soon as administratively practicable subject_to the client having sufficient funds in his or her account and having already established either an ira or cesa with company company then transfers funds from the individual's brokerage or other account to the individual's ira or cesa in some cases due to processing times even if the loa is received by the april 15th deadline the transfer may not be processed until after such date accordingly you have asked us to rule that an individual who submits a loa directing company to transfer funds from a non-retirement account to a ira or cesa postmarked or transmitted not later than the time prescribed by law for filing the individual's tax_return for such taxable_year shall be deemed to have made a cash contribution to an ira or cesa on the last day of the preceding_taxable_year under sec_219 sec_408 408a c b a and b of the code as applicable provided the funds are in fact transferred in a reasonable_time sec_219 of the code states that a taxpayer shall be deemed to have made a contribution to an individual_retirement_plan on the last day of the preceding_taxable_year if the contribution is made on account of such taxable_year and is made not later than the time prescribed by law for filing the return for such taxable_year not including extensions thereof sec_408 of the code generally provides that no contribution to an ira will be accepted unless it is in cash and not in excess of the amount in effect for such taxable_year under sec_219 sec_530 a of the code states that no contribution to a cesa will be accepted unless it is in cash made before the date on which the beneficiary attains age and not in excess of dollar_figure in aggregate for the year not counting rollover_contributions sec_530 of the code states that a taxpayer shall be deemed to have made a contribution to a cesa on the last day of the preceding_taxable_year if the contribution is made on account of such taxable_year and is made not later than the time prescribed by law for filing the return for such taxable_year not including extensions thereof sec_7502 of the code provides that where a payment is required to be made within a period prescribed by any provision of the internal revenue laws the date of the united_states postmark stamped on the cover in which such payment is mailed shall be deemed the date of payment we conclude with respect to your ruling_request that an individual who submits an loa to company directing it to transfer funds from a non-retirement company account to an ira or cesa if when received the date of the u s postmark stamped on the cover in which such payment is mailed or if a verbal request the date upon which the request is made to a company representative is not later than the due_date of the taxpayer's return not including extensions thereof such individual shall be deemed to have made a cash contribution to such ira or cesa on the last day of the preceding_taxable_year under sec_219 sec_408 sec_408a sec_530 and sec_530 of the code as applicable provided the funds are in fact transferred as soon a administratively practicable this ruling assumes that the iras in question satisfy the requirements of sec_408 and the cesas in question satisfy the requirements of sec_530 of the code this ruling is directed only to the taxpayer that requested it sec_611 o k of the code provides that it may not be used or cited by others as precedent pursuant to a power_of_attorney on file with this office a copy of this ruling is being sent to your authorized representative if you require further assistance in this matter please contact at please address all correspondence to se t ep ra t2 e loyee plans technical2 enclosures deleted copy of ruling letter notice of intention to disclose cc


t c no united_states tax_court clifford w miller petitioner v commissioner of internal revenue respondent docket no 10563-99l filed date held sec_6015 i r c has no application to and does not govern the request of p’s former spouse for relief from joint_and_several_liability under sec_6013 i r c former sec_6013 which was repealed effective date and the administrative proceedings conducted by r that ulti- mately resulted in r’s granting that relief to her prior to date held further p did not have the right to be notified of or to participate in the administrative proceedings relating to the request of p’s former spouse for relief from joint_and_several_liability under former sec_6013 held further p lacks standing to challenge respondent’s determination to grant p’s former spouse relief from joint and sev- eral liability under former sec_6013 held fur- ther respondent did not abuse respondent’s discretion with respect to any of the determinations in the notice_of_determination concerning collection action under sec_6320 and or i r c clifford w miller pro_se william l blagg for respondent opinion chiechi judge this case is before the court on respon- dent’s motion for judgment on the pleadings which was filed on date and which pursuant to rule b the court shall treat as respondent's motion for summary_judgment under rule respondent’s motion on date petitioner filed a response to respondent’s motion and on date respondent filed a reply to petitioner’s response on date the court held a hearing on respondent’s motion as directed by the court respondent filed a supplement to respon- dent’s motion on date in which respondent provided additional information regarding that motion on date petitioner filed a response to respondent’s supplement background in the various filings by the parties with respect to respondent’s motion the parties do not dispute the following facts ‘al11 rule references are to the tax_court rules_of_practice and procedure all section references are to the internal_revenue_code code in effect at the times indicated - - petitioner resided in arden north carolina at the time the petition was filed sometime in date petitioner withdrew dollar_figure from an annuity_contract that he had with metropolitan life_insurance_company annuity withdrawal the joint federal_income_tax tax_return for joint_return filed by petitioner and his then spouse who is now known as florencie g bacon ms bacon failed to include as income dollar_figure of the annuity withdrawal petitioner and ms bacon divorced sometime after they filed the joint_return on date in connection with their divorce petitioner and ms bacon executed an agreement in which they agreed inter alia to be jointly responsible for any additional taxes determined by respondent to be due for with respect to any annuity_contracts held by petitioner at a time not disclosed by the record respondent determined a deficiency of dollar_figure for taxable_year tax defi- ciency against petitioner and ms bacon the tax defi- ciency was attributable solely to the failure of the joint_return to include as income dollar_figure of the annuity with- drawal respondent did not determine any penalties against petitioner and ms bacon for sometime prior to date ms bacon requested respon- dent to grant her relief from joint_and_several_liability relief q4e- from joint_and_several_liability with respect to the tax_deficiency around date respondent informed ms bacon that respondent had decided to grant that relief to her none- theless on date respondent assessed the tax_deficiency assessed tax_deficiency against petitioner and ms bacon for reasons not disclosed by the record respondent inadver- tently and erroneously failed to adjust the joint account that respondent maintained for petitioner and ms bacon joint ac- count in order to reflect the determination that respondent made around date to grant ms bacon relief from joint_and_several_liability respondent ultimately became aware of respon- dent’s failure to adjust the joint account in order to reflect that determination on date a so-called 2-way memo was prepared in which respondent’s personnel responsible for making changes to the joint account were instructed to transfer the assessed tax_deficiency and interest thereon from the joint account to a nonmaster file nmf account to be established only in petitioner’s name petitioner’s nmf account on date the assessed tax_deficiency and interest thereon reflected in the joint account were transferred to petitioner’s nmf account at no time throughout the period during which respondent was considering and taking action with respect to ms bacon’s request for relief from joint_and_several_liability was - - petitioner notified of that request and respondent’s consideration thereof or given an opportunity to participate in any of the administrative proceedings relating thereto sometime after date respondent notified peti- tioner of his right to a hearing appeals_office hearing at which he would be able to contest a proposed collection action against him with respect to the unpaid portion of the assessed tax_deficiency on date after the north-south carolina appeals_office of the internal_revenue_service appeals_office held the appeals_office hearing that petitioner had requested the appeals_office issued to petitioner a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination the notice_of_determination contained the following summary of the matters that were considered at peti- tioner’s appeals_office hearing matters considered the requirements of law and administrative procedures whether the service met its statutory and administra-- tive requirements prior to levy the relevant issues whether mr miller’s claim for innocent spouse relief could now be considered the intrusiveness of the collection action or the proposed collection action whether mr miller’s situa- tion warranted forbearance of the collection action until his claim could be considered the matter considered by the appeals_office relating to mr -- - miller’s claim for ‘innocent spouse’ relief included peti- tioner’s claim that respondent erroneously granted relief from joint_and_several_liability to ms bacon with respect to the assessed tax_deficiency and that he should have received notice of and an opportunity to contest ms bacon’s application_for such relief the notice_of_determination contained the following summary of the determinations that were made by the appeals_office with respect to the matters that were considered at petitioner’s appeals_office hearing summary of determination the statutory and procedural notice requirements prior to levy were met by the service therefore levy is permissible further under mr miller’s circum- stances the proposed levy balances the need to collect the revenue with the intrusiveness of the proposed action no collection alternatives were offered because mr miller challenged the liability mr miller’s claim for innocent spouse relief was considered and found to be meritless in the amended petition for lien or levy action under sec_6320 or sec_6330 petitioner alleged the following errors of the appeals_office in making the determinations summa-- rized in the notice_of_determination alleged errors in determination innocent spouse relief granted to my ex- wife without me being notified ex-wife signed divorce decree acknowledg- ing her tax responsibilities for tax years ‘89 - j- ‘90 concerning annuities i r s granted ex-wife inn spouse relief on or about i r s rep wrote me on informing me they were still trying to collect from ex when this was not true irs verbally informed me of granting inn spouse relief to my ex in dec ‘98 this was the first i was notified of this the annuity in guestion was cashed in in early benifited ex-spouse return was a joint_return ex is egually liable clifford w miller has paid dollar_figure to date on this return in the event the court does not rule favorably on the petitioner’s request petitioner prayerfully requests that his liability be limited to the unpaid portion of the dollar_figure original tax with no penalties or fines included reproduced lit-- erally in the answer to the amended petition respondent alleged inter alia that on or about date respondent determined that ms bacon qualified as an innocent spouse under the provi- sions of sec_6013 with respect to the income_tax deficiency discussion a summary adjudication may be made that disposes of all of the issues in controversy if inter alia it is shown that there is no genuine issue as to any material fact with respect to those issues see rule b we conclude that there is no genuine issue as to any material fact regarding the issues raised with respect to respondent’s motion the validity of the underlying tax_liability for is not at issue here consequently we shall review the determinations set forth in the notice_of_determination under an abuse-of- discretion standard see 114_tc_604 in support of his position that the appeals_office erred in determining that respondent may proceed to collect from him the unpaid portion of the assessed tax_deficiency petitioner argues that respondent should have given him notice of and an opportunity to participate in the administrative proceedings regarding ms bacon’s application_for relief from joint_and_several_liability with respect to that deficiency and that respondent should not have granted such relief to ms bacon in respondent’s motion respondent counters petitioner does not have standing to challenge respondent’s determination that his former wife is an innocent spouse see 37_f3d_1393 9th cir and garvey v commissioner t c memo in the instant case the commissioner granted innocent spouse relief to petitioner’s former wife before the enactment of the internal revenue restructuring and reform act of thus peti- tioner’s former wife never made an election under sec_6015 or c sec_6015 does not apply to this case and the pre-1998 act precedent of estate of ravetti and garvey supra forecloses peti- tioner’s challenge to his former wife’s innocent spouse status in addition respondent is not bound by any provisions relating to the tax_liability contained in petitioner’s divorce decree see 78_tc_100 respondent not bound by agreement to which he is not a party the parties do not dispute that respondent granted ms bacon relief from joint_and_several_liability with respect to the assessed tax_deficiency prior to date the date on which congress repealed sec_6013 that was in effect before that date former sec_6013 and enacted sec_6015 relating to relief from joint_and_several_liability see internal_revenue_service restructuring and reform act of rra publaw_105_206 e g 112_stat_685 sec_6015 generally applies to any liability for tax arising after date and any liability for tax arising on or before such date but remaining unpaid as of such date see id sec_3201 read in the context of sec_6015 the liability for tax referred to in the foregoing effective-date provision refers to the liability for tax of the taxpayer claiming relief from joint_and_several_liability respondent alleges in the answer and we find that respondent must have granted ms bacon relief from joint_and_several_liability pursuant to former sec_6013 which was in effect prior to date when respondent granted ms bacon that relief and that respondent did not grant such relief pursuant to sec_6015 which was not in effect until date at no time on or after date was ms bacon claiming or will she be claiming relief from joint_and_several_liability under sec_6015 either in an administrative proceed- ing before respondent or in a judicial proceeding before us once respondent granted ms bacon relief from joint_and_several_liability pursuant to former sec_6013 prior to date she had no liability for the assessed tax_deficiency on any date thereafter including date ms bacon did not have and could not have had any liability for the assessed tax_deficiency which arose on or before date when congress enacted sec_6015 and which remained unpaid as of that date see id we conclude that sec_6015 has no application to and does not govern ms bacon’s request for relief from joint_and_several_liability under former sec_6013 and the adminis-- trative proceedings conducted by respondent that ultimately resulted in respondent’s granting that relief to her prior to date cf 115_tc_118 sec_6015 applies where spouse had a liability for tax arising on or before date which remained unpaid as of that date and claimed relief from joint_and_several_liability under that section 114_tc_354 same we further conclude that petitioner did not have the right to be notified of or to participate in the administrative proceedings relating to ms bacon’s application_for relief from joint_and_several_liability under former sec_6013 and that petitioner lacks standing to challenge respondent’s determination to grant ms bacon such relief under former sec_6013 e see sec_6013 37_f3d_1393 9th cir petitioner requests in the alternative that the court waive any interest imposed by sec_6601 on the assessed tax_deficiency during the period date through date and penalties assessed by respondent with respect to the assessed tax_deficiency with respect to petitioner’s alternative request that the court waive any interest with respect to the assessed tax_deficiency imposed by sec_6601 that respondent assessed against him the record does not establish whether petitioner raised at his appeals_office hearing that interest should not have accrued on the assessed tax_deficiency during the period date through date assuming arguendo that the record before us had established that petitioner raised at his appeals_office hearing that interest should not have accrued on the assessed tax_deficiency during that period that we considered petitioner’s alterna- tive request regarding interest to be a request for abatement of -- interest under sec_6404 and that we concluded that we have jurisdiction under sec_6404 to consider that request see katz v commissioner t c __ __ slip op pincite on the record before us we find that petitioner has not established or even alleged a ministerial error within the meaning of sec_6404 reguiring an abatement of such inter- est see katz v commissioner supra at __ slip op pincite with respect to petitioner’s alternative request that the court waive any penalties assessed against him for respon- dent claims and petitioner does not dispute that no penalties were assessed against petitioner for consequently that request is moot ’ we hold that there is no basis in the record to conclude that respondent abused respondent’s discretion with respect to any of the determinations set forth in the notice of determina- tion to reflect the foregoing assuming arguendo that the record before us had established that respondent assessed penalties against petitioner for we would not consider petitioner’s alternative request that the court waive those penalties that is because the record does not establish that he raised that issue at his appeals_office hearing see sec_6320 sec_6330 sec_301_6320-1t q a-f5 temporary proced admin regs fed reg date sec_301_6330-1t f q a-f5 temporary proceed admin regs fed reg date an order treating respondent’s motion for judgment on the pleadings as supplemented as respondent’s motion for summary_judgment and granting it and decision that respondent may proceed with the collection action as determined in the notice_of_determination concerning the collection action for the taxable_year upon which this case is based will be entered


internal_revenue_service department of the treasury number release date index number 468a washington dc person to contact telephone number refer reply to cc psi 6-plr-159279-02 date date legend parent intermediate utility genco genco l p plant commission a commission b state state statute section a section b final order clarifying order new name a b c d e f g h i j k plr-159279-02 dear - - this letter responds to your request for private_letter_ruling dated date you requested that we rule on behalf of utility genco and their respective qualified nuclear decommissioning funds concerning certain tax consequences of the transfer of the plant from utility to genco under sec_468a of the internal_revenue_code in the context of a reorganization of parent’s business operations facts parent has represented the following facts and information relating to the ruling_request parent through a regulated electric utility subsidiary utility generates purchases transmits distributes and sells in both retail and wholesale capacities electricity in state utility is under the regulatory jurisdiction of commission a and commission b parent owns one hundred percent of the common_stock of intermediate which owns one hundred percent of the common_stock of utility utility owns a percent of the plant which consists of b units utility has established and maintained both qualified and nonqualified nuclear decommissioning funds for each unit of plant parent intermediate and utility join in filing a consolidated tax_return on c state enacted changes to state statute in order to allow full retail competition beginning on d pursuant to section a of state statute utility is required to separate its electric business into three segments corresponding to its generation transmission and distribution and retail activities on or before d the terms of section a of state statute provide that in order to achieve this separation parent may transfer its generation facilities to an affiliate section b of state statute provides that beginning on d any remaining costs associated with nuclear decommissioning obligations continue to be subject_to cost of service rate regulation and shall be included as a nonbypassable charge to retail customers commission a responded to this requirement in final order by authorizing utility to collect nuclear decommissioning costs by means of a non-bypassable transmission and distribution charge beginning on d in response to the foregoing requirements parent has proposed a plan_of_reorganization under which genco will be formed as a subsidiary of utility genco will be the sole owner of a limited_liability_company that will be the sole general_partner of a newly-formed limited_partnership genco l p and genco will directly own the remaining limited_partner interest in genco l p parent represents that genco plr-159279-02 - - l p and the general_partner limited_liability_company will be treated as disregarded entities pursuant to sec_301_7701-3 of the regulations under the plan_of_reorganization utility’s nuclear generation assets and liabilities including plant and the associated qualified nuclear decommissioning funds will be transferred to genco genco will in turn transfer the assets and liabilities associated with plant to genco l p but will be continue to be treated as the owner of plant for federal tax purposes genco through its division genco l p will be liable for all expenses related to decommissioning genco’s a percent interest in plant subsequent to the transfer of plant to genco utility will distribute the stock of genco to intermediate which will in turn distribute the genco stock to parent parent will transfer the stock to a wholly owned subsidiary which in turn will transfer the stock to a wholly owned subsidiary which in turn will transfer the stock to a wholly owned subsidiary ie a third-tier wholly owned subsidiary of parent parent filed with commission a a proposed plan_of_reorganization and separation on e with amendments to the plan filed on f outlining a restructuring of taxpayer’s operations commission a issued an interim order on g followed by final order on h approving parent’s proposal as amended utility and genco have requested but have not yet received approvals from various regulatory entities including commission b relating to several facets of the amended plan an updated version of the reorganization and separation plan was filed with commission on i this updated plan outlines proposed modifications to the original plan as amended as well as delays experienced in obtaining agency approvals and recent regulatory developments involving commission a and utility the updated plan states that parent will not be able to meet the deadline specified under section a of state statute for unbundling its operations and proposes a functional unbundling plan that will be implemented by d functional unbundling involves the implementation of a code of conduct whereby parent’s generation business does not interact or communicate with parent’s transmission and distribution business and instead operate independently the objective of functional unbundling is to ensure that parent’s generation business does not receive preferential treatment particularly in the area of ratemaking from its transmission business on j commission a issued a final order approving the updated plan and stating that parent met the objectives of section a of state statute through its functional unbundling plan until regulatory approvals can be obtained and legal unbundling can be completed following the implementation of the plan of restructuring and separation genco will be a power generation company as defined in state statute and will be required to be registered with commission a genco will also be required to observe the policies rules guidelines and procedures established by the independent system operator in its power region genco will be subject_to such sales of capacity as are prescribed by commission a genco and the qualified and nonqualified nuclear decommissioning plr-159279-02 - - funds will continue to be subject_to the rules of commission a requiring the maintenance of external irrevocable nuclear decommissioning funds and setting forth the requirements regarding trust investments subsequently commission a at utility’s request issued clarifying order making certain clarifications regarding the funding of decommissioning costs for the plant clarifying order states that decommissioning costs will be collected from customers by utility on behalf of the owner of plant ie for federal tax purposes genco that all decommissioning collections are required to be transferred to the owner of the plant and that the owner of the plant is required to contribute such collections to its qualified and nonqualified nuclear decommissioning funds on k the entity that was formed under the plan of restructuring and separation to conduct retail sales of electricity within state was sold along with the rights to the name utility and utility began operating instead as new name references herein to utility pertaining to periods on or after l should be understood to refer to utility operating as new name finally parent represents that utility and genco will enter into a decommissioning funds collection agreement hereinafter agreement pursuant to which utility will continue collecting decommissioning costs from customers in the same manner that it collected for decommissioning of the plant prior to the proposed restructuring remit all such collections to genco by wire transfer each month comply with all applicable laws so as not to adversely affect the collectibility of the decommissioning costs or its ability to perform under the agreement maintain procedures that allow it to identify all decommissioning costs collected from customers and mark its records with a legend to show that the decommissioning costs have been collected not sell assign or otherwise dispose_of the decommissioning collections in its possession or genco’s interest in the decommissioning collections not have any right of setoff regarding the decommissioning costs not make any change in the character of its business or in the collection policy that would materially adversely affect the collectibility of decommissioning costs from customers plr-159279-02 - - execute and deliver all further instruments and documents and take all further actions necessary to perfect protect or more fully evidence genco’s interest in the decommissioning collections and cooperate with genco in any future proceedings that genco may initiate regarding any increases or decreases in the amount of funds that may be collected to decommission the plant in addition the agreement will provide that utility will act as fiscal agent only and genco will pay utility’s expenses_incurred in performing under the agreement that genco will be solely responsible for the proper use and contribution of the decommissioning costs to the qualified nuclear decommissioning funds that genco will accept and comply with any and all provisions for decommissioning in commission a orders as if it were an original party to such orders and that genco will fully cooperate in any and all future proceedings relating to decommissioning of the plant no matter whether such proceedings are initiated by utility commission a or any other party the taxpayer has requested the following rulings requested ruling utility genco and their respective qualified nuclear decommissioning funds will not recognize any gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets of utility’s qualified nuclear decommissioning funds to genco’s qualified nuclear decommissioning funds pursuant to the steps of the proposed restructuring plan and genco’s qualified nuclear decommissioning funds will have a basis in the assets received from utility’s qualified nuclear decommissioning funds equal to the basis of such assets in utility’s qualified nuclear decommissioning funds immediately prior to the transfers requested ruling the decommissioning costs will be treated as having been included in genco’s cost of service for purposes of sec_468a law and analysis under sec_1_468a-2 of the income_tax regulations decommissioning costs are included in a taxpayer's cost of service for a taxable_year to the extent such costs are directly or indirectly charged to customers of the taxpayer by reason of electric energy consumed during the taxable_year or otherwise required to be included in the taxpayer's income under sec_88 and the corresponding regulations sec_1_88-1 provides that decommissioning costs directly or indirectly charged to customers of the taxpayer include all decommissioning costs that consumers are liable to pay by reason of electric energy furnished by the taxpayer plr-159279-02 - - during the taxable_year whether payable to the taxpayer a_trust state government or other entity sec_1_468a-5 sets out the qualification requirements for nuclear decommissioning funds it provides in part that a qualified nuclear decommissioning fund must be established and maintained pursuant to an arrangement that qualifies as a_trust under state law an electing taxpayer can establish and maintain only one qualified nuclear decommissioning fund for each nuclear power plant sec_1 468a- c i provides that if at any time during the taxable_year a nuclear decommissioning fund does not satisfy the requirements of sec_1_468a-5 the service may disqualify all or a portion of the fund as of the date that the fund does not satisfy the requirements sec_1_468a-5 provides that if a qualified nuclear decommissioning fund is disqualified the fair_market_value with certain adjustments of the assets in the fund is deemed to be distributed to the electing taxpayer and included in that taxpayer’s gross_income for the taxable_year sec_1_468a-6 generally provides rules for the transfer of an interest in a nuclear power plant and transfer of the qualified nuclear decommissioning fund where after the transfer the transferee is an eligible_taxpayer under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a based on the information submitted by parent including parent’s representation that genco l p and the proposed general_partner llc are disregarded entities under sec_301_7701-3 and properly treated as a division of genco for federal tax purposes the service will treat these transfers as dispositions qualifying under the general provisions of sec_1_468a-6 commission a’s approval in final order of the separation and reorganization plan commission a’s issuance of clarifying order the expected ratification by utility and genco of the decommissioning funds collection agreement and the legal requirement that the provisions of these orders and agreements be followed enables the service to treat these transferred amounts as decommissioning costs included in cost of service that are directly or indirectly charged to customers of genco by reason of electric energy furnished by genco within the meaning of sec_88 and sec_468a and the corresponding regulations thus under sec_1_468a-6 taxpayer’s qualified nuclear decommissioning funds will not be disqualified upon the transfer of the plants and the qualified nuclear decommissioning funds to genco sec_1_468a-6 provides that neither a transferor of an interest in a nuclear power plant nor the transferor’s fund will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of a sale_or_other_disposition sec_1_468a-6 provides that neither a transferee of an interest in a nuclear plr-159279-02 - - power plant nor the transferee’s fund will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of a sale_or_other_disposition accordingly neither utility genco nor their respective qualified funds will recognize gain_or_loss or otherwise take into account any income_or_deduction upon the transfer of the qualified nuclear decommissioning funds to genco sec_1_468a-6 provides that transfers to which sec_1_468a-6 apply do not affect basis thus the qualified funds in the hands of genco through its division genco l p will have a basis in their assets equal to the basis in their assets prior to the transfer from utility except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above in particular no opinion is expressed or implied concerning whether genco is an eligible_taxpayer as defined in sec_1_468a-1 in addition no opinion is expressed or implied concerning whether genco l p or the proposed general_partner limited_liability_company are properly disregarded for tax purposes and treated as divisions of any other entity finally no opinion is expressed or implied concerning whether the non-bypassable transmission and distribution charge is includible in the gross_income of and deductible by any entity other than utility the rulings expressed herein are expressly conditioned on the ratification by utility and genco of the decommissioning funds collection agreement with terms substantially identical to those in the draft submitted to the service along with this request for private_letter_ruling ie utility’s collection of costs from ratepayers the transfer of amounts collected to genco and the contribution by genco through its division genco l p of the authorized amounts to its funds in addition these rulings are expressly conditioned on the continued direct or indirect ownership and control of utility genco and genco l p by parent specifically as continuing conditions to our response to requested ruling utility and genco must be part of the same affiliated_group or be treated as a division of a member of the same affiliated_group as parent and parent must satisfy the ownership requirement of sec_1504 with respect to utility and genco genco must continue to be able under the internal_revenue_code and regulations to treat genco l p as a division for tax purposes and parent utility and genco must file a consolidated tax_return or must be treated for tax purposes as divisions of entities that file a consolidated_return with parent for each year for which a deductible payment is made under 468a if any of these conditions are no longer applicable no further contributions may be made to the qualified nuclear decommissioning funds with respect to the units of the plant that are the subject of requested ruling this letter_ruling is directed only to the taxpayer that requested it sec_6110 provides that this ruling may not be used or cited as precedent plr-159279-02 - - in accordance with the power_of_attorney on file with this office the a copy of this letter is being sent to parent’s authorized representatives we are also sending a copy of this letter_ruling to the industry director natural_resources and construction lm nrc sincerely peter c friedman peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries cc