department of the treasury internal_revenue_service washington d c office_of_chief_counsel number release date uil date cc pa cbs b01 memorandum for associate area_counsel sb_se from subject mitchel s hyman senior technician reviewer branch collection bankruptcy summonses payment for discharge_of_lien or a compromise to release a lien on property when the underlying income_tax_liability has been discharged in bankruptcy this responds to your request for chief_counsel_advice on whether the service in a collection_due_process cdp case may accept an offer_in_compromise in lieu of enforcing a lien on a personal_residence when the underlying income_tax_liability has been discharged in bankruptcy in accordance with sec_6110 this guidance should not be cited as precedent legend year year date date date date date date date date date date date issue in a cdp case whether the service should accept a payment for the discharge of a federal_tax_lien or enter into a compromise to satisfy a lien on a personal_residence which is greater in value than the amount offered conclusion no neither discharge or release nor an offer_in_compromise are available in this case because the taxpayers are no longer personally liable for taxes we conclude that any compromise with the taxpayers would have no effect on the enforceability of the service’s lien on the property thus compromise would not render the liability fully satisfied or legally unenforceable such that the tax_lien could be released under sec_6325 of the code furthermore payment of a lesser amount would not reflect the value of the government’s interest in the property in question such that a certificate of discharge could be issued under sec_6325 background this cdp case involves a federal_tax_lien on the taxpayers’ personal_residence which arose from the assessment of taxes for year and year the taxpayers filed a chapter bankruptcy petition on date and an order of discharge was entered on date the service identified the personal_residence of the taxpayers as exempt_property subject_to the lien on date the service sent the taxpayers letter final notice notice_of_intent_to_levy and notice of your right to a hearing on date the taxpayers timely requested a cdp hearing on date the taxpayers filed a motion to enforce discharge in the bankruptcy court and in response on date the court ordered that the taxpayers’ case be reopened on date the bankruptcy court specifically held that the year and year income taxes were discharged but that the service could enforce its lien against any exempt_property of the debtors a cdp hearing between the taxpayers and an appeals officer was held on date and date on date a notice_of_determination was sent to the taxpayers sustaining the proposed levy action on date the taxpayers timely filed a petition for the judicial review of the determination you have recommended that this case should be resolved in one of two ways first you have suggested accepting an amount which is smaller than the value of the service’s lien on the property in return for the discharge of the lien because for all practical purposes the liability is unenforceable due to problems arising from the seizure of the taxpayers’ personal_residence second you have suggested that the lien could be released by accepting a smaller amount than the value of the lien on the property through an offer_in_compromise under sec_7122 discussion for the reasons discussed below we recommend that the service only settle this case for an amount equal to the value of the lien the doctrine_of lien pass through was first announced in 117_us_617 it holds that a perfected lien may pass through the bankruptcy unscathed to the extent the liability it secures is not satisfied and the lien is not subordinated or set_aside by the bankruptcy code in practice a federal_tax_lien will usually survive discharge only when a notice_of_federal_tax_lien has been filed and only to the extent it is secured_by property that was exempt or excluded from the bankruptcy_estate or abandoned by the trustee when a debtor receives a discharge but the lien nevertheless survives the bankruptcy the debtor is no longer personally liable for the debt the lien secures see 501_us_78 the service can however bring an in rem action to collect from the property by using its administrative collection powers sec_6325 provides that a lien must be released by the service when it determines that the liability for the amount assessed has been fully satisfied or has become legally unenforceable ‘unenforceable’ means unenforceable as a matter of law and not merely uncollectible irm when a liability has been discharged in bankruptcy but the lien continues to attach to the debtor’s property release of the lien is not required because the liability continues to be legally enforceable against the subject property see in re 40_f3d_1162 11th cir citing 502_us_410 in re 901_f2d_744 9th cir sec_6325 sets forth the conditions under which the service may issue a certificate of discharge with respect to a specific property subject_to a lien discharge of a lien in exchange for partial payment of the liability is only authorized where the amount_paid is at least equal to the value of the government’s interest in the property see sec_6325 sec_301_6325-1 the section provides no discretion to accept some amount less than the value of the lien sec_7122 grants the secretary authority to compromise cases a compromise is an agreement with a particular taxpayer or taxpayers that settles a determined and assessed tax_liability for less than the total amount owed the effect of a compromise is clearly set out in treasury regulations which state acceptance of an offer_in_compromise will conclusively settle the liability of the taxpayer specified in the offer compromise with one taxpayer does not extinguish the liability of nor prevent the irs from taking action to collect from any person not named in the offer who is also liable for the tax to which the compromise relates sec_301_7122-1 thus the taxpayer is released from personal liability but the service may continue to pursue collection from other persons liable for the tax the regulations contemplate that compromise occurs between the service and a particular taxpayer and that the compromise does not act to eliminate or alter the underlying assessment itself in the case of a lien which has survived bankruptcy notwithstanding a discharge of the taxpayer debtor’s personal liability the lien is enforceable only as an in rem claim and the taxpayer is no longer personally liable as such sec_7122 is not applicable because that section authorizes only agreements to compromise civil or criminal liability for taxes interest or penalties not agreements for the release or discharge of liens sec_301_7122-1 compromise with the taxpayer as an individual would have no effect on the enforceability of the lien for purposes of the analysis under sec_6325 because the taxpayer has already been relieved of the obligation the compromise would purport to cover following such a compromise the service would be left with the same ability to collect as it had prior to accepting the offer under sec_6325 lien release would not then be authorized or required similarly compromise with the taxpayer in this case would not authorize lien discharge under sec_6325 the service may compromise when there is doubt as to liability doubt as to collectibility or where compromise would promote effective tax_administration sec_301_7122-1 in this case there has been no suggestion that the existence or amount of the tax_liability is in doubt the value of the property far exceeds the amount of the lien and no creditor has priority over the service so there is no doubt that the lien amount can be collected in full the request for advice does not indicate facts that we are unaware of a case in which a bankruptcy discharge has been granted but the lien passed through in which there could be doubt as to collectibility with respect to the in rem liability that can be asserted against the property by definition the value of the in rem claim is limited to the interest in the property to which the lien attached as a non-recourse debt secured_by property any loss of value in the property diminishes the value of the service’s claim thus at any point the collection potential from the property is equal to the service’s claim and can therefore always be collected in full would authorize compromise to promote effective tax_administration compromise on that basis is authorized only where collection in full would cause economic hardship or where compelling equity or public policy considerations identified by the taxpayer provide a sufficient basis for compromise see sec_301_7122-1 while seizure of the residence would force the taxpayers and their dependents to find new housing the financial analysis does not support the conclusion that other housing could not be obtained or that doing so would cause economic hardship as defined in applicable treasury regulations in fact the financial analysis supports the conclusion that the taxpayers have the ability to pay in full and thereby could avoid the seizure of the property the act of enforcing the lien on the property despite the bankruptcy discharge does not rise to an authorized reason for compromise under the regulations see i r m compromise is not authorized based solely on a taxpayer’s belief that a provision of the tax law is itself unfair deference must be given to the service’s determination that there is sufficient equity in the taxpayers’ residence to warrant a levy additionally the service may not levy on a taxpayer’s principal_residence without obtaining judicial approval from the district_court under sec_6334 if the taxpayers would like to challenge the propriety of having a lien foreclosed on their personal_residence they may raise this issue in the district_court should the taxpayer default on a non-payment term of the compromise the service is authorized to revoke the certificate of release sec_6325 for the above-mentioned reasons we conclude that neither compromise release nor discharge is appropriate under the facts of this case this advice has been coordinated with branch of collection bankruptcy and summonses if you have any questions concerning this matter please contact


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp plr-118605-98 date date newco date h dear this letter responds to your date request for a letter_ruling supplementing our prior letter_ruling dated date and modified date collectively the prior letter_ruling the legend abbreviations factual summary and representations appearing in the prior letter_ruling are hereby incorporated by reference unless otherwise indicated pursuant to your request our prior letter_ruling has been modified as follows a date h has been added to the legend also the legend has been amended to indicate that newco will be organized as a state f corporation b steps i and iv have been changed to read as follows i to assure that the merger described in step iv qualifies for certain beneficial accounting treatment under applicable securities_and_exchange_commission provisions target on date h changed its state of incorporation from state g to state f in a transaction intended to qualify as a reorganization under sec_368 of the internal_revenue_code the reincorporation no target shareholder dissented to the reincorporation iv acquiring will form newco as a state f corporation and newco will merge into target under applicable state law the merger pursuant to the merger a the newco stock held by acquiring will be converted into all of the outstanding_stock of target and b the target stock held by target shareholders other than acquiring plr-118605-98 will be converted into the right to receive solely acquiring voting_stock target shareholders will not be entitled to dissenters’ rights in the merger following the merger acquiring will own all of the stock of target any target options outstanding on the date of the merger will be converted into options to acquire acquiring stock on terms and conditions similar to those of target’s stock_option plan c representations c and m have been modified to read as follows c prior to or in the merger neither target nor any person related as defined in sec_1_368-1 determined without regard to sec_1_368-1 to target will have either directly or through any transaction agreement or arrangement with any other person i acquired shares of target stock with consideration other than shares of acquiring stock or target stock except for shares of target stock acquired by target in the asset sale or ii redeemed or made a distribution with respect to target stock m there will be no dissenting shareholders to the merger d the following new representation has been added p no target shareholder dissented to the reincorporation based solely on the information and representations submitted in the original and supplemental requests we rule that the above changes do not affect the rulings contained in the prior letter_ruling and those rulings remain in full force and effect we express no opinion about the tax treatment of the proposed transaction as modified under other provisions of the code and income_tax regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the rulings contained in the prior letter_ruling as reaffirmed herein all caveats contained in the prior letter_ruling continue to apply except that caveat b is deleted and the remaining caveats are relettered as b and c this supplemental ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it cannot be used or cited as precedent the rulings in the prior letter_ruling as reaffirmed herein are based on facts and representations submitted under penalties of perjury verification of that information may be required as part of the audit process it is important that a copy of this supplemental letter and a copy of the prior letter_ruling be attached to the federal_income_tax return of each taxpayer involved for the taxable_year in which the transactions covered by those letters are consummated plr-118605-98 pursuant to a power_of_attorney on file in this office copies of this letter are being sent to acquiring and acquiring’s second-named representative sincerely assistant chief_counsel corporate by robert t hawkes assistant to the chief branch


tax_exempt_and_government_entities_division release number release date uil code department of the treasury internal_revenue_service te_ge eo examinations commerce street mc dal dallas tx date jan person to contact identification_number contact telephone number in reply refer to te_ge review staff ein last date for filing a petition with the tax_court apr certified mail -return receipt requested dear a final adverse determination_letter as this is to your exempt status under sec_501 of the internal_revenue_code your exemption from federal_income_tax under sec_501 c of the code is hereby revoked effective january 20xx our adverse determination was made for the following reasons you have not established that you are operated substantially for pleasure and recreation of its members or other non-profitable purposes and no part of the earnings inures to the benefit of private shareholder within the meaning of sec_501 have made your facilities you available to the general_public you have exceeded the non-member income test for tax years ending december 20xx and december 20xx of recreational and services social use you are required to file federal_income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the year ending december 20xx and for all years thereafter processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claim court or the district_court of the united_states for the district of columbia before the day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights we can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for our assistance which is always free we will do evelything possible to help you visit taxpayeradvocate irs gov or call if you have any questions please contact the person whose name and telephone number arc shown in the heading of this letter sincerely yours moana oeoke maria hooke director exempt_organizations examinations enclosures publication department of the treasury internal_revenue_service irs tax exempt and government entities exempt_organizations examinations date date taxpayer_identification_number form tax_year s ended december december person to contact 1d number employee id contact numbers telephone fax an manager's name 1d number employee id manager's contact number response due_date date certified mail - return receipt requested dear why you are receiving this letter we propose to revoke your status as an organization described in sec_501 of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren't an organization described in sec_501 after we issue the final revocation letter we'll announce that your organization is no longer eligible for contributions deductible under sec_170 of the code if we don't hear from you if you don't respond to this proposal within calendar days from the date of this letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years what you need to do if you disagree with the proposed revocation if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter letter rev catalog number 34809f you also may file a protest with the irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicabie law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how fo appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn’t apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn't a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn't been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation internal_revenue_service -office of the taxpayer_advocate enclosures report of examination form_6018 publication publication sincerely he efi hlal wife eo pirgtor eo examinations letter rev catalog number 34809f form 886a name of taxpayer explanation of items department of the treasury - internal_revenue_service year period ended 20xx 20xx issue whether revenue code irc sec_501 continues to qualify for exemption under internal facts the september 19xx to provide social recreational and other activities to its members was granted as tax-exempt_organization under sec_501 -on it is organized and operated for the promotion of interests in horses and horsemanship and to encourage a closer and personal relationship among horsemen and horse lovers the meetings that bring families together in a social environment carried out such activities as horse shows play days barbeques and during the initial interview the officer of the small non-profit entity to promote horsemanship the use of rural land and activities involving children and their families community on open space issues and improvements to trails and parks that everyone can enjoy in addition the association also works with the mentioned that the organization is a the organization owns the property consisting of 0-acres with an arena a single story rental house separated by a chain-link fence and a meeting hall along with a kitchen serving counter and a bbq area in the back of the hall are located on the 0-acres arena the single story rental house was rented to a member for dollar_figure a year and the renter looks after the property and is responsible for hall rentals hall rentals who can rent the hall hall rentals are tracked as member and non member form 886-a rev p the general meetings of the organization are held monthly with dinner served cooked by volunteers the cost of the food reimbursed most attendees are members but the guests of members were also invited horse shows are open to members only because the organization doesn’t have a health permit to sell food to the public what is a play day how often held play days are open to both members and nonmembers the officer stated that the play days usually include approximate riders of which around might be non-members department of the treasury - internal_revenue_service page -1- form_886 a name of taxpayer explanation of items department of the treasury - internal_revenue_service year period ended 20xx 20xx the organization holds a monthly trail ride on the acre property attended the monthly trail ride a majority of them are members around riders all events are coordinated and carried out by the volunteer members the officer stated that the organization separated member incomes from non-member on the registration for various activities they accept payments in the cash and check forms additionally they use quicken to track income and pay bills with categories such as non-member hall rental deposit member event income and non-member event income the organization reported the following sources and amounts of revenue on forms ez for the periods ending december 20xx and december 20xx 20xx 20xx contribution program service revenue investment_income gross_sales of inventory total revenue dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure the following worksheet provided the gross incomes investment incomes and non- member incomes for the periods ending december 20xx and december 20xx total gross_income investment non-member income non-member use income of org’s facilities amount investment_income amount amount 20xx 20xx amount dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure based on conducting a two-year analysis of gross_receipts the organization received and from investment non-members as well as and from non-members during tax years ending december 20xx and december 20xx respectively law sec_501 exempts from federal_income_tax clubs organized for pleasure recreation and other non-profitable purposes substantially_all of the activities of which form 886-a crev department of the treasury - internal_revenue_service page -2- form_886 a name of taxpayer explanation of items department of the treasury - internal_revenue_service year period ended 20x x 20xx are for such purposes and not part of the net_earnings of which inures to the benefit of any private shareholder sec_1 c of the regulations provides that in general the exemption extends to social and recreation clubs supported solely by membership fees dues and assessments however a club that engages in a business such as making its social and recreational facilities open to the general_public is not organized and operated exclusively for pleasure recreation and other non-profitable purposes and is not exempt under sec_501 prior to its amendment in sec_501 required that social clubs be operated exclusively for pleasure recreation and other nonprofitable purposes public law amended the exclusive provision to read substantially’ in order to allow an sec_501 organization to receive up to percent of its gross_receipts including investment_income from sources outside its membership without losing its tax-exempt status the committee reports for public law senate report no 2d session c b further states a within the percent amount not more than percent of the gross_receipts should be derived from the use of a social club’s facilities or services by the general_public this means that an exempt social_club may receive up to percent of its gross_receipts from a combination of investment_income and receipts from non- members so long as the latter do not represent more than percent of total receipts b thus a social_club may receive investment_income up to the full percent of its gross_receipts if no income is derived from non-members’ use of club facilities in addition the committee report states that where a club receives unusual amounts of income such as from the sale of its clubhouse or similar facilities that income is not to be included in the percent formula revrul_66_149 holds a social_club as not exempt as an organization described in sec_501 where it derives a substantial part of its income from non-member sources revrul_60_324 states by making its social facilities available to the general_public the club cannot be treated as being operated exclusively for pleasure recreation or other non-profitable purposes c form 886-a rev revproc_71_17 sets forth the guidelines for determining the effect of gross_receipts derived from the general public’s use of a social club’s facilities on exemption under sec_501 where nonmember income from the usage exceeds the standard as outlined in this revenue_procedure the conclusion reached is that there is a non- department of the treasury - internal_revenue_service page -3- form_886 a name of taxpayer explanation of items department of the ‘treasury - internal_revenue_service yeat period ended 20xx 20xx exempt_purpose and operating in this manner jeopardizes the organization's exempt status taxpayer’s position taxpayer's position has not been provided government’s position based on the examination the organization does not qualify for exemption as a social_club described in sec_501 and sec_1 c which provides that in general this exemption extends to social and recreation clubs which are supported solely by membership fees dues and assessments rev ruls and support this position stating that a social_club that opens to the public and derives a substantial part of its income from non-member sources is not exempt as an organization described in c the organization permits use of its facilities and attendance at its events by the general_public records show that it had exceeded the investment non-member income as well a sec_15 non-member income threshold as outlined in public law on a recurring basis during tax years ending december 20xx with and december 20xx with respectively accordingly it is proposed that the organization’s tax-exempt status be revoked effective january 20xx conclusion form 886-a rev the organization no longer qualifies for exemption under sec_501 of the code as your investment and non-member income has exceeded the threshold as well as non- member income exceeded threshold on a continuing basis therefore it is proposed that your exempt status under sec_501 of the code be revoked effective january 20xx form_1120 corporation income_tax return should be filed starting with tax periods ending december 20xx december 20xx and thereafter as long as you continues to be subject_to income_tax department of the treasury - internal_revenue_service page -4-


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 intl b04 plr-116457-11 date date legend ust -------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ---------------------------- fc --------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- ---------------------------- holdco ----------------------------------------------------- --------------------------------------------------------------------------------------------------- ---- ------------------------------------------------------ ---------------------------------- merger sub --------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- business a ---------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- ------------------------------------------------ business b ----------------------------------------------- ------------------------------------------------------------------------------------------------------------- date c amount d ----------------- ---------------- plr-116457-11 date e f g h year i country j k month l n amount o country p q r s t date u amount v date w dear -------------- ------------------ ----------- ------------- ------------- ------- ------------ ----------------- -------------- ----------- ---------------- ---------------- -- ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ -------------------------------------------------- ------ --- ----------------- ------------- ---------------- this is in reply to your letter dated date requesting a ruling under sec_1 a - c of the income_tax regulations that the exchange of shares in a domestic plr-116457-11 corporation by u s persons described below will qualify for an exception to the general_rule of sec_367 of the internal_revenue_code the code supplemental information was provided in letters dated april may may june june and date the rulings contained in this letter are predicated upon facts and representations submitted by the taxpayers and accompanied by penalty of perjury statements executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the factual information representations and other data may be required as part of the audit process facts ust is a domestic_corporation and is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return ust common_stock is publicly traded ust and its subsidiaries are engaged in business a as of date c the market capitalization of ust was approximately amount d as of date e employees and directors of ust held i options to acquire approximately f ust shares and ii approximately g restricted_stock units denominated in ust shares of which approximately h units were granted in year i prior to the closing of the merger ust may issue additional equity awards to service providers employees directors and officers in the ordinary course of business consistent with past issuance practices and subject_to the limitations imposed by the business combination agreement there are no other authorized issued or outstanding options warrants conversion rights arrangements calls or rights of any kind that obligate ust to issue or sell any shares of capital stock or other_securities of ust or give any person a right to acquire any shares of capital stock or other_securities of ust fc is a corporation organized under the laws of country j the united_states has a comprehensive_income_tax_treaty with country j fc stock is publicly traded the authorized share capital of fc consists of k shares all of which are issued and outstanding for purposes of country j law fc believes based on information available to it in month l that its largest shareholder at that time owned less than of its shares employees and directors of fc hold options to acquire fc shares as of date e there were approximately n fc shares underlying options to acquire such shares prior to the closing of the merger fc may issue additional equity awards to service providers employees directors and officers in the ordinary course of business consistent with past issuance practices and subject_to the limitations imposed by the business combination agreement as of date c the market capitalization of fc was approximately amount o fc along with its subsidiaries is engaged in business b ust's business a and fc's business b are of the same industry type holdco is a newly formed country p corporation which will be used to combine ust and fc in the transactions described below the united_states has a comprehensive plr-116457-11 income_tax treaty with country p merger corporation which is wholly owned by holdco the following transfers are proposed sub is a newly formed domestic i ii holdco will launch a public exchange_offer the offer to acquire all of the issued and outstanding fc shares pursuant to the offer each fc share tendered and accepted for exchange will be exchanged for q holdco share s the closing of the offer is subject_to a number of conditions including the adoption of a business combination agreement by the holders of a majority of the issued and outstanding ust shares and the satisfaction of a minimum tender condition for the offer the minimum condition the minimum condition requires that there be validly tendered and not withdrawn at the expiration of the offer a number of fc shares that represents at least r less than of the outstanding fc shares on a fully diluted basis ie taking into account all fc shares issuable upon the exercise of any options warrants or rights to purchase or subscribe for fc shares regardless of the number of fc shares acquired pursuant to the offer it is the intention of holdco to ultimately acquire all of the fc shares immediately after the closing of the offer merger sub will merge with and into ust the merger with ust surviving as a direct wholly owned subsidiary of holdco in the merger each ust share will be converted into the right to receive s holdco share s the exchange of ust shares for holdco shares will be executed by an agent on behalf of the ust shareholders for purposes of accomplishing the transfer under country p law immediately after the closing of the merger holdco will own all of the outstanding ust shares and all of the fc shares acquired in the offer in the merger options to acquire ust shares will be converted into options to acquire holdco shares on substantially the same terms and restricted_stock units other than restricted_stock units granted in year i which will be cashed out will vest upon completion of the transaction iii the business combination agreement contemplates that as soon as practicable after the merger the parties will effect a post-closing reorganization intended to cause fc to become a wholly owned subsidiary of holdco a if t or more of the outstanding fc shares are acquired in the offer holdco intends to effect a squeeze-out transaction as a result of which all fc shares not tendered in the offer would be transferred to holdco by operation of law b if less than t of the outstanding fc shares are acquired in the offer holdco plans that following the merger it will acquire additional shares of fc stock through open market and private purchases and procedures plr-116457-11 under country j law that will shareholders to exchange their fc shares encourage non-tendering based on the advice of country j legal counsel the taxpayers believe it is very likely that holdco will pursuant to the same overall plan that includes the offer and the merger acquire at least by vote and value of the outstanding fc shares as a result of the offer and any subsequent acquisitions of fc shares within months from the date of the merger iv ust and fc announced on date u that they had recommended to the board_of directors of holdco that holdco pay a one-time special dividend special dividend of amount v per holdco share shortly after completion of the merger law and analysis the exchange of ust stock by u s persons is subject_to sec_367 of the code which provides that the transfer of appreciated_property including stock by a u_s_person to a foreign_corporation in a transaction that would otherwise qualify as a nonrecognition exchange is treated as a taxable transfer unless an exception applies in the case of a sec_367 transaction in which a u_s_person transfers domestic stock to a foreign_corporation the u s transferor will qualify for nonrecognition treatment if the requirements of sec_1_367_a_-3 are satisfied the requirements of sec_1_367_a_-3 are as follows i ii iii u s persons transferring u s target stock must receive in the aggregate or less of both the total voting power and total value of the stock in the transferee foreign_corporation u s persons who are officers or directors of the u s target_corporation or who are shareholders of the u s target_corporation will own in the aggregate or less of each of the total voting power and the total value of the stock of the transferee foreign_corporation immediately_after_the_exchange of the u s target stock the active trade_or_business test of sec_1_367_a_-3 must be satisfied the three elements of the active trade_or_business test are described below a the transferee foreign_corporation or any qualified_subsidiary or qualified_partnership as defined under sec_1_367_a_-3 and viii must have been engaged in the active_conduct_of_a_trade_or_business outside the united_states within the meaning of sec_1_367_a_-2t b and for the plr-116457-11 entire 36-month period u s target stock immediately preceding the exchange of b at the time of the exchange neither the transferors nor the transferee foreign_corporation or any qualified_subsidiary or qualified_partnership engaged in the active trade_or_business will have the intention to substantially dispose_of or discontinue such trade_or_business c the substantiality test as defined in sec_1_367_a_-3 must be satisfied among the requirements of sec_1_367_a_-3 for a subsidiary of the transferee foreign_corporation to be treated as a qualified_subsidiary the subsidiary must be owned by total voting power and total value by the transferee foreign_corporation with respect to clause a holdco the transferee foreign_corporation will not have been engaged in an active trade_or_business for the entire 36-month period prior to the exchange nor will it have owned any qualified subsidiaries or partnerships so engaged a transferee foreign_corporation may satisfy the test however by acquiring at the time of or prior to the exchange a trade_or_business that has been active for the preceding months this rule does not apply to the acquisition of a trade_or_business of a u s target_corporation see sec_1_367_a_-3 the taxpayers represent that fc or one or more of fc's qualified subsidiaries or qualified partnerships will have been engaged in the active_conduct_of_a_trade_or_business outside the united_states within the meaning of sec_1_367_a_-2t b and for the entire 36-month period immediately preceding the exchange of ust shares for holdco shares under sec_1_367_a_-3 in order for holdco to rely on the active trade_or_business of fc for this purpose however it must own at least of the vote and value of fc at the time of the merger under the substantiality test the fair_market_value of the transferee foreign_corporation must equal or exceed the fair_market_value of the u s target_corporation at the time of the exchange of u s target stock see sec_1_367_a_-3 for this purpose the fair_market_value of the transferee foreign_corporation must be reduced by the value of certain prohibited_assets sec_1_367_a_-3 specifically the fair_market_value of the transferee foreign_corporation must be reduced by the value of any asset that it acquired outside the ordinary course of business during the 36-month period preceding the exchange to the extent that the asset produces or is held for the production of passive_income at the time of the exchange or the asset was acquired for the principal purpose of satisfying the substantiality test sec_1_367_a_-3 the value of the transferee foreign_corporation is further reduced by the value of any assets that it received within the 36-month period preceding the exchange if those assets were owned by the u s target_corporation or an affiliate sec_1_367_a_-3 after these adjustments if the fair_market_value of the transferee foreign_corporation plr-116457-11 continues to equal or exceed the fair_market_value of the u s target then generally the substantiality test will be satisfied sec_1_367_a_-3 in addition sec_1_367_a_-3 requires that the u s target_corporation satisfy the reporting requirements of sec_1_367_a_-3 and that each u s transferor who is a shareholder of the transferee foreign_corporation immediately_after_the_exchange of target stock enter into a 5-year gain_recognition_agreement as provided in sec_1_367_a_-8 by entering into a gain_recognition_agreement the u s transferor agrees to recognize gain with certain exceptions in the event that the transferee foreign_corporation disposes of all or part of the transferred stock_or_securities the corporation the stock of which was transferred disposes of substantially_all of its assets or if certain other triggering events occur within the 5-year term of the agreement see sec_1 a - j in some cases where a disposition qualifies as a nonrecognition_transaction and the u s transferor retains a direct or indirect interest in the transferred stock_or_securities or in the assets of the transferred corporation the disposition does not constitute a triggering event if a new gain_recognition_agreement with respect to the initial transfer is entered into immediately after the disposition see sec_1_367_a_-8 representations a the merger will qualify as a reorganization within the meaning of sec_368 of the code and or the merger and the offer taken together will qualify as a transaction described in sec_351 of the code b ust will satisfy the reporting requirements of sec_1_367_a_-3 c u s persons transferring ust stock pursuant to the merger will receive in the aggregate or less of both the total voting power and the total value of the stock of holdco taking into account the attribution_rules of sec_318 as modified by sec_958 in exchange for ust stock d u s persons who are officers directors or target shareholders as defined in sec_1_367_a_-3 of ust will own in the aggregate immediately after the merger or less of each of the total voting power and value of the stock of holdco taking into account the attribution_rules of sec_318 as modified by sec_958 e fc or one or more of its qualified subsidiaries as defined in sec_1_367_a_-3 or qualified partnerships as defined in sec_1_367_a_-3 will have been engaged in the active_conduct_of_a_trade_or_business outside the united_states within the meaning of sec_1_367_a_-2t b and for the entire 36-month period preceding the merger plr-116457-11 f at the time of the merger neither subsidiary of fc nor to the knowledge of ust or fc stockholders of ust will have an intention to substantially dispose_of or discontinue such active trade_or_business holdco fc or any qualified g the fair_market_value of fc as measured by its market capitalization exceeded the fair_market_value of ust as measured by its market capitalization on the date the business combination agreement was entered into and over the preceding three-year period in addition as of date w the fair_market_value of fc as measured by its market capitalization exceeded the fair_market_value of ust as measured by its market capitalization by an amount that would be expected to cause the fair_market_value of holdco immediately after the closing of the offer to exceed the fair_market_value of ust even if i no fc shares in excess of r were tendered in the offer and ii the fair_market_value of fc were reduced by the portion of the special dividend if any that may be paid_by holdco shortly following the closing of the merger that is funded or sourced other than by way of intercompany loans directly or indirectly from fc for purposes of this determination the fair_market_value of fc including the value of stock in any qualified_subsidiary or an interest in any qualified_partnership will include assets producing or held for the production of passive_income as defined in sec_1297 which assets were acquired outside the ordinary course of business within the 36-month period preceding the acquisition of the ust stock only to the extent such assets were acquired in a transaction which was not undertaken for a principal purpose of satisfying the substantiality test the value of fc will be further reduced by the value of any assets that it received within the 36-month period preceding the exchange if those assets were owned by ust or an affiliate of ust sec_1_367_a_-3 under sec_1_367_a_-3 the service may in limited circumstances issue a private_letter_ruling to permit the taxpayer to qualify for an exception to sec_367 if the taxpayer is unable to satisfy all of the requirements of the active trade_or_business test but is in substantial compliance with such test and meets all of the other requirements of sec_1_367_a_-3 the taxpayers request a ruling that there will be substantial compliance with the active trade_or_business test notwithstanding that less than of the outstanding fc shares may be acquired by holdco in the offer conclusion based solely on the information submitted and on the representations set forth above and provided that holdco acquires at least by vote and value of the outstanding fc shares as a result of the offer and any subsequent acquisitions of fc shares within months from the date of the merger it is held as follows plr-116457-11 the transfer pursuant to the merger of ust shares by u s persons in exchange for shares of holdco will qualify for an exception to the general_rule of sec_367 sec_1_367_a_-3 and sec_1_367_a_-3 any u_s_person who is a transferee shareholder will qualify for this exception only upon entering into a gain_recognition_agreement sec_1 a - c iii b the gain_recognition_agreement must conform to the requirements set forth in sec_1_367_a_-8 no opinion is expressed as to the tax treatment of the transactions under other provisions of the code and regulations and no opinion is expressed about the tax treatment of any conditions existing at the time of or effects resulting from the transactions that are not specifically covered by this ruling in particular no opinion was requested and no opinion is provided as to i whether the merger qualifies as a reorganization within the meaning of sec_368 of the code and or whether the merger and the offer taken together will be treated as a transaction described in sec_351 of the code or ii the federal_income_tax treatment of the special dividend in addition no opinion is expressed as to the reporting requirements of u s persons exchanging ust stock under sec_6038b and the regulations thereunder this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling pursuant to the power_of_attorney on file in this office a copy of this letter is being addressed to the taxpayer's authorized representatives sincerely charles p besecky branch chief branch international


id office uilc cca-310156-09 -------------- number release date from ------------------- sent tue pm to ------------------------------ cc --------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------- subject re tefra i think that status as an electing_small_business_trust means that all income flows through to the beneficiary of the trust from the s_corporation that the trust owns which is a partner in the tefra partnership that means that only the beneficiary and not the trust would be taxable on the items from the partnership ---------------------------------------------------------------------------------------------------------------------- --------------------i am not an expert on electing small_business trusts however so you may want to first confirm my understanding of electing_small_business_trust with ----- or ------------- i am including ------------ ---------------- ----- and ------------------------ ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- you can use the taxpayer's current address


t c summary opinion united_states tax_court john f heyse petitioner v commissioner of internal revenue respondent docket no 6638-o1s filed date john f heyse pro_se james n beyer for respondent dinan special_trial_judge this case was heard pursuant to the provisions of sec_7463 the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority this case is before us on petitioner’s petition under ‘section references are to the internal_revenue_code in effect at the time the petition was filed in this case - sec_6015 for relief from joint_and_several_liability specifically petitioner seeks a refund pursuant to respondent’s determination that he is entitled to relief under sec_6015 with respect to taxable_year some of the facts have been stipulated and are so found the stipulations of fact and the attached exhibits are incorporated herein by this reference petitioner resided in wilmington delaware on the date the petition was filed in this case there are no relevant disputed facts in this case petitioner and his former spouse filed a joint federal_income_tax return for taxable_year petitioner was subsequently divorced from his spouse and he has lived alone and has been filing separate returns since in respondent assessed a deficiency of dollar_figure plus interest relating to petitioner’s taxable_year this deficiency was never paid directly by petitioner to respondent on date a federal_income_tax overpayment by petitioner of dollar_figure with respect to his taxable_year was applied to the liability on date a overpayment by petitioner of dollar_figure was applied to the remaining liability ’ the amounts credited to petitioner’s tax_liability exceed the deficiency amount respondent’s counsel stated at continued on date petitioner requested relief with respect to the liability under sec_6015 c and f on date respondent issued a notice_of_determination granting petitioner partial relief pursuant to sec_6015 the notice stated that petitioner had requested relief in the amount of dollar_figure that relief had been granted in the amount of dollar_figure and that there was tax remaining of dollar_figure the notice also stated that refunds were not allowed with respect to sec_6015 relief petitioner filed a petition in this court seeking relief pursuant to sec_6015 he requests that this court determine that petitioner is eligible for relief under sec_6015 in the amount of dollar_figure and direct the internal_revenue_service to issue a refund to petitioner in the amount of dollar_figure together with statutory interest thereon pursuant to sec_6015 of the internal_revenue_code respondent argues that any refund is barred by sec_6015 sec_6015 as amended was originally enacted in to replace former sec_6013 internal_revenue_service continued trial that the excess was applied to assessed interest neither party specifically addressed this point but respondent presumably has relieved petitioner from liability for any remaining unpaid interest stt is unclear what the basis for this determination was however because sec_6015 relief applies to assessed deficiencies sec_6015 the deficiency in petitioner’s case was only dollar_figure q4e- restructuring and reform act of publaw_105_206 112_stat_685 the provision provides relief from joint_and_several_liability for certain taxpayers who file a joint federal_income_tax return in general terms there are three avenues of relief under sec_6015 sec_6015 may provide relief with respect to certain erroneous items on the return sec_6015 may provide for a separation of liability for separated taxpayers and sec_6015 may provide equitable relief for taxpayers who otherwise do not qualify for relief under either of the other two provisions as a general_rule taxpayers who qualify for relief under sec_6015 or f --but not sec_6015 c --are entitled to a refund_or_credit attributable to the application of sec_6015 sec_6015 after a taxpayer requests relief under sec_6015 the taxpayer may petition this court for a review of respondent’s subsequent determination sec_6015 a our jurisdiction in cases brought under sec_6015 encompasses a review of respondent’s determination with respect to all relief afforded by sec_6015 114_tc_324 thus we have jurisdiction to review respondent’s determination that no refund is due petitioner pursuant to sec_6015 however we note that we have jurisdiction with respect to only a portion of the tax_liability at issue in this case overpayments which are credited to another year’s tax_liability are deemed to be payments at the time the credit is made sec_6402 d culpepper-smith v united_states aftr 2d ustc par big_number e d pa accordingly payment of petitioner’s tax_liability was made on date and date sec_6015 applies to tax_liabilities arising after or remaining unpaid on date internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_685 in this case sec_6015 applies only to that portion of petitioner’s tax_liability which remained unpaid after respondent applied the first credit on date because the sole basis for our jurisdiction in this case is sec_6015 we lack authority to grant relief with respect to the portion of the tax_liability which was paid on date brown v commissioner tcmemo_2002_187 it is clear that the deficiency determined by respondent for taxable_year has been paid in full and that the basis of the relief respondent granted to petitioner was sec_6015 consequently sec_6015 bars any refund to petitioner as a result of respondent’s determination that petitioner was entitled to relief respondent’s determination_letter does not address petitioner’s alternative requests for relief under sec_6015 and f for which a refund would not be barred nor was this issue addressed by petitioner in the petition or at -- - trial furthermore the record before us contains insufficient facts to support a finding that petitioner was entitled to relief under either alternative provision petitioner argues that he is entitled to a refund because the payment of the deficiency was involuntary in that the liability was satisfied by respondent’s crediting of later years’ overpayments to the deficiency without notification to or permission by petitioner respondent however has discretion to credit overpayments to any outstanding tax_liabilities and the crediting of such an overpayment is treated as if the taxpayer had received a refund and in turn paid the tax_liability sec_6402 a d culpepper-smith v united_states supra the tax_liability has been satisfied and sec_6015 clearly prohibits a refund resulting from relief afforded by sec_6015 reviewed and adopted as the report of the small_tax_case division petitioner states in his petition that taking into account all the facts and circumstances it is inequitable to hold the petitioner liable language similar to this is found in both sec_6015 and f however petitioner did not specifically refer to either of these provisions and at trial the focus of petitioner’s argument was on the fact that payment of the tax_deficiency was involuntary as discussed infra petitioner would not be entitled to relief under sec_6015 unless it were shown that contrary to respondent’s determination petitioner is not entitled to relief under sec_6015 sec_6015 to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number --------------- ------------------------ -------------------------------------- ------------------------------- -------------------------------- department of the treasury washington dc person to contact ------------------ id no ------------- telephone number --------------------- refer reply to cc fip b03 - plr-107072-06 date date ------------ ---------------------------- ----------------------------- ----------------------------------------- ------------------------------------------ legend trust -------------------------------------------------------------------- company a company b state x accounting firm year date date date dear --------------- requesting under sec_301_9100-1 of the procedure and administration regulations that an election under sec_856 of the internal_revenue_code to treat trust as a real_estate_investment_trust reit be considered as timely filed this responds to a letter dated date submitted on behalf of trust -------------------------- ---------------------- ------------------ ------- plr-107072-06 facts trust a state x corporation was formed on date to acquire directly or indirectly properties to be leased on a long-term basis to tenants trust commenced operations in year trust represents that at all times it both has intended to elect reit status and has operated in a manner intended to qualify as a reit pursuant to sec_856 of the code trust retained company a as a general advisor to provide management acquisition advisory and administrative services company a in turn engaged company b to provide tax services company b employs all of the employees that perform the day-to-day financial legal and accounting operations of trust company b computed trust's taxable_income for the tax_year ending date and was responsible for preparing and filing the federal and state_income_tax forms required to be filed on behalf of trust in this capacity company b was responsible for preparing and filing federal form_7004 application_for automatic_extension of time to file corporate_income_tax return company b however inadvertently failed to time file a form_7004 on behalf of trust accounting firm was engaged by company b on behalf of trust to prepare the form 1120-reit for the tax_year ending date during the tax_return preparation process accounting firm requested a copy of the form_7004 and discovered that there was no record of trust having filed the federal form_7004 accounting firm accelerated its preparation of trust’s tax_return consequently trust filed its initial form 1120-reit for the tax_year ending date on date on trust’s return trust elected reit status under sec_856 of the code however because trust had not timely filed a form_7004 trust’s form 1120-reit was not timely filed consequently trust submitted a request for a private_letter_ruling under sec_301_9100-1 of the regulations requesting that the election of reit status trust made on its form 1120-reit that was filed date for the tax_year ending date be considered as timely made trust makes the following additional representations the request for relief was filed by trust before the failure to make the regulatory election was discovered by the service granting the relief will not result in trust having a lower tax_liability in the aggregate for all years to which the regulatory election applies than trust would have had if the election had been timely made taking into account the time_value_of_money trust did not seek to alter a return position for which an accuracy-related_penalty has been or could have been imposed under sec_6662 of the code at the plr-107072-06 time trust requested relief and the new position requires or permits a regulatory election for which relief is requested being fully informed of the required regulatory election and related tax consequences trust did not choose to not file the election law and analysis sec_301_9100-1 of the regulations provides that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulations or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin 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_9100-3 through c i sets forth rules that the internal_revenue_service generally will use to determine whether under the particular facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that subject_to paragraphs b i through iii of sec_301_9100-3 when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have acted reasonably and in good_faith and sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money conclusion based on the information submitted and representations made we conclude that trust has satisfied the requirements for granting a reasonable extension of time to elect under sec_856 to be treated as a reit beginning with the tax_year ending date accordingly the election of reit status trust made on its form 1120-reit that was filed date for the tax_year ending date will be considered as timely made this ruling is limited to the timeliness of the election of reit status trust made on its form 1120-reit for the tax_year ending date this ruling’s application is limited to the facts representations code sections and regulations cited herein except as plr-107072-06 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 particular no opinion is expressed with regard to whether trust qualifies as a reit under subchapter_m of the code moreover no opinion is expressed with regard to whether the tax_liability of trust the ruling contained in this letter is based upon information and representations and is not lower in the aggregate for all years to which the election applies than such tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the director’s office will determine such tax_liability for the years involved if the director’s office determines that such tax_liability is lower that office will determine the federal_income_tax effect 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 the code provides that it may not be used or cited as precedent letter is being sent to your authorized representative this ruling is directed only to the taxpayer requesting it sec_6110 of in accordance with the power_of_attorney on file with this office a copy of this sincerely alice m bennett chief branch office of associate chief_counsel financial institutions products enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court cynthia j hall petitioner and thomas e hall intervenor v commissioner of internal revenue respondent docket no filed date cynthia j hall pro_se thomas e hall pro_se randall e heath for respondent memorandum opinion vasquez judge this case is before the court on respondent’s motion for summary_judgment the issue for decision is whether respondent’s application of petitioner’s overpayment relating to as a credit against petitioner’s tax_liability bars granting petitioner’s request for relief from joint_and_several_liability pursuant to sec_6015 for background on or about date petitioner and her husband thomas e hall requested an extension to file their joint federal_income_tax return for on this same date respondent applied a withholding credit of dollar_figure to their account for on or about date petitioner and her husband filed a joint_return for joint_return they reported a tax due of dollar_figure accordingly after application of the dollar_figure withholding credit there was a balance due of dollar_figure on date respondent assessed the tax reported on the joint_return a late filing penalty of dollar_figure a failure_to_pay_tax penalty of dollar_figure and interest assessed of dollar_figure tax_liability on or about date petitioner filed a return for claiming a dollar_figure refund due overpayment that same date respondent applied petitioner’s overpayment to the outstanding balance on the tax_liability unless otherwise indicated all section references are to the internal_revenue_code on date respondent mailed petitioner a letter notifying her that her overpayment had been applied to the tax_liability on date petitioner and her husband divorced the decree of dissolution of marriage entered by the superior court for the state of alaska incorporated the written_agreement between petitioner and her husband concerning tax consequences and allocation of obligations in their petition for dissolution of marriage dated date petitioner and her husband had listed their debts who owed the debts and who they agreed would be responsible for paying the debts as follows presently to be owed to amount owed by paid_by irs-thomas dollar_figure husband husband irs-joint dollar_figure joint husband irs-joint dollar_figure joint husband wife on date respondent received a dollar_figure payment on the tax_liability this payment represented petitioner’s alaska permanent fund payment for on date petitioner submitted a form_8857 request for innocent spouse relief requesting equitable relief for and request for relief the only year before the court in this proceeding is petitioner’s tax_year on date respondent received petitioner’s request for relief on date in a final notice_of_determination respondent determined that petitioner was not entitled to relief for pursuant to sec_6015 because she submitted the request for relief more than years after respondent’s first collection activity against her on date petitioner while residing in soldotna alaska filed a letter which the court treated as an imperfect petition for determination of relief from joint_and_several_liability on a joint_return that same day the court ordered petitioner to file on or before date a proper amended petition for determination of relief from joint_and_several_liability on a joint_return on date petitioner filed an amended petition for determination of relief from joint_and_several_liability on a joint_return seeking review of respondent’s determination to deny equitable relief on date respondent filed a motion for summary_judgment on date the court ordered petitioner to file a response to respondent’s motion for summary_judgment on or before date and calendared the motion for summary_judgment for hearing at the court’s anchorage alaska trial session on date petitioner filed a response to respondent’s motion for summary_judgment on date the court filed intervenor’s reply to petitioner’s response to respondent’s motion and intervenor’s response to respondent’s motion for summary_judgment on date petitioner filed a response to intervenor’s reply to petitioner’s response to motion for summary_judgment as of the date of the hearing the outstanding balance on the tax_liability was dollar_figure discussion an election pursuant to sec_6015 c or f must be made within years of the commissioner’s first collection activity taken after date against the taxpayer making the election internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_740 sec_6015 and c b revproc_2000_15 sec_5 2000_1_cb_447 the offset of an overpayment is a collection activity pursuant to sec_6015 121_tc_290 see also sec_1 b i income_tax regs defining an offset of an overpayment against a liability pursuant to sec_6402 as a we note that petitioner does not question the validity of revproc_2000_15 2000_1_cb_447 therefore we need not address the validity of the revenue_procedure collection activity effective for requests for relief from joint_and_several_liability filed on or after date pursuant to sec_6402 respondent applied petitioner’s overpayment against her tax_liability accordingly respondent engaged in a collection activity against petitioner respondent’s first collection activity after date occurred on date petitioner submitted her request for relief on date accordingly petitioner made her request for relief more than years after respondent’s first collection activity after date therefore petitioner’s request for relief was untimely and she is not entitled to relief pursuant to sec_6015 see campbell v commissioner supra pincite petitioner claims that it is unfair to deny her relief because she thought her divorce decree relieved her of the tax_liability while we sympathize with petitioner her request for relief was untimely to reflect the foregoing an appropriate order and decision will be entered


department of the treasury internal_revenue_service washington d c date number release date office symbols cc dom fs p si case number uilc tl-n-7490-99 memorandum for northern california district_counsel cc w r nca sf attn laurel robinson from deborah a butler assistant chief_counsel field service subject sec_43 eor credit internal_revenue_service national_office field_service_advice this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend x year year year issue s w hether sufficient facts have been provided to our office to determine whether costs associated with preparing and using steam and co2 as tertiary injectants are deductible under any provision of the code other than sec_193 for purposes of sec_43 conclusion that issue together with the issue of whether any other provision permits the credit requires further factual refinement before any definitive conclusions can be reached facts x corporation hereinafter x claimed tax_credits for various costs incurred in connection with enhanced oil recovery hereinafter eor projects under internal_revenue_code hereinafter i r c sec_43 for the taxable_year sec_1 through and for subsequent audit cycles the credit claimed equaled percent of x’s reported qualified eor costs x included tertiary_injectant_expenses related to eor projects in computing the credit these expenses were incurred by x’s conventional steam plants and co-generation plants in connection with the use of steam-drive and or cyclic-steam injection in the eor projects other expenses at issue are related to the purchase and injection of co2 in eor projects x uses both cyclic steam and steam flood methods steam is generated in the field by both dedicated steam generation plants and by cogeneration plants x uses water obtained during oil production formation water the steam plants that convert the water to steam burn purchased natural_gas the monthly operating costs of generating the steam including fuel labor plant maintenance water recycling and utilities are allocated pro_rata to the volume of steam measured in equivalent barrels of water steam costs form the basis for x’s reported eor credit calculations for tax_year sec_1 to x uses carbon dioxide injection in other fields x purchases the carbon dioxide from a third party purchased carbon dioxide cost as well as the cost of recycling previously injected co2 are allocated pro_rata to the quantity of gas injected into each project well during the course of the year these injected gas costs also form the basis for x’s reported eor credit x does not include the costs associated with injecting water into each well after each dioxide injection cycle in the eor credit computations finally x uses water flooding in many of its fields in one field the water flood project involved the completion of over water injection wells through year that coupled with extensive reservoir fracturing was expected to increase production x treats all costs associated with operating the water flooding injection wells including separation and recycling of produced water as currently deductible for tax purposes and partly capital expenditures and partly current expenses for book purposes the service doubts that certain costs relating to the generation of steam the injection and recycling of co2 and the injection and recycling of water including the costs of fuel labor plant maintenance water recycling and utilities constitute sec_193 qualified_tertiary_injectant_expenses the service has tentatively concluded that all of these costs are properly deductible under sections of the code other than sec_193 for purposes of sec_43 and that no other provision of sec_43 permits these expenditures to be treated as qualified enhanced recovery costs law and analysis sec_38 allows a business_credit against income_tax sec_38 and sec_43 extend the credit to qualified_enhanced_oil_recovery_costs hereafter the eor credit qualified eor costs include amounts paid_or_incurred for property which is an integral part of a qualified_enhanced_oil_recovery_project and which may be depreciated or amortized intangible_drilling_and_development_costs paid_or_incurred in connection with a qualified_enhanced_oil_recovery_project and for which an election may be made under sec_263 and qualified_tertiary_injectant_expenses incurred in connection with a qualified_enhanced_oil_recovery_project for which a deduction is allowed under sec_193 sec_43 revrul_70_354 1970_2_cb_50 provides that the cost of recoverable gas utilized for pressure maintenance and in a miscible displacement process is a capital_expenditure similarly revrul_73_377 1973_2_cb_84 provides that the cost of the unrecoverable portion of such gas also is capitalizable and recoverable as a depreciable asset w hether the rationale of these rulings is applicable to self created non-hydrocarbon tertiary injectants would affect the eligibility of such costs for sec_43 treatment under sec_43 this determination has not been definitively made by our office if it is determined however by analogy that the rulings are applicable to the costs at issue a determination would be required as to what portion of the injectants are recovered and what portion of the injectants are unrecovered as well as the respective costs of each portion in addition whether all or part of the expenditures at issue are eligible for sec_43 treatment under either the second or third categories listed in the statute similarly is primarily a factual issue furthermore whether the expenditures may be necessary business_expenses deductible under sec_162 is also a factual question resolving these factual issues will require application of the facts to the legal principles that govern accordingly we address the legal predicate for each contending theory so that the underlying facts can establish the appropriate legal theory to be followed as stated above a credit is available for intangible developments costs paid_or_incurred in connection with a qualified_enhanced_oil_recovery_project and for which an election may be made under sec_263 although sec_263 generally requires that costs for permanent improvements or betterments eg development costs must be capitalized sec_263 allows a taxpayer to elect to deduct currently intangible_drilling_and_development_costs incurred for oil gas and geothermic wells sec_1_263_c_-1 incorporates sec_1_612-4 for the purposes of this election sec_1_612-4 provides that intangible_drilling_and_development_costs incurred by an operator in the development of oil_and_gas_properties at the option of the operator may be chargeable to capital or to expense this option applies to all expenditures made by an operator for wages fuel repairs hauling supplies etc incident to and necessary for the drilling of wells and the preparation of wells for the production of oil or gas significant questions have arisen in the past as to when development ends for instance drilling of injection wells in some circumstances has been determined to be a development activity 41_bta_952 injection wells idc nonacq on other grounds 1940_2_cb_13 on the other hand the tax_court indicated in 39_tc_482 aff’d 339_f2d_706 th cir that a water flooding program is largely a production activity and cannot be capitalized this is because ordinary efforts to increase the rate of production of hydrocarbons are treated as normal expenses of the current business cycle deductible under sec_162 thus a preliminary question in this case is whether any portion of the expenditures in issue constitute intangible_drilling_and_development_costs that would be subject_to the election under sec_263 this would be the case if the costs do not merely assist in the production of existing recoverable petroleum but in addition significantly increase the amount of recoverable reserves w hether the expenses are subject_to the sec_263 option cannot be determined on the basis of the limited facts provided our office and thus factual refinement is required for a definitive resolution of the ultimate issues respecting the appropriateness of the taxpayer’s utilization of the sec_43 credit in that regard the following question must be answered whether such expenses were paid_or_incurred in connection with a qualified_enhanced_oil_recovery_project to qualify as such a project the project must involve the application in accordance with sound engineering principles of one or more tertiary recovery methods as defined by sec_193 which can reasonably be expected to result in more than an insignificant amount of crude_oil which will ultimately be recovered sec_43 if the tertiary methods at issue here result in significant increases in ultimate recoverable reserves they would arguably constitute idc and be eligible for the sec_43 credit resolution of these factual questions also determines whether the expenditures may be deducted under sec_193 sec_193 allows a deduction for qualified_tertiary_injectant_expenses sec_1_193-1 provides that the deduction is allowed the later of the taxable_year the injectant is injected or the taxable_year the expenses are paid_or_incurred sec_193 defines the term qualified_tertiary_injectant_expenses to mean any cost paid_or_incurred whether or not chargeable to capital_account for any tertiary_injectant other than a recoverable hydrocarbon which is used as part of a tertiary_recovery_method additionally sec_193 defines the term tertiary_recovery_method to include any method which is described in subparagraphs through of sec_212 c of the date energy regulations as defined by section b c as in effect before its repeal w e note that steam injectants and carbon dioxide injectants are described in subparagraphs and of sec_212 most significantly sec_193 provides that no deduction shall be allowed under sec_193 with respect to any expenditure with respect to which the taxpayer has made an election under sec_263 or with respect to which a deduction is allowed_or_allowable under any other provision of chapter of the code thus if the expenses in issue are deductible as intangible_drilling_and_development_costs under sec_263 no deduction is allowable under sec_193 however the expense may qualify under sec_43 in this circumstance even though the expense would fail to qualify for a credit under sec_43 similarly it must be established whether the cogeneration plant product and the co2 are held as inventory for the current business cycle recycled and reused and or disposed of during the current business cycle resolution of those factual questions may allow this office to opine whether the co2 and cyclic steam are separate assets produced by x whose costs of creation are subject_to capitalization in the event those costs are treated as capital expenditures they may in turn be treated as sec_193 expenses even though subject_to capitalization case development hazards and other considerations if the expenses in issue are subject_to capitalization under sec_263 and or 263a they might then be deducted under sec_193 since that provision allows capitalized expenses to be deducted this would at first blush apparently entitle taxpayer to the sec_43 credit for sec_193 expenses however sec_263a may require some of the expenses to be capitalized to inventory since some of the costs arguably are capitalized to inventory they would undoubtedly be treated as cost_of_goods_sold and reduce gross_receipts arguably such costs are in the nature of deductions in the ordinary business cycle for purposes of sec_193 expenses which may be deducted in the same taxable_year as the injection under a code provision other than sec_193 do not qualify as sec_193 expenses subject_to the sec_43 credit see sec_193 and sec_43 taxpayer’s likely response would be that cost_of_goods_sold is not a deduction within the meaning of sec_162 but is an amount subtracted from gross_receipts in the determination of the taxpayer’s gross_income 69_tc_477 aff’d 630_f2d_670 th cir 106_tc_268 see also sec_1_61-3 which defines income for mining business purposes as total sales less cost_of_goods_sold including actual inventory costs taxpayer may rely on sec_193 for the proposition which states that an expense is a qualified_tertiary_injectant_expense deductible under sec_193 whether or not any cost is chargeable to a capital_account sec_193 this would tend to support its argument that the phrase deduction under any other provision was not intended to refer to reductions for cost_of_goods_sold in addition the legislative_history for sec_193 supports a broad reading of the statute explaining that expenditures_for tertiary injectants generally are deductible under sec_193 in the year to which the tertiary substance is injected into the reservoir senate report 1980_3_cb_216 states that s uch tertiary injectants generally would include those used in a qualified tertiary enhanced recovery project as defined under the windfall profit tax and which the taxpayer establishes are tertiary injectants the only limitation appearing in the senate report is that tertiary injectants may not include hydrocarbon injectants the conference agreement followed the senate amendment and stated this treatment is not elective h_r no 1980_3_cb_312 thus the legislative_history would tend to support treating a capitalized cost as a sec_193 expense additionally if the facts establish that the costs are deductible under sec_263 the service may never even be required to reach the capitalization issue both sec_263 and sec_263a explicitly except idc from capitalization and sec_43 in turn treats intangible_drilling_and_development_costs incurred in connection with a qualified_enhanced_oil_recovery_project as subject_to the sec_43 credit see also sec_1_263a-1 and sec_1_263a-13 thus if a definitive resolution of the issue is required however we believe the facts should be thoroughly documented agreement as to such facts should be obtained from the taxpayer and a request for technical_advice from our office should be made your office may wish to assist examination in preparing such technical_advice request by providing them with a thorough understanding of the factual patterns which would support one or more of the possible legal approaches outlined in this memorandum if you have any further questions please call patrick putzi by special counsel natural_resources passthroughs special industries branch field service division