t c memo united_states tax_court desta taye-channell and bruce c channell petitioners v commissioner of internal revenue respondent docket no filed date the telecommunication relay service trs enables a hearing-impaired individual to communicate with a hearing individual over the telephone through the use of a relay operator ps subscribed to the adacom program which provided an alternative to the trs through the use of a computer rather than a relay operator on their federal_income_tax return ps claimed a disabled_access_credit see sec_44 i r c ps also claimed a sec_162 i r c trade_or_business expense deduction r disallowed the credit and deduction held because the adacom program was not acquired by ps in order for them to comply with the applicable_requirements of the americans with disabilities act of publaw_101_336 104_stat_327 the adacom program is not an eligible_access_expenditure for purposes of sec_44 i r c svoboda v commissioner tcmemo_2006_1 held further ps are not entitled to deduct the cost of the adacom program as a trade_or_business expense pursuant to sec_162 i r c as they did not use the adacom program in a trade_or_business scott m estill and stephanie f long for petitioners richard d d’estrada for respondent memorandum findings_of_fact and opinion vasquez judge respondent determined a deficiency of dollar_figure in petitioners’ federal_income_tax for the issues for decision are whether petitioners are entitled to claim a tax_credit pursuant to sec_381 and sec_44 for their subscription to the adacom program program whether petitioners are entitled to claim a trade_or_business expense deduction under sec_162 with respect to the program and if petitioners are entitled to a credit and or deduction for their investment in the program the proper valuation of the program findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time they filed the petition petitioners resided in denver colorado unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure during the year in issue petitioners subscribed to the program which was sold sponsored and administered by adacon advantage co inc adacom2 adacom is a colorado corporation headquartered in colorado springs colorado adacom developed a program to enable deaf or hearing-impaired individuals to communicate with hearing individuals and or businesses current technology a text telephone tty is an electronic device that allows a person to type conversations over telephone lines ttys do not amplify sound or convert speech to text a tty user can use the telecommunications relay services trs to call a person using a standard telephone and vice versa trs is a system by which a hearing person and a deaf person can communicate over the telephone trs employs a relay operator who receives the text from the deaf person the relay operator then reads the text to the hearing party when a hearing party provides a voice response the relay operator types the text of the spoken message and transmits the text to the tty trs is available in all states in the united_states and as required_by_law is provided free of charge by the local telephone company as the parties refer to the company as adacom for clarity we shall do the same normal charges do apply to long distance telephone calls trs is available days per week hours per day adacom technology during the year at issue adacom maintained a computer with tty software to allow a hearing-impaired person to use a tty to call the adacom computer the computer then sent the text to a program subscriber who was required to have a computer with a standard modem a program subscriber could also use his computer equipped with a modem to contact the adacom computer to initiate calls to a tty user the adacom computer was available days per week hours per day if a program subscriber was unavailable when an attempt was made by the adacom computer to contact him a message was transmitted that could be retrieved at a later time once a communication was completed the text of the communication was deleted from the adacom computer_program subscribers were listed in the adacom yellow pages directory the adacom yellow pages directory listed only the subscribers to the program and contained information on how to communicate with the subscriber by listing a number code to access the adacom computer adacom also maintained a web site directory of its program subscribers adacom listed only program subscribers on the web site in addition to receiving a listing in the adacom yellow pages directory and on the web site the program entitled each program subscriber to hours of interpretative services of a sign language interpreter additionally the program entitled each program subscriber to hours of audit defense which consisted of representation before the internal_revenue_service irs to defend the claiming of the sec_44 credit and associated deductions of the program the audit defense services did not cover representation at the irs appeals level or the cost of litigation the subscription the subscription price of the program was dollar_figure annually the program subscribers were entitled to pay dollar_figure in cash and provide dollar_figure in promotional services to be performed by the program subscribers the promotional service programs which adacom valued at dollar_figure were as follows program a-11 referrals by the program subscribers program b-7 referrals by the program subscribers and the program subscribers were to display and distribute adacom brochures and program c-4 referrals by the program subscribers and the program subscribers were to display and distribute adacom brochures and display an adacom window decal adacom advised program subscribers to include dollar_figure in income deduct dollar_figure as an ordinary and necessary business_expense pursuant to sec_162 and claim a credit equal to dollar_figure pursuant to sec_38 and sec_44 the deduction of dollar_figure comprised the dollar_figure cash paid plus the excess of the promotional services income over the claimed credit amount--dollar_figure minus dollar_figure which equals dollar_figure adacom issued a form 1099-misc miscellaneous income in the amount of dollar_figure to each program subscriber none of the people referred by the program subscribers were required to subscribe to the program in order for the referring program subscriber to obtain credit towards the purchase_price of the program petitioners’ tax_return during the tax_year petitioner bruce channell was employed as a financial analyst and petitioner desta taye- channell was employed as a job coordinator for petitioners filed a schedule c profit or loss from business claiming a business of membership sales and prepaid legal services on date petitioners subscribed to the program petitioners chose promotional service program c and furnished four referrals in the subscription agreement although promotional service program c required petitioners to display and distribute adacom brochures and display an adacom window decal petitioner bruce channell testified that he did not remember whether he displayed an adacom window decal and that adacom did not check to see whether he had displayed a window decal or distributed brochures petitioners paid adacom dollar_figure and were credited with dollar_figure in promotional services for a subscription to the program for the tax_year adacom issued a form_1099 to petitioners in the amount of dollar_figure for the tax_year this amount represented the alleged bartering income from adacom for promotional services and was reported on petitioners’ schedule c for the taxable_year this was the only income reported on petitioners’ schedule c based on their subscription to the program petitioners claimed a dollar_figure business_expense deduction and a dollar_figure sec_44 credit on their income_tax return for respondent determined a deficiency in petitioners’ federal_income_tax for in the amount of dollar_figure respondent issued a notice_of_deficiency which stated we adjusted your schedule c gross_receipts and other expenses the adjustments are to decrease income by monies recorded as received from bartering in the amount of dollar_figure to disallow the advertising expense other expenses of dollar_figure and to disallow the claimed disabled_access_credit of dollar_figure you have not established that any amounts were paid to adacon advantage company or if paid are ordinary and necessary business_expenses accordingly these amounts have been disallowed you have not established that any amounts were paid to adacon advantage company or if paid qualify for the disabled_access_credit under sec_44 of the internal_revenue_code accordingly the credit has been disallowed accordingly your net schedule c income loss is adjusted dollar_figure for taxable_year ended date we have disallowed your claimed general_business_credit since you have not established that you are entitled to the credit burden_of_proof opinion as a general_rule the notice_of_deficiency is entitled to a presumption of correctness and the taxpayer bears the burden of proving the commissioner’s deficiency determinations incorrect rule a 290_us_111 sec_7491 however provides that if a taxpayer introduces credible_evidence and meets certain other prerequisites the commissioner shall bear the burden_of_proof with respect to factual issues relating to the liability of the taxpayer for a tax imposed under subtitle a or b of the internal_revenue_code code for the burden to shift however the taxpayer must comply with the substantiation and recordkeeping requirements as provided in the code and cooperate with the commissioner see sec_7491 although petitioners claimed that sec_7491 applies petitioners failed to introduce sufficient evidence to shift the burden to respondent nonetheless our findings in this case are based on a preponderance_of_the_evidence see 124_tc_244 ada tax_credit sec_44 is included in calculating the general_business_credit pursuant to sec_38 sec_38 and b sec_44 provides a disabled_access_credit for an eligible_small_business the amount of this credit is equal to percent of the eligible_access_expenditures of an eligible_small_business that exceed dollar_figure but that do not exceed dollar_figure for the year sec_44 therefore in order to claim the disabled_access_credit a taxpayer must demonstrate that the taxpayer is an eligible_small_business for the year in which the credit is claimed and the taxpayer has made an eligible_access_expenditure during that year if the taxpayer cannot fulfill both of these requirements the taxpayer is not eligible to claim the sec_44 credit for that year eligible_small_business is defined as any person that had gross_receipts of not more than dollar_figure million for the preceding_taxable_year or not more than employees during the preceding year and elects the application of sec_44 for the year sec_44 eligible_access_expenditure is defined as an amount_paid or incurred by eligible small businesses for the purpose of complying with the americans with disabilities act of ada publaw_101_336 104_stat_327 sec_44 such expenditures include amounts paid_or_incurred for the purpose of removing architectural communication physical or transportation barriers that prevent a business from being accessible to or usable by individuals with disabilities to provide qualified interpreters or other effective methods of making aurally delivered materials available to individuals with hearing impairments to acquire or modify equipment or devices for individuals with disabilities or to provide other similar services modifications materials or equipment see sec_44 eligible_access_expenditures however do not include expenditures that are unnecessary to accomplish such purposes see sec_44 additionally eligible_access_expenditures do not include amounts that are paid_or_incurred for the purpose of removing architectural communication physical or transportation barriers that prevent a business from being accessible to or usable by individuals with disabilities with respect to any facility first placed_in_service after date see sec_44 petitioners contend that they are eligible to claim the disabled_access_credit under sec_44 because they had an eligible_small_business and their investment in the program was an eligible_access_expenditure respondent contends among other things that a subscription to the program is not necessary to comply with the ada and thus is not an eligible_access_expenditure pursuant to sec_44 in order for an expenditure to qualify as an eligible_access_expenditure within the meaning given that term by sec_44 the expenditure must have been made to enable an eligible_small_business to comply with the applicable_requirements under the ada arevalo v commissioner supra 117_tc_32 title iv of the ada requires each common carrier providing telephone voice transmission services to provide throughout the area in which it offers service telecommunications relay services u s c sec c telecommunications relay services is defined as telephone transmission services that provide the ability for an individual who has a hearing impairment or speech impairment to engage in communication by wire or radio with a hearing individual in a manner that is functionally equivalent to the ability of an individual who does not have a hearing impairment or speech impairment to communicate using voice communication services by wire or radio such term includes services that enable two-way communication between an individual who uses a tdd or other nonvoice terminal device and an individual who does not use such a device u s c sec a tty supersedes the term tdd c f_r sec_64 congress further directed the federal communications commission fcc to enforce these provisions and to a establish functional requirements guidelines and operations procedures for trs b establish minimum standards that shall be met c require that trs operate every day for hours per day d require that users of trs pay rates no greater than the rates paid for functionally equivalent voice communication services with respect to such factors as the duration of the call the time of day and the distance from point of origin to point of termination e prohibit relay operators from failing to fulfill the obligations of common carriers by refusing calls or limiting the length of calls that use trs f prohibit relay operators from disclosing the content of any relayed conversation and from keeping records of the content of any such conversation beyond the duration of the call and g prohibit relay operators from intentionally altering a relayed conversation u s c sec d and e as mentioned supra all states utilize trs and follow the aforementioned requirements since congress mandated the adoption of trs by common carriers any place with a telephone is currently in compliance with the ada petitioners argue that the program is an alternative to trs and provides improvements to trs however petitioners’ subscription to the program did not enable them to comply with the ada--they already were in compliance with the ada through the use of trs svoboda v commissioner tcmemo_2006_1 therefore the cost of the program is not an eligible_access_expenditure within the meaning of sec_44 and consequently they do not qualify for the disabled_access_credit id respondent’s determination disallowing the credit is sustained sec_162 trade_or_business activity deductions are a matter of legislative grace and taxpayers bear the burden of proving that they are entitled to any deductions claimed rule a 503_us_79 taxpayers are allowed a deduction for ordinary and necessary expenses paid_or_incurred in carrying_on_a_trade_or_business sec_162 the supreme court has stated that to be engaged in a trade_or_business the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer's primary purpose for engaging in the activity must be for income or profit a sporadic activity a hobby or an amusement diversion does not qualify 480_us_23 whether a taxpayer is in a trade_or_business requires an examination of the facts and circumstances of each case 312_us_212 see also commissioner v groetzinger supra pincite respondent contends that petitioners were not in a trade_or_business within the meaning of sec_162 petitioners contend that they were in a trade_or_business entitled membership sales and prepaid legal services however petitioners offered no evidence other than the schedule c and self-serving testimony regarding their business a tax_return is merely a statement of a taxpayer’s position and is not evidence of the correctness of the figures and information contained therein 71_tc_633 moreover the court is not required to accept petitioners’ unsubstantiated testimony see 338_f2d_602 9th cir affg 41_tc_593 as petitioners reported no gross_receipts on the schedule c other than the bartering income and offered no documentary_evidence whatsoever of the conduct of a business we conclude that petitioners did not use the program in a trade_or_business and petitioners are not entitled to a sec_162 deduction for their subscription to the program conclusion we sustain respondent’s determination in the notice_of_deficiency decreasing petitioners’ income by the amount of bartering services income reported and disallowing a sec_44 credit and a sec_162 deduction as we conclude that petitioners are not entitled to a sec_44 credit or a sec_162 deduction it is unnecessary for us to decide the proper valuation of the program to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number 468a cc psi -- plr-105811-00 date re revised schedule of ruling amounts taxpayer state x director plant location commission a commission b act order dear this letter responds to your request dated date and subsequent submissions submitted by your authorized legal_representative on behalf of the taxpayer the request is for a revised schedule of ruling amounts under sec_1_468a-3 of the income_tax regulations for the taxpayer's nuclear decommissioning fund the fund under the jurisdiction of commission a the taxpayer was previously granted a revised schedule of ruling amounts on in exercising our discretion under sec_1_468a-3 the prior schedule of ruling amounts was limited to a 5-year period under sec_1_468a-3 the required information for the schedule of ruling amounts was submitted on behalf of the taxpayer pursuant to sec_1_468a-3 the taxpayer has represented the following facts and information plr-105811-00 the taxpayer is incorporated in state x and is an operating utility providing electric and gas service in state x the taxpayer is subject_to the audit jurisdiction of the director the taxpayer owns a percent undivided_interest as a tenant-in-common in the plant which is situated at location the operating license issued by the nuclear regulatory commission expires at midnight on the method for decommissioning the plant is prompt removal dismantling taxpayer’s nuclear power sales are subject_to regulation by commissions a and b commission b prescribes three different rates under which taxpayer makes sales to customers the commission b wholesale sales rate the commission b power sales rate and the commission b tariff rate taxpayer is not requesting a revised schedule of ruling amounts for commission b on act became effective in state act provides for a transition to competition in state with respect to the generation and sale of electricity act allows electric utilities including taxpayer to recover their stranded costs through a competitive transition charge ctc imposed upon consumers of electricity in the utility's service area the ctc provides for the recovery_of stranded costs but does not include nuclear decommissioning costs for plant rather the nuclear decommissioning costs for plant are recovered through an additional nonbypassable charge to all customers over the life of plant taxpayer transferred its ownership interests in plant and associated fund to a related_party on accordingly the requested schedule of ruling amounts is limited to the year period from commission a in order authorized nuclear decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes for the plant in the amount of dollar_figure and estimated an after-tax rate of return on assets of percent the commission also determined the total estimated cost of decommissioning to be dollar_figure this base cost escalated using an estimated inflation rate of percent results in an estimated future decommissioning cost of dollar_figure the estimated period for which the fund is to be in effect is and the estimated_useful_life of the plant is thus the taxpayer has calculated the qualifying percentage to be percent plr-105811-00 at the present time there are no proceedings pending before any of the commissions that would increase or decrease the amount of decommissioning costs to be included in taxpayer’s cost of service for ratemaking purposes sec_468a of the internal_revenue_code provides that a taxpayer may elect to deduct the amount of payments made to a qualified decommissioning fund however sec_468a limits the amount_paid into such fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to this fund which is included in the taxpayer’s cost of service for ratemaking purposes for the tax_year or the ruling_amount applicable to this year sec_468a of the code provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the total nuclear power plant as the period for which the nuclear decommissioning fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a of the code provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of the tax_year if the payment is made on account of this tax_year and is made within ½ months after the close of the tax_year additionally a taxpayer that files for a schedule of ruling amounts and receives such schedule of ruling amounts after the ½ month deadline for making a payment to a nuclear decommissioning fund must make such payment to the fund within days after the date that the taxpayer receives the schedule of ruling amounts for the tax_year sec_1_468a-1 of the regulations provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 of the regulations is a taxpayer that has a qualifying interest in among other things a direct ownership_interest including an interest as a tenant in common or joint tenant plr-105811-00 sec_1_468a-2 of the regulations provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the lesser_of i the cost of service amount applicable to the nuclear decommissioning fund for such tax_year or ii the ruling_amount applicable to the nuclear decommissioning fund for such tax_year if the amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b the excess is not deductible by the electing taxpayer in addition under sec_1_468a-5 there are rules which provide that the internal_revenue_service may disqualify a nuclear decommissioning fund if the amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b sec_1_468a-3 of the regulations provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 of the regulations provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes under sec_1_468a-3 the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer’s proposed schedule is consistent with the principles and provisions of this section sec_1_468a-3 of the regulations provides that in general the ruling_amount for any_tax year in the level_funding limitation period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3 the level_funding limitation period begins on the first day of the tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes plr-105811-00 sec_1_468a-3 of the regulations provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 of the regulations provides that a taxpayer’s share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer’s qualifying interest in the plant under sec_1_468a-3 the qualifying percentage for any nuclear decommissioning fund is equal to a fraction the numerator of which is the number of tax years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of tax years in the estimated_useful_life of the applicable plant sec_1_468a-3 of the regulations provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant has determined the amount of decommissioning costs to be included in the taxpayer’s cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount sec_1_468a-3 of the regulations provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a tax_year in response to a request for a schedule of ruling amounts that is filed after the deemed deadline date for such tax_year we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in the sec_468a of the code and the regulations thereunder based solely on these representations we reach the following conclusions the taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 of the regulations plr-105811-00 commission a has determined the amount of decommissioning costs to be included in the taxpayer’s cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations the taxpayer has calculated the shares of the total decommissioning costs allocable to each of the commissions as required by sec_1_468a-3 of the regulations the taxpayer has proposed a schedule of ruling amounts which meets the requirements of sec_1_468a-3 and of the regulations the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by commission a and will result in a projected fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund for that jurisdiction the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the lesser amount of the decommissioning costs applicable to such fund or the ruling applicable to this fund as set forth under sec_1 468a- b of the regulations the qualifying percentage under sec_1_468a-3 of the regulations is calculated to be percent based on the above determinations we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code the following schedule of ruling amounts is specifically approved for the commissions approved revised schedule of ruling_amount sec_1 the ruling amounts for commission b were approved in a private_letter_ruling issued date the ruling_amount for the portion of commission b’s jurisdiction allocable to power sales expired in the ruling_amount for the portion of commission b’s jurisdiction allocable to wholesale sales and sales under the tariff were extended through under the terms of the letter however no amount is shown for for the tariff because taxpayer collected decommissioning amounts for that rate during through market-based rates for purposes of the mandatory review required under sec_1_468a-3 of the regulations the date of that prior ruling shall govern the review period for the jurisdiction of commission b plr-105811-00 approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time the current ruling is issued if any of the events described in sec_1_468a-3 of the regulations occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first tax_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the 10th tax_year following the close of the tax_year in which the most recent schedule of ruling amounts was received the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code payments made to such fund can qualify only to the extent they are made while taxpayer is the owner of the plant and only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to such fund or the ruling amounts applicable to this fund in the tax_year in addition payments made to the fund with respect to the tax_year in which the plant was transferred to a related_party are subject_to the limitations contained in sec_1_468a-6 this ruling is directed only to the taxpayer who requested it section 6ll0 k of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative pursuant to sec_1_468a-7 of the regulations a copy of this letter must be attached with the required election statement to the taxpayer’s federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely yours peter c friedman assistant to the branch chief branch office of associate chief_counsel passthroughs and special industries enclosure copy


internal_revenue_service department of the treasury number release date index no 2601-dollar_figure p o box ben franklin station washington dc person to contact telephone number refer reply to cc psi - plr-139670-01 date july in re legend settlor a b grandchild grandchild grandchild grandchild trust trust trust trust trust date court state dear this responds to your letter dated date and subsequent correspondence requesting rulings regarding the generation-skipping_transfer gst tax consequences of the proposed modification of certain trusts plr-139670-01 facts the facts submitted and representations made are as follows on date settlor created trust an irrevocable_trust for the benefit of his grandchildren grandchild grandchild grandchild and grandchild article three paragraph a of the trust instrument provides that the trustee is to divide trust into four equal shares one for each grandchild under article three paragraph b each share is to be administered as a separate trust trust is for the benefit of grandchild trust is for the benefit of grandchild trust is for the benefit of grandchild and trust is for the benefit of grandchild a is currently serving as trustee of trust trust trust and trust article three paragraph b provides as follows the trustee shall accumulate the income of each trust and may pay to the grandchild for whom the trust is set_aside as much of the current or accumulated income and principal thereof as the trustee shall determine in the trustee’s discretion to be necessary and appropriate for the grandchild’s support education care and maintenance taking into consideration to the extent the trustee considers advisable any income or resources of the grandchild outside the grandchild’s trust known to the trustee and reasonably available for these purposes article three paragraph b provides upon the last to occur of i the attainment of age eighteen by each grandchild of the settlor or ii the death of both a and b each such trust shall terminate and the trust as then constituted including both principal and accumulated and current income shall be distributed free of trust to the grandchild for whom said trust is then being administered under this instrument if any grandchild shall die before becoming entitled to distribution of his trust as specified in this paragraph b the undistributed balance of that grandchild’s trust shall be distributed free of trust to the then living issue of such grandchild by right of representation or if there are no such then living issue to such of the issue of a and b as are then living by right of representation article six paragraph i of trust provides that any other provision of trust notwithstanding income and principal of the trust estate shall not be utilized to discharge the legal_obligation of any person to support a_trust beneficiary the parties desire to facilitate trust’s qualification as a qualified_subchapter_s_trust for purposes of sec_1361 of the internal_revenue_code therefore as permitted under the laws of state a and the beneficiary of each trust propose to petition the court with jurisdiction over the trusts to obtain an order from the court approving the following proposed modification of article three paragraph b as follows plr-139670-01 the trustee shall distribute all of the income within the meaning of sec_643 of the internal_revenue_code of each trust currently and may pay to the grandchild for whom the trust is set_aside as much of the principal thereof as the trustee shall determine in the trustee’s discretion to be necessary and appropriate for the grandchild’s support education care and maintenance taking into consideration to the extent the trustee considers advisable any income or resources of the grandchild outside the grandchild’s trust known to the trustee and reasonably available for these purposes you represent that no additions actual or constructive have been made to any of the trusts since date we have been asked to rule that the proposed modification will not constitute an addition to corpus and will not affect the grandfathered status of any trust for generation-skipping_transfer_tax purposes law and analysis sec_2601 imposes a tax on every generation-skipping_transfer under a of the tax_reform_act_of_1986 the gst tax is generally applicable to generation-skipping transfers made after date however under b a of the tax reform act and sec_26_2601-1 of the generation- skipping transfer_tax regulations the tax does not apply to a transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date under sec_26_2601-1 any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in his or her gross_estate under sec_2038 or sec_2042 if the settlor had died on date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax will not cause the trust to lose its exempt status sec_26_2601-1 provides that a modification will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer in the present case trust was irrevocable on date and it is represented that no additions actual or constructive have been made to trust after plr-139670-01 that date the proposed modification will not result in a shift of any beneficial_interest to any beneficiary who occupies a generation lower than the persons holding the beneficial interests prior to the proposed division in addition the proposed modification will not extend the time for vesting of any beneficial_interest beyond the period provided for in the trust instrument further the proposed modification will not constitute an addition to trust within the meaning of b a of the tax_reform_act_of_1986 accordingly based on the facts submitted and the representations made we conclude that the proposed modification will not subject trust trust trust trust or trust to gst tax by reason of b a of the tax_reform_act_of_1986 and sec_26_2601-1 therefore after the modification the trusts will continue to be exempt from the gst tax imposed under sec_2601 provided there are no additions to the trusts after date except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours by_________________________ george l masnik chief branch office of the associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes cc cc


internal_revenue_service number release date index number ---------------------------------------------- ------------------------------------------------ ---------------------------------- attention ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc ita b01 plr-152614-07 date date in re request for an extension of time to file a duplicate form_3115 legend taxpayer --------------------------------------------------------------------------- date a -------------------------- dear ------------- this letter responds to a request for an extension of time under sec_301_9100-1 of the procedure and administration regulations for taxpayer to file a signed duplicate copy of a form_3115 application_for change in accounting_method with the internal_revenue_service irs national_office this request was made in accordance with sec_301_9100-3 facts taxpayer timely filed its consolidated federal_income_tax return for the tax_year ending date a year_of_change together with an original form_3115 filed pursuant to section dollar_figure of revproc_2002_9 2002_1_cb_327 to change its method_of_accounting for liabilities for professional service fees under revproc_2007_14 2007_4_irb_357 however taxpayer inadvertently failed to file a signed duplicate copy of the form_3115 with the irs national_office as required by section a of revproc_2002_9 in particular after timely filing the original form_3115 with its consolidated federal_income_tax return taxpayer discovered that the individual who was instructed to and was responsible for timely filing the separate copies of the form_3115 had neglected to send a signed duplicate copy to the irs national_office plr-152614-07 law and analysis revproc_2002_9 provides the procedures by which a taxpayer may obtain automatic consent to change certain methods_of_accounting a taxpayer complying with all the applicable provisions of this revenue_procedure has obtained the consent of the commissioner to change the taxpayer's method_of_accounting under sec_446 of the internal_revenue_code and the regulations thereunder section a of revproc_2002_9 provides that a taxpayer changing a method_of_accounting pursuant to revproc_2002_9 must complete and file a form_3115 in duplicate the original must be attached to the taxpayer's timely filed including extensions original federal_income_tax return for the year_of_change and a copy with signature of the form_3115 must be filed with the irs national_office no earlier than the first day of the year_of_change and no later than when the original is filed with the federal_income_tax return for the year_of_change sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make certain regulatory elections sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government see sec_301_9100-3 conclusion based solely on the facts and representations submitted including affidavits we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly an extension of time is hereby granted for taxpayer to file the necessary copy of the form_3115 with the irs national_office this extension shall be for a period of days from the date of this ruling please attach a copy of this ruling to the form_3115 when it is filed plr-152614-07 except as specifically ruled upon above no opinion is expressed or implied concerning the federal_income_tax consequences arising from taxpayer's or its subsidiaries' activities furthermore we express no opinion as to whether taxpayer is qualified to file the form_3115 under revproc_2002_9 and revproc_2007_14 or whether the requested change in accounting_method described above meets the requirements of those revenue procedures this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely john p moriarty branch chief branch income_tax accounting cc


cca_2016032116560104 id uilc number release date from sent monday date pm to cc bcc subject e --------------- you asked a question about the 180-day interest-free period contained in sec_6611 specifically you wanted to know whether it mattered who was claiming the refund of the chapter_3 or withholding taxes - the account_holder on their income_tax return or the withholding_agent on their form_1042 the statute says it applies to any overpayment resulting from tax deducted and withheld under chapter_3 or there is no indication in the language of the statute that the identity of the person claiming the refund is relevant therefore we have concluded that it applies regardless of who claims the refund if you have any other questions or would like to discuss further please let me know thanks -------------- ----------------------- ------------------------------------- ------------- ------------------------------------ ------------------------------ ------------------


internal_revenue_service number release date index number ----------------------- --------------------------------- -------------------------------------------- ------------------------------ ------------------------------ ---------------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------------ telephone number ---------------------- refer reply to cc psi plr-107870-17 date date legend decedent spouse date date --------------------------------- -------------------- -------------------------------- ------------------------ -------------------- dear ------------------- this letter responds to your personal representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations submitted are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a form_706 to make the portability election the estate discovered the failure to elect portability after the due_date for making the election plr-107870-17 it is represented that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of the decedent’s death including any taxable_gifts made his lifetime you request an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return plr-107870-17 sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely-filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a plr-107870-17 see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date it is represented that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-107870-17 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs special industries by lorraine gardner lorraine gardner senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purpose-s


internal_revenue_service number release date index number ------------- ------------------------------------------ ------------------------------------------------ --------------------------------------- ------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ---------------------- id no ------------ telephone number -------------------- refer reply to cc intl plr-140003-05 date date legend legend taxpayer ---------------------------------------------------------------------------------------------- ----------------------- ------------- ---------------- ---------------------- ------------------------------------------------ ----------------------------------------------- --------------------------------------------------- de a de b de c tax_year ---------------------------------------- tax_year ---------------------------------------- tax_year ---------------------------------------- individual a individual b cpa firm dear ---------- this replies to your representative’s letter dated date in which your representative requests on behalf of taxpayer an extension of time under sec_301_9100-3 to file the following elections i the election and agreement described in sec_1_1503-2 for tax_year with respect to the dual consolidated losses dcls incurred in that year by de a de b and de c ii the election and agreement described in sec_1_1503-2 for tax_year with respect to the dcls incurred in that year by de a de b and de c and iii the annual certification described in sec_1 g vi b for tax_year with respect to the dcls incurred in tax_year by de a de b and de c additional information was submitted by your representative on date the information submitted is substantially as set forth below plr-140003-05 the ruling contained in this letter is predicated upon facts and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process taxpayer owned percent of de a de b and de c because de a de b and de c are foreign_corporations that elected to be treated as disregarded entities for federal_income_tax purposes they are each a hybrid_entity_separate_unit under sec_1_1503-2 the losses_incurred by these hybrid_entity separate units in tax_year sec_1 and are dcls under sec_1_1503-2 taxpayer prepared and filed its consolidated federal_income_tax returns for tax_year sec_1 and and relied on its tax directors to make all required tax elections until mid-tax year individual a was taxpayer’s director of tax was responsible for its tax_return compliance and acted on its behalf with respect to all tax matters including the filing of tax elections individual a’s daily responsibilities increased substantially when individual a had to assume responsibility for internal_revenue_service irs audits in addition during tax_year sec_1 and there was high turnover in the tax department and the department had to deal with very complicated tax issues given this situation individual a failed to include with taxpayer’s consolidated federal_income_tax returns for that year the required elections and agreements under sec_1_1503-2 for the tax_year dcls incurred by de a de b and de c in mid-tax year individual b became taxpayer’s new director of tax and replaced individual a for all tax-related matters however a significant portion of individual b’s time during the period of filing taxpayer’s consolidated federal_income_tax return for tax_year was redirected from supervising tax_return preparation to an ongoing irs audit as well as to other tax matters thus taxpayer’s tax_return for tax_year was completed without individual b’s input consequently taxpayer’s tax_year consolidated federal_income_tax return did not include the required elections and agreements for the tax_year dcls incurred by de a de b and de c and the annual certifications for the tax_year dcls taxpayer engaged cpa firm to review its tax_year consolidated federal_income_tax return and state_income_tax return which were prepared by taxpayer’s tax department cpa firm did not notice that the required elections were not attached to that return before it was filed by taxpayer taxpayer similarly engaged cpa firm to review its tax_year consolidated federal_income_tax return and state_income_tax return during that review cpa firm discovered that taxpayer did not file the required elections and agreements for the tax_year sec_1 and dcls incurred by de a de b and de c with its plr-140003-05 consolidated federal_income_tax returns for those years and that taxpayer did not file the annual certifications of the tax_year dcls incurred by de a de b and de c with its tax_year consolidated federal_income_tax return the facts also indicate that taxpayer filed with its tax_year consolidated federal_income_tax return the required annual certifications for the dcls of de a de b and de c incurred in tax_year however the amounts of the dcls were incorrectly reported on those annual certifications taxpayer represents that to the best of its knowledge it filed this application_for relief before the irs discovered the failure_to_file the elections and agreements and the annual certifications with respect to the dcls incurred by de a de b and de c in tax_year sec_1 and sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation the election and agreement and the annual certification described in sec_1_1503-2 and vi b respectively are regulatory elections as defined in sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the rules set forth in sec_301_9100-3 based on the facts and information submitted we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file the following elections i the election and agreement described in sec_1_1503-2 for tax_year with respect to the dcls incurred in that year by de a de b and de c ii the election and agreement described in sec_1_1503-2 for tax_year with respect to the dcls incurred in that year by de a de b and de c and iii the annual certification described in sec_1 g vi b for tax_year with respect to the dcls incurred in tax_year by de a de b and de c plr-140003-05 as noted taxpayer attached to its timely filed tax_year consolidated federal_income_tax return the required annual certifications for the dcls of de a de b and de c incurred in tax_year however the amounts of the dcls were incorrectly reported on those annual certifications under these circumstances those annual certifications are not rendered invalid since taxpayer filed the annual certifications with its timely filed tax_year consolidated federal_income_tax return sec_301_9100-1 does not apply as that section applies to only a late filing of an election however taxpayer should file corrected annual certifications with an amended tax_return the granting of an extension of time is not a determination that taxpayer is otherwise eligible to file the elections and agreements and the annual certifications sec_301_9100-1 a copy of this ruling letter should be associated with the elections and agreements and the annual certifications this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to your authorized representative sincerely associate chief_counsel international by s richard l chewning richard l chewning senior counsel office of associate chief_counsel international enclosure copy for purposes cc


internal_revenue_service number release date index number -------------------------------------------------------- ------------------------------------ ------------------------------------------ -------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-107056-10 date may x --------------------------------------------------------------------------------------------------- ----------------------- country --------------- date -------------------------- dear ------------- this letter responds to a request dated date and subsequent correspondence submitted on behalf of x requesting a ruling that x be granted an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 the information submitted states that x was formed on date under the laws of country x inadvertently failed to timely file a form_8832 entity classification election sec_301_7701-3 provides guidance on the classification of a foreign_entity for federal_income_tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the due_date the form is filed or up to twelve months after the date on which the form is filed plr-107056-10 sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect under sec_301_7701-3 effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose this ruling is contingent on x filing within days of this letter all required returns and amended income_tax returns consistent with the relief granted including i forms information_return of u s persons with respect to certain foreign_corporations ii forms return of u s persons with respect to certain foreign_partnerships and iii forms information_return of u s persons with respect to disregarded entities as appropriate except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent plr-107056-10 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely associate chief_counsel passthroughs special industries by ___________________________________ charlotte chyr senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court terry r hardtke and nancy hardtke petitioners v commissioner of internal revenue respondent docket no filed date terry r hardtke pro_se allan d hill for respondent memorandum findings_of_fact and opinion chiechi judge respondent determined the following defi- the proceedings herein were automatically stayed after the trial herein when petitioners filed a petition for bankruptcy with the u s bankruptcy court for the northern district of california on date on date after peti- tioners' bankruptcy proceeding was discharged the court lifted the automatic_stay and ordered the parties to file simultaneous opening briefs by date and simultaneous answering briefs by date petitioners did not file an opening brief on date petitioners submitted a document that the court had filed as their answering brief on date the court ordered that petitioners were not allowed to file any additional briefs in this case and that respondent was allowed to file a reply to petitioners' answering brief which she did on date ciency in and additions to petitioners' federal_income_tax section section section year deficiency a a a b a dollar_figure dollar_figure dollar_figure percent of the interest due on the portion of the underpay- ment due to negligence respondent determined that the entire underpayment was attributable to negligence the issues for decision are did petitioners have unreported income for attrib- utable to services provided by petitioner terry r hardtke mr hardtke to t r hardtke insurance agency inc agency we hold that they did are petitioners liable for self-employment_tax for we hold that they are are petitioners liable for for the additions to tax for negligence under sec_6653 we hold that they are are petitioners liable for for the addition_to_tax for a substantial_understatement_of_income_tax under sec_6661 we hold that they are findings_of_fact some of the facts have been stipulated and are so found petitioners resided in new almaden california at the time the petition was filed during agency was a california corporation that all section references are to the internal_revenue_code in effect for all rule references are to the tax_court rules_of_practice and procedure operated a general agency specializing in brokering small_group medical insurance plans throughout mr hardtke owned percent of the common_stock of agency and stuart michell mr michell owned the remaining percent of the common_stock of agency during mr hardtke who already was serving as agency's chief_executive_officer ceo was elected its president during a special meeting of its board_of directors board_of directors held on date date agency board meeting during dinan inc dinan was a california corpora- tion that specialized in pension administration and in the production and marketing of computer_software that compared the costs and benefits of various group medical_plans mr hardtke who served as ceo of dinan during owned percent of the common_stock of dinan throughout that year until date when he purchased an additional percent of that stock from russell m meusy mr meusy thereby increasing his common_stock ownership of dinan to percent in addition to that common_stock ownership of mr hardtke and mr meusy during mr hardtke's mother owned three percent mr michell owned percent and an unidentified individual owned seven percent of dinan's common_stock the minutes of the date agency board meeting provided in pertinent part compensation will be earned by mr hardtke and mr michell and shall be paid directly to dinan inc as follows dollar_figure each month is payable to dinan inc as a consulting fee for the services of mr hardtke and mr michell it will be accounted as dollar_figure for mr hardtke and dollar_figure for mr michell the only persons present at the date agency board meeting were mr hardtke mr michell and petitioner nancy hardtke ms hardtke agency's books of account for the period date through date show entries reflecting that agency paid a total of dollar_figure to dinan as consulting fees its books of account for the period date through date do not contain any entries showing that compensation was paid to mr hardtke during the books_and_records of dinan for the period date through date do not contain any entries showing that compensation was paid to mr hardtke during mr hardtke received the following compensation from agency and dinan for the years and year agency dinan dollar_figure dollar_figure big_number big_number it is not clear from the record whether all of those payments were made during although during all relevant times dinan used a fiscal_year that ended on the last day of february the parties stipulated to dinan's books_and_records for the period date through date when agreeing that those books_and_records do not show any compensation paid to mr hardtke during that year opinion petitioners bear the burden of proving that respondent's determinations in the notice_of_deficiency are erroneous rule a 290_us_111 unreported income respondent determined that mr hardtke had dollar_figure of unreported compensation income from agency during although agency made no payments to mr hardtke during that year respon- dent argues that the amounts that agency paid to dinan during with respect to services provided by mr hardtke were income earned by mr hardtke that is includible in petitioners' income for that year petitioners argue that during mr hardtke provided services to agency as an employee of dinan pursuant to a consulting agreement between agency and dinan and that he did not provide services to agency in any other capacity it is well established that income must be taxed to the actual earner of that income 281_us_111 in the corporate context however the actual earner test may be inadequate because a corporation can earn income only through the personal services of its employees and agents 88_tc_604 affd without published opinion 855_f2d_855 8th cir in numerous instances a corporation is hired solely in order to obtain the services of a specific corporate employee 78_tc_882 affd without published opinion 734_f2d_20 9th cir as a result this court applies a two-prong test to determine whether a corporation or its employee is the actual earner of the income in question first the service-performer employee must be just that--an employee of the corporation whom the corpora- tion has the right to direct or control in some mean- ingful sense second there must exist between the corporation and the person or entity using the services a contract or similar indicium recognizing the corpora- tion's controlling position id citations omitted with respect to the first prong of the foregoing test although mr hardtke was an employee of dinan during he also was an employee of agency during that year thus not only dinan but also agency had the right to control or direct mr hardtke in some meaningful sense as its employee with respect to the second prong of the test set forth in the johnson case we find that petitioners failed to prove that a contract existed between dinan and agency during under which dinan was to provide its services to agency through its employee mr hardtke except possibly for the minutes of the date agency board meeting the only evidence of the existence of such an agreement between dinan and agency is the self-serving testimony of mr hardtke on which we are unwilling to rely with respect to the date agency board minutes they provide in pertinent part compensation will be earned by mr hardtke and mr michell and shall be paid directly to dinan inc as follows dollar_figure each month is payable to dinan inc as a consulting fee for the services of mr hardtke and mr michell it will be accounted as dollar_figure for mr hardtke and dollar_figure for mr michell the first clause of the date agency board minutes quoted above unequivocally provides that mr hardtke was to earn compen- sation and that that compensation was to be paid_by agency to dinan although those minutes further provide that agency was to pay dinan for mr hardtke's services they do not establish that a contractual relationship existed during for dinan to provide its services to agency through its employee mr hardtke even assuming arguendo that we were to read the second clause of the date agency board minutes quoted above as providing that dinan was to earn compensation_for rendering its services to agency through its employee mr hardtke --a reading that we find to be quite strained--we would be left in equipoise as to the intended meaning of those minutes this is because on the one hand they provide that mr hardtke was to earn compensa- tion and that that compensation was to be paid to dinan and on the other hand under that assumed reading they provide incon- sistently that dinan was to earn compensation_for rendering its services to agency through its employee mr hardtke conse- quently petitioners would have failed to establish that dinan and not mr hardtke was to earn the compensation in question based on the entire record before us we find that petition- ers failed to prove that mr hardtke did not earn the income that agency paid to dinan with respect to mr hardtke's services to agency during we therefore sustain respondent's determina- tion on that issue self-employment_tax respondent determined that petitioners are liable for self- employment_tax of dollar_figure for in order to refute that determination petitioners rely on the evidence they presented and the argument they make with respect to whether mr hardtke had compensation income from agency for we have found that petitioners failed to satisfy their burden_of_proof on the compensation issue consequently they have failed to meet their burden of proving error in respondent's determination regarding petitioners' liability for self-employment_tax for see rule a welch v helvering u s pincite accordingly we sustain that determination additions to tax respondent determined that petitioners are liable for for the additions to tax for negligence under sec_5 although respondent argues that certain amounts that mr hardtke received during from dinan that were characterized on the books_and_records of dinan as loan payable-officers actually represented at least in part indirect payments of compensation from agency and petitioners argue that those amounts were in fact repayments of loans and not compensation we need not decide that dispute this is because resolution of that dispute is not necessary to our conclusions herein all that is necessary is whether the compensation that agency paid during to dinan for services performed by mr hardtke was earned by mr hardtke rather than by dinan under the two-prong test enunciated in 78_tc_882 affd without published opinion 734_f2d_20 9th cir a a and b and the addition_to_tax for a substantial_understatement_of_income_tax under sec_6661 petitioners presented no evidence and make no argument regarding the addi- tions to tax under sec_6653 and b and sec_6661 for consequently petitioners have failed to satisfy their burden_of_proof on those issues see rule a 99_tc_202 crown income charitable fund v commissioner 98_tc_327 affd 8_f3d_571 7th cir accordingly we sustain respondent's determinations that petitioners are liable for for the additions to tax under sec_6653 and b and sec_6661 to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number --------------------------- ------------------------------------ --------------------------- --------------------------------- in re ---------------------------------------------------- department of the treasury washington dc person to contact ----------------- id no ------------- telephone number --------------------- refer reply to cc psi - plr-151536-10 date date legend legend settlor son spouse grandchild a grandchild b great-grandchild a great-grandchild b great-grandchild c great-grandchild d trust bank local court date date date date x stock y state state statute --------------------- ------------------------------------------------------------------------------------ --------------------------- ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ 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------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ -------------------------------------- dear -------------------------- this letter responds to the date letter and subsequent correspondence from your authorized representative requesting rulings on the plr-151536-10 generation-skipping_transfer gst and gift_tax consequences of the proposed modification of trust the facts submitted and representations made are as follows on date settlor created an irrevocable_trust trust for the benefit of the descendants of settlor’s son son on date settlor transferred to trust x shares of publicly-traded stock stock on a timely filed form_709 united_states gift and generation-skipping_transfer_tax return settlor reported the date value of stock at dollar_figurey and allocated y of his gst_exemption to the date transfer of stock to trust it is represented that no further additions have been made to trust and that trust presently has an inclusion_ratio of zero under item iii a of trust the trustees may distribute to the descendants of son any amount of income or principal as the trustees deem necessary for the support of any descendant in his or her accustomed manner of living the trustees may also distribute income or principal as the trustees deem best to any charitable or educational_organization charity described in sec_501 of the internal_revenue_code to the exclusion of son’s descendants under items iii c and d upon the death of the survivor of settlor son and son’s spouse spouse the remaining assets of trust will be divided per stirpes among the surviving descendants of son each descendant’s share to be held in a separate trust for that descendant’s primary beneficiary primary benefit the trustees have discretion to distribute any amounts of income and principal of each separate trust to the primary beneficiary and that beneficiary’s descendants living from time to time for each such individual’s support in his or her accustomed manner of living items iii e and f provide that each primary beneficiary has a lifetime or testamentary power to appoint any part of that beneficiary’s separate trust to any of son’s descendants excluding the powerholder the creditors and estate of the powerholder and the creditors of the powerholder’s estate at the death of a primary beneficiary that beneficiary’s trust to the extent not appointed will be divided per stirpes into separate trusts for that beneficiary’s surviving descendants or if none for the specified descendants of settlor each new separate trust will be held for its respective primary beneficiary under the terms of items iii c through f under item iii g all existing trusts will terminate years after the death of the last to die of all of the descendants of settlor’s father living on date and the remaining assets of each trust will be distributed to the oldest person then eligible to receive payments from the respective trust item v of trust provides that whenever the term descendant or descendants is used in trust it will be deemed not to include any legally adopted_child plr-151536-10 under items ix a through c son spouse and bank are named as trustees whenever more than two trustees are serving the majority decision will control upon reaching age each primary beneficiary will serve as sole trustee of that beneficiary’s trust son currently has two natural children grandchild a and grandchild b grandchild a has two natural children great-grandchild a and great-grandchild b grandchild b has two natural children great-grandchild c and great-grandchild d these descendants of son are the only current beneficiaries of trust settlor’s family recently learned that son’s two children are both carriers of a rare and very serious genetic disorder that is passed to successive generations with great frequency and often in a more severe form when settlor created trust the family did not know the family carried this genetic disorder on date son and spouse as trustees filed a petition petition in the local court asking the court to modify trust under state statute as follows proposed modification item v would be modified to provide that whenever the term descendant or descendants is used in trust except as provided in item iii g it will be deemed to include any person legally adopted before reaching the age of majority item iii g would be modified to provide that an adopted person is excluded from the definition of the term descendant or descendants but only for purposes of applying the rule_against_perpetuities period under item iii g petition states that settlor’s family has only recently learned its members carry the specific genetic disorder and that on the advice of medical professionals one or more of son’s descendants may very well choose not to bear children but instead to adopt thus compliance with the current definition in trust of the term descendant or descendants would defeat or substantially impair settlor’s purpose in creating trust which is to provide for the support of multiple generations of son’s descendants for the perpetuities period under item iii g petition asks local court to appoint a guardian ad litem to represent the minor beneficiaries great-grandchildren a through d and son’s otherwise unrepresented descendants born and unborn petition also asks local court to issue an order approving the proposed modification conditioned upon the trustees’ receipt of a favorable letter_ruling from the internal_revenue_service state statute provides that a local court may modify the administrative or dispositive provisions of a_trust if owing to circumstances not known or anticipated by the settlor compliance with the provisions of the trust would defeat or substantially impair the accomplishment of the purposes of such trust plr-151536-10 on date local court appointed a guardian ad litem to represent the minor beneficiaries great-grandchildren a through d and son’s otherwise unrepresented descendants born and unborn you have requested the following rulings the proposed modification of trust will not affect the exempt status of trust for gst tax purposes the proposed modification of trust will not constitute a gift by any of the current beneficiaries of trust law and analysis sec_2501 of the internal_revenue_code imposes a tax for each calendar_year on the transfer of property by gift during such calendar_year by any individual sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise direct or indirect and whether the property transferred is real or personal tangible or intangible sec_25_2511-1 provides that the gift_tax also applies to gifts indirectly made any transaction in which an interest in property is gratuitously passed or conferred upon another regardless of the means or device employed constitutes a gift subject_to tax sec_2601 provides that a tax is imposed on every generation-skipping_transfer made by a transferor to a skip_person under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the generation-skipping_transfer_tax provisions do not apply to any generation-skipping_transfer under a_trust as defined in sec_2652 that was irrevocable on date however this exemption does not apply if additions actual or constructive are made to the trust after date sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2651 provides that an individual who is a lineal descendant of a grandparent of the transferor shall be assigned to that generation which results from plr-151536-10 comparing the number of generations between the grandparent and such individual with the number of generations between the grandparent and the transferor sec_2651 provides that a relationship by legal adoption shall be treated as a relationship by blood sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the generation-skipping_transfer_tax under sec_26_2601-1 or hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status in general unless specifically provided otherwise the rules contained in sec_26_2601-1 are applicable only for purposes of determining whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy paragraph b i a b or c of this section by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the tax if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst or the creation of a new gst a modification that is administrative in nature that only indirectly increases the amount transferred will not be considered to shift a beneficial_interest in the trust sec_26_2601-1 example considers the following fact pattern in grantor established an irrevocable_trust for the benefit of grantor's grandchildren a b and c the trust provides that income is to be paid to a b and c in equal shares for life the trust further provides that upon the death of the first grandchild to die one-third of the principal is to be distributed to that grandchild's issue per stirpes upon the death of the second grandchild to die one-half of the remaining trust principal is to be distributed to that grandchild's issue per stirpes and upon the death of the last grandchild to die the remaining principal is to be distributed to that grandchild's issue per stirpes in a became disabled subsequently the trustee with the consent of b and c petitioned the appropriate local court and the court approved a modification of the trust that increased a's share of trust income the modification does not shift a beneficial_interest to a lower generation beneficiary because the modification does not plr-151536-10 increase the amount of a gst under the original trust or create the possibility that new gsts not contemplated in the original trust may be made in this case the modification will increase the amount payable to a who is a member of the same generation as b and c in addition the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the trust as modified will not be subject_to the provisions of chapter however the modification increasing a's share of trust income is a transfer by b and c to a for federal gift_tax purposes no guidance has been issued concerning judicial modifications that may affect the status of trusts that are exempt from gst tax because sufficient gst_exemption was allocated to the trust to result in an inclusion_ratio of zero at a minimum a modification that would not affect the gst status of a grandfathered trust should similarly not affect the exempt status of such a_trust in this case son’s current descendants grandchildren a and b and great-grandchildren a through d are the current beneficiaries of trust the proposed modification would expand the class of individuals who qualify as beneficiaries of trust to include legally adopted persons who have not reached the age of majority if adopted by son or his descendants if an adoption were to occur the adoptee would be in the same generation as that of other permissible beneficiaries under the terms of trust thus like the situation in example this modification does not result in a shift of a beneficial_interest to a lower generation beneficiary at any time during the existence of trust or of any separate trust created under the terms of trust consequently the proposed modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification in addition the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the time provided for in the original trust therefore based on the facts submitted and representations made and assuming that local court approves the proposed modification and that the proposed modification is effective and binding on the beneficiaries we conclude that the proposed modification will not cause trust to be subject_to the provisions of chapter in addition son’s current descendants do not include any adopted children it is represented that son and his descendants do not currently intend to adopt any children therefore unlike the situation in example of sec_26_2601-1 the proposed modification will not change the amount of any current beneficiary’s interest in trust further on the date the proposed modification becomes effective none of the current beneficiaries of trust will have adopted children thus based on the facts submitted and representations made and assuming that local court approves the proposed modification and that the proposed modification is effective and binding on the beneficiaries the proposed modification of trust will not constitute a gift by any of the plr-151536-10 current beneficiaries of trust we recognize that based on the facts and circumstances at the time of an adoption a gift may occur when a descendant of son adopts the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative this ruling is directed only to the taxpayer requesting it sec_6110 of provides that it may not be used or cited as precedent sincerely ___________________________ leslie h finlow senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes cc