t c memo united_states tax_court albert arias agudelo petitioner and cecilia arias intervenor v commissioner of internal revenue respondent docket no filed date before p filed for unemployment benefits with the california employment development department which issued p biweekly checks during and reported to the commissioner total payments to p of dollar_figure and federal_income_tax withheld of dollar_figure p filed a joint federal_income_tax return with his then wife ca for the tax_year p and ca did not report any income from unemployment benefits on that return r mailed p and ca a notice_of_deficiency in which r determined a dollar_figure tax_deficiency arising from the unreported unemployment_compensation income p seeks relief from joint_and_several_liability under sec_6015 held p is not entitled to relief from joint_and_several_liability under sec_6015 c or f albert arias agudelo pro_se cecilia arias pro_se cory h ellenson for respondent memorandum findings_of_fact and opinion wherry judge on date respondent mailed a notice_of_deficiency for the tax_year to albert arias agudelo and cecilia arias who had timely filed a joint federal_income_tax return for that year in the notice respondent determined unreported unemployment_compensation income of dollar_figure and a resulting federal_income_tax deficiency of dollar_figure mr agudelo filed a timely petition for redetermination of the deficiency on date and on date an amendment to petition in which he requested innocent spouse relief under sec_6015 ms arias filed a notice of intervention on date it is undisputed that checks for unemployment_compensation were issued to mr agudelo during and that he and ms arias did not report this income on unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended and in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure we round all amounts to the nearest dollar their joint_return we must decide whether mr agudelo and or ms arias received the checks and if so whether mr agudelo is entitled to relief from joint_and_several_liability under sec_6015 findings_of_fact some of the facts have been stipulated and are so found both mr agudelo and ms arias lived in california when mr agudelo filed his petition ms arias still lived in california when she filed her notice of intervention mr agudelo and ms arias’ tax reporting mr agudelo and ms arias separated in date and as of the time of trial were in the process of divorcing during however they were married and they timely filed a joint federal_income_tax return for that year on their form_1040 u s individual_income_tax_return mr agudelo and ms arias reported income of dollar_figure from mr agudelo’s messenger business and dollar_figure from ms arias’ sales business on schedules c-ez net profit from business they did not report income from any other source their paid tax_return_preparer ruben omar guma insurance agency computed total_tax of dollar_figure attributable entirely to self-employment_tax and total payments of dollar_figure at the beginning of the trial the parties submitted and the court filed a first stipulation of facts signed by respondent’s counsel mr agudelo and ms arias together with exhibits comprising an dollar_figure making_work_pay_credit a dollar_figure earned_income_credit and a dollar_figure additional_child_tax_credit they claimed an overpayment of dollar_figure and requested a refund of the full amount both mr agudelo and ms arias signed their return mr agudelo’s unemployment_compensation before mr agudelo applied for unemployment_compensation with the california employment development department edd during edd issued checks to mr agudelo biweekly edd reported to respondent that it had paid dollar_figure to mr agudelo during at trial mr agudelo denied ever receiving or signing the checks explaining that he did not have access to mail at the address where he and ms arias lived during ms arias contends and the court concludes that she and mr agudelo both had keys to the mailbox indeed mr agudelo and ms arias each under oath offered dramatically different accounts of their marriage and--as is relevant to our analysis here--of the edd checks’ fate mr agudelo claimed that mr agudelo testified that ms arias had dominated him financially physically and emotionally abused him and their children and threatened him with a knife to support these allegations mr agudelo introduced police reports from and a restraining order entered against ms arias on date for the protection of mr agudelo and their children documents relating to a dispute between mr agudelo and ms arias with respect to real_estate in continued he did not recall signing the edd checks that the signature on the back of the checks could not be his and that ms arias had taken the checks and used the money to pay for plastic surgery and a vehicle and to make a loan ms arias insisted that she never opened mr agudelo’s mail because he was very aggressive and that she had never seen the checks or even been aware that her then husband had filed for unemployment benefits continued colombia and various reports and other letters allegedly documenting ms arias’ abuse of their children and the children’s resulting psychiatric care ms arias testified that mr agudelo had brought her to the united_states from colombia had used false identity documents to bring people into the country had required her to use a different name while in the united_states and had taken her identity documents possibly to use in smuggling people across the border to support her side of the story ms arias introduced inter alia a letter from a hearing officer at the office of the los angeles city attorney advising that a criminal complaint against ms arias had been dropped after a hearing on date and a declaration signed by mr agudelo and filed with the california superior court stating that he did not give ms arias notice of the hearing at which he obtained the restraining order during the trial mr agudelo and ms arias also vehemently disputed the status of their child custody battle and ms arias’ legal name many of the documents mr agudelo and ms arias offered lack indicia of authenticity and embody little more than each party’s own assertions committed to writing moreover for the most part the documents themselves and the events recounted therein date from long before the tax_year at issue or from the year in which mr agudelo and ms arias separated these exhibits have little probative value with respect to events that occurred during and before date when mr agudelo and ms arias filed their tax_return we are not a court of domestic relations and make no factual findings concerning these allegations procedural history respondent mailed mr agudelo and ms arias the notice_of_deficiency for their tax_year on date respondent sent the notice to the address where mr agudelo lived when he filed his petition timely on date in response to this court’s order on date mr agudelo filed an amendment to petition accompanied by a request to waive the filing fee in the amendment to petition he corrected various procedural and pleading errors and requested innocent spouse relief under sec_6015 after respondent served her with notice of mr agudelo’s request ms arias filed a notice of intervention on date following mr agudelo’s amendment to his petition respondent’s counsel sent a copy of the administrative file to respondent’s centralized cincinnati innocent spouse operations cciso unit mr agudelo submitted a completed form_8857 request for innocent spouse relief to cciso cciso denied mr agudelo’s request under sec_6015 c and f mr agudelo and ms arias both appeared for the date trial they were the only witnesses who testified mr agudelo and ms arias separated in date so it is unclear whether ms arias received a copy of the notice or otherwise learned of it from mr agudelo opinion neither mr agudelo in his petition nor ms arias in her notice of intervention specifically disputed that mr agudelo received unemployment_compensation from edd during or that this compensation was includible in their income for that year because the evidence at trial casts doubt on whether mr agudelo and or ms arias had ever received the checks edd mailed after dispensing with one preliminary matter we will briefly analyze whether the aggregate amount of these checks was includible in their income before proceeding to mr agudelo’s innocent spouse claim i adverse presumption at the close of trial because a bank from which respondent had subpoenaed potentially highly probative records had not yet responded to the subpoenas the court held the record open in a status report filed date respondent’s counsel advised that he had received the records and obtained ms arias’ signature on a supplemental statement of facts but that he had not yet been able to speak with mr agudelo whom he had tried to contact by telephone and via letter respondent’s counsel and ms arias lodged a first supplemental stipulation of facts with exhibits on date the exhibits purport to be internal records of edd and bank records including both statements and copies of canceled checks for bank accounts in mr agudelo’s and or ms arias’ names because mr agudelo did not execute the stipulation neither it nor the attached exhibits are part of the formal evidentiary record mr agudelo neither explained his objections to the stipulation and exhibits nor attempted to introduce other similar evidence of his own to the extent that he disputed some aspect of the exhibits attached to the stipulation true and correct copies of his own bank account statements and of any canceled checks deposited into his accounts were within his possession the rule is well established that the failure of a party to introduce evidence within his possession and which if true would be favorable to him gives rise to the presumption that if produced it would be unfavorable 6_tc_1158 aff’d 162_f2d_513 10th cir that presumption applies squarely to mr agudelo particularly to the extent that he bears the burdens of going forward with the evidence and of proof see id noting that presumption is especially true where the party failing to produce the evidence has the burden_of_proof ii unreported income generally the commissioner’s determination of a taxpayer’s tax_liability is presumed correct and the taxpayer bears the burden of proving the determination improper rule a 290_us_111 because of the difficulty inherent in proving a negative however where the commissioner determines that a taxpayer received unreported income he must offer some substantive evidence showing that the taxpayer received income from the charged activity before he may rely upon the presumption of correctness 596_f2d_358 9th cir rev’g 67_tc_672 if the commissioner provides a minimal factual foundation for his determination the burden_of_proof shifts to the taxpayer 116_f3d_1309 9th cir accord 92_tc_661 at this second stage the taxpayer must endeavor to rebut the presumption of correctness by establishing by a preponderance_of_the_evidence that the deficiency determination is arbitrary or erroneous 774_f2d_932 9th cir this court follow s a court_of_appeals decision which is squarely in point where appeal from our decision lies to that court_of_appeals and to that court alone 54_tc_742 aff’d 445_f2d_985 10th cir when he filed his petition and when she filed her notice of intervention mr agudelo and ms arias lived in california a state within the jurisdiction of the court_of_appeals for the ninth circuit so we will follow decisions of that court see sec_7482 unemployment_compensation is generally includible in gross_income see sec_85 sec_1_85-1 income_tax regs respondent introduced evidence showing that edd reported having paid mr agudelo total unemployment_compensation of dollar_figure this evidence established the minimal factual foundation required of respondent at the threshold stage and suffices to shift the burden_of_proof to mr agudelo at trial mr agudelo insisted that he did not recall signing the checks and that ms arias had taken the money if he never in fact received the funds edd sent then these funds might not constitute income to him see 348_us_426 explaining that a taxpayer generally must have complete dominion over an accession to wealth for that sec_6201 provides that if a taxpayer asserts a reasonable dispute with respect to any item_of_income reported on an information_return filed with the secretary by a third party and the taxpayer has fully cooperated with the secretary the secretary shall have the burden of producing reasonable and probative information concerning such deficiency in addition to such information_return the key term in the foregoing sentence is reasonable for the reasons explained in the text assuming arguendo that mr agudelo’s assertions may be construed as disputing the information reported by edd the dispute so raised is not a reasonable one see eg parker v commissioner tcmemo_2012_66 103_tcm_1321 finding sec_6201 inapplicable where the taxpayer offered vague evasive and noncredible testimony to the effect that he was uncertain or could not remember whether he had received the amounts reported on most of the information returns and suggested without any corroborating evidence that the unemployment_compensation he received had been ‘refunded’ accession to clearly constitute gross_income to the taxpayer but mr agudelo’s testimony on this point was not credible and did not in the absence of corroborating evidence persuade the court that he never received some or all of the edd checks the tax_court is not free to ignore uncontroverted testimony but need not necessarily accept the uncontroverted testimony of the taxpayer where such testimony is almost wholly conclusory 431_f2d_1222 9th cir aff’g tcmemo_1968_257 in unreported income cases such as this one we and the court_of_appeals for the ninth circuit have generally found against the taxpayer when the evidence offered consists principally of the taxpayer’s own testimony and that testimony is either vague and implausible or uncorroborated by other evidence see eg 743_f2d_670 9th cir aff’g tcmemo_1982_666 440_f2d_688 9th cir aff’g tcmemo_1969_159 94_tc_654 mr agudelo’s testimony was vague implausible and uncorroborated we conclude that he received dollar_figure of unemployment_compensation income in the tax_year and that he and ms arias should have reported that income on their return we now to turn to his innocent spouse claim iii innocent spouse relief as a general_rule married taxpayers who elect to file a joint federal_income_tax return are jointly and severally liable for the entire tax due for that year sec_6013 d 132_tc_203 nevertheless a spouse who has filed a joint_return may seek relief from joint_and_several_liability under the procedures of sec_6015 sec_6015 sec_6015 provides a taxpayer spouse with three possible alternatives relief from joint_and_several_liability under subsection b liability allocation under subsection c and if the taxpayer spouse does not qualify for relief under subsection b or c equitable relief under subsection f the secretary has discretion to grant equitable relief to a spouse who filed a joint_return with an unpaid tax_liability or a deficiency sec_6015 sec_1_6015-4 income_tax regs except as otherwise provided in sec_6015 the taxpayer bears the burden of proving that he or she is entitled to sec_6015 relief rule a 119_tc_306 aff’d 101_fedappx_34 6th cir both the scope and standard of our review in sec_6015 cases are de novo porter v commissioner t c pincite mr agudelo made only a generalized request for sec_6015 relief without specifically citing subsections b c and or f of that statute so we will as respondent’s cciso did evaluate his entitlement to relief under each alternative a relief under sec_6015 sec_6015 requires a taxpayer seeking relief from joint_and_several_liability to satisfy five conditions a joint_return was filed for the taxable_year there is an understatement_of_tax attributable to erroneous items of the taxpayer’s spouse the taxpayer establishes that in signing the return he or she did not know and had no reason to know that there was an understatement taking into account all facts and circumstances it would be inequitable to hold the taxpayer liable for that year’s deficiency in tax attributable to such understatement and the taxpayer timely elects relief under sec_6015 because these conditions are stated in the conjunctive the taxpayer must satisfy all five in order to qualify for relief see alt v commissioner t c pincite mr agudelo did file a joint_return for but on the existing record he plainly cannot satisfy at least two of the other conditions first a taxpayer requesting innocent spouse relief under sec_6015 must show that the understatement_of_tax is attributable to erroneous items of the nonrequesting spouse an erroneous item is any item resulting in an understatement or deficiency in tax to the extent that such item is omitted from or improperly reported including improperly characterized on an individual_income_tax_return sec_1_6015-1 income_tax regs generally an erroneous item is attributed to the individual whose activities gave rise to the item id para f see also sec_1_6015-3 income_tax regs erroneous items of income are allocated to the spouse who was the source of the income the erroneous item here was unreported unemployment_compensation income generally unemployment_compensation income is attributable to the individual to whom the compensation is payable see eg work v commissioner tcmemo_2014_190 at in this case that individual would be mr agudelo his application to edd for unemployment benefits gave rise to the income mr agudelo as the applicant was the beneficiary of its payments accordingly we conclude that the erroneous item was attributable to mr agudelo not ms arias so he cannot satisfy sec_6015 second sec_6015 requires the taxpayer spouse to establish that in signing the return he or she did not know and had no reason to know that there was an understatement a taxpayer who signs a return is generally charged with constructive knowledge of its contents porter v commissioner t c pincite if a taxpayer is aware of the circumstances that gave rise to the error--even if he or she is unaware of the tax consequences--then the taxpayer has reason to know of it see id pincite see also sec_1_6015-2 income_tax regs a requesting spouse has knowledge or reason to know of an understatement if he or she actually knew of the understatement or if a reasonable person in similar circumstances would have known of the understatement mr agudelo signed the joint federal_income_tax return from which his unemployment_compensation income was omitted edd issued unemployment_compensation checks to him after he affirmatively applied for unemployment benefits under the circumstances we think mr agudelo had at the very least reason to know that he had received unemployment_compensation income and that this income did not appear on his tax_return accordingly he cannot meet the third requirement of sec_6015 we need not decide whether equity considerations favor mr agudelo nor whether his request for relief was timely because he does not meet the requirements of subsection b b and c he does not qualify for relief under sec_6015 b allocation of liability under sec_6015 under sec_6015 a divorced or separated spouse may elect to limit liability for a deficiency on a joint_return to the portion of the deficiency that is allocable to him or her under subsection d the election may be filed at any time after the deficiency is asserted but not later than two years after the secretary has begun collection activities sec_6015 the electing individual must no longer be married to or must be legally_separated from the individual with whom the joint_return was filed or must not have been a member of the same household with the individual with whom the joint_return was filed during the 12-month_period before the election was filed id subpara a i subject_to certain limitations any item giving rise to a deficiency on a joint_return is generally allocated between the individuals filing the return in the same manner as it would have been if the individuals had filed separate returns sec_6015 erroneous items of income are allocated to the spouse who was the source of the income sec_1_6015-3 income_tax regs see also sec_6015 provides for two exceptions to the general allocation rule an item otherwise allocable to the requesting spouse will be allocated to the nonrequesting spouse if the item gave rise to a tax_benefit on the joint_return to the nonrequesting spouse or the secretary establishes that such allocation is appropriate due to fraud of one or both individuals sec_6015 and c first mr agudelo has not shown that the omission of his unemployment_compensation from the joint_return gave rise to a tax_benefit to ms arias omission of that income did lead the couple to claim a refund larger than that to which they were in fact entitled but ms arias disclaimed any knowledge of the account number provided for direct deposit on the joint_return there is no evidence that she benefited from any refund second the secretary has not alleged much less established fraud by mr agudelo or ms arias work v commissioner at allocating unemployment_compensation income to the individual to whom the compensation income was payable mr agudelo who applied for unemployment benefits from edd and who was the beneficiary of its payments was the source of the erroneous income item here we need not determine whether mr agudelo would otherwise qualify for allocation of the deficiency under sec_6015 because even if he so qualified the entire deficiency would be allocated to him c relief under sec_6015 sec_6015 provides an alternative avenue for relief where relief is unavailable under both subsections b and c if taking into account all the facts and circumstances it would be inequitable to hold the requesting spouse liable for the unpaid tax or deficiency or any part thereof see sec_1_6015-4 income_tax regs sec_6015 authorizes the secretary under certain circumstances to grant relief u nder procedures prescribed by the secretary for requests filed on or after date and for requests pending in any federal court on or after date revproc_2013_34 2013_43_irb_397 lists the various factors the commissioner will consider in determining eligibility for relief under sec_6015 because mr agudelo’s petition was pending on date although we are not bound by them we will analyze his request under the reasonable guidelines in revproc_2013_34 supra to assist in ascertaining whether he satisfies the requirements for relief under sec_6015 see eg 136_tc_432 analyzing taxpayer’s entitlement to sec_6015 relief under revproc_2003_ 2003_2_cb_296 the predecessor revenue_procedure to revproc_2013_34 supra hall v commissioner tcmemo_2014_171 at analyzing taxpayer’s entitlement to sec_6015 relief under revproc_2013_34 supra revproc_2013_34 sec_4 i r b pincite lists seven threshold conditions that a requesting spouse must satisfy to be eligible for relief the seven conditions are stated in the conjunctive a requesting spouse must satisfy all seven conditions before relief may be granted id the first six of these conditions are the requesting spouse filed a joint_return for the year for which relief is sought relief is not available to the requesting spouse under sec_6015 or c the claim for relief is timely filed no assets were transferred between the spouses as part of a fraudulent scheme the nonrequesting spouse did not transfer disqualified assets to the requesting spouse and the requesting spouse did not knowingly participate in the filing of a fraudulent joint_return id sec_4 - on the record before us it appears that mr agudelo satisfies these six conditions the seventh condition however presents an obstacle generally the income_tax_liability from which the requesting spouse seeks relief must be attributable either in full or in part to an item of the nonrequesting spouse or an underpayment resulting from the nonrequesting spouse’s income see id sec_4 if the liability is partially attributable to the requesting spouse relief may be considered for that portion of the liability attributable to the nonrequesting spouse id as explained supra the entire liability at issue here is attributable to mr agudelo not ms arias nevertheless the commissioner may still consider granting relief regardless of whether the understatement or deficiency is attributable to the requesting spouse if any of the following exceptions applies attribution solely due to operation of community_property law nominal ownership misappropriation of funds abuse or fraud committed by the nonrequesting spouse id mr agudelo’s evidence implicates the last three exceptions we consider the misappropriation and fraud exceptions together the misappropriation of funds exception applies i f the requesting spouse did not know and had no reason to know that funds intended for the payment of tax were misappropriated by the nonrequesting spouse for the nonrequesting spouse’s benefit to the extent that the funds intended for the payment of tax were taken by the nonrequesting spouse id sec_4 c the fraud exception applies if the requesting spouse establishes that the non-requesting spouse’s fraud is the reason for the erroneous item id sec_4 e i r b pincite a requesting spouse might properly invoke this exception where for example the nonrequesting spouse fraudulently accesses the requesting spouse’s brokerage account to sell stock that the requesting spouse inherited then deposits the sale proceeds into a separate bank account to which the requesting spouse lacks access and the couple fails to report the sale on their joint_return for that year see id mr agudelo asserted that ms arias had taken his unemployment_compensation checks and used them to pay for plastic surgery and a vehicle and to make a loan he presented no credible corroborative evidence and his assertion mr agudelo introduced a photocopied advertisement for a cosmetic_surgery center apparently published in a spanish-language magazine on date and a handwritten note listing prices for two cosmetic procedures to which he had added the notation around of sic year a note written by mr agudelo in which he states that in ms arias purchased a ford escape for dollar_figure and that the vehicle is paid off and a spanish-language document memorializing a dollar_figure loan from ms arias to jose israel flores that was notarized on date he also alleged that ms arias had purchased dollar_figure worth of jewels this evidence does not corroborate mr agudelo’s allegation of misappropriation he created the note regarding the ford continued in isolation is unpersuasive see eg 112_tc_183 as we have stated many times before this court is not bound to accept a taxpayer’s self-serving unverified and undocumented testimony with respect to the misappropriation exception mr agudelo offered no testimony or other evidence that he intended to use his unemployment_compensation to satisfy his tax_liability with respect to the fraud exception the only evidence of fraud in the record is his self-serving testimony accordingly he has not shown that either the misappropriation exception or the fraud exception applies to this case the abuse exception applies if the requesting spouse establishes that he was the victim of abuse prior to the time the return was filed and that as a result of prior abuse the requesting spouse was not able to challenge the treatment of any items on the return for fear of the nonrequesting spouse’s retaliation revproc_2013_34 sec_4 d mr agudelo asserted that ms arias continued escape and the handwritten note regarding cosmetic_surgery which he submitted for inclusion in the stipulated exhibits is of unknown origin the cosmetic_surgery advertisement by itself tends to show only that such surgery was available in the marketplace in late and all three exhibits relate to expenditures that allegedly occurred in or earlier ms arias could not have used funds from checks issued by edd during to pay at the time of the event for personal expenses in there is no evidence in the record that funds were used in to pay off debts arising from the alleged items in emotionally and physically abused him and their children controlled and excluded him from their household finances and generally took advantage of his age and naivete this court does not treat such serious allegations lightly but neither will we accept a taxpayer’s uncorroborated or nonspecific abuse claims at face value see eg pullins v commissioner t c pincite johnson v commissioner tcmemo_2014_240 at mr agudelo did attempt to corroborate his assertions with documentary_evidence but we can give that evidence little weight he proved for example that he had obtained a restraining order against ms arias in los angeles superior court but she proved that he did so at a hearing that she did not attend and in which she had no opportunity to participate because he did not give her notice on cross-examination by ms arias who had argued during her opening statement that mr agudelo was a paralegal who used his knowledge of the legal system to harass and falsely accuse her mr agudelo acknowledged having handled very few cases in los angeles superior court in or when his brain still had some oxygen he showed that ms arias was arrested for spousal abuse in date and that in date he filed a police report claiming further abuse had occurred in date after he and ms arias had filed their income_tax return these two alleged incidents years apart do not establish a pattern and ms arias’ arrest while prior to the date on which the return was filed is too remote from the filing_date for us to infer an abusive relationship in the absence of testimony or other evidence linking the two events moreover a letter written by a hearing officer for the los angeles city attorney and introduced by ms arias indicates that in date the city declined to pursue at least one of mr agudelo’s abuse allegations because mr agudelo threatened ms arias at the hearing and because the hearing officer found credible her allegations of harassment by mr agudelo the court also observed the physical conditions and mr agudelo also introduced inter alia a typewritten page that appears to have been taken from a california children and family services division file or at least designed to so appear the page which consists of several paragraphs in different fonts and typefaces recounts allegations of child abuse and neglect made against both mr agudelo and ms arias by unnamed referral sources on various occasions from to it provides no insight as to whether ms arias abused mr agudelo before they filed their income_tax return or whether mr agudelo refrained from insisting that his unemployment_compensation be reported on that return because he feared retaliation by ms arias although revproc_2013_34 sec_4 c iv 2013_43_irb_399 notes that d epending on the facts and circumstances abuse of the requesting spouse’s child may constitute abuse of the requesting spouse for purposes of the revenue_procedure the questionable provenance of mr agudelo’s exhibit and the fact that it recounts allegations of abuse by both spouses convince the court that the facts and circumstances here do not support applications of this provision similarly unhelpful to mr agudelo’s cause are documents apparently reflecting he contacted u s and or columbian authorities to accuse ms arias of lying on her u s visa application smuggling cocaine and using a false identity statures of the two parties at trial unless ms arias were armed with some form of weapon we find it implausible that mr agudelo would physically fear her mr agudelo introduced a spanish-language document that appears to be a record of sale for a parcel of real_property in colombia the document identifies ms arias as the sole purchaser and the purchase_price as big_number colombian pesos or according to mr agudelo around dollar_figure during his testimony he referenced this document in describing ms arias’ alleged assets as compared with his own self-generated list of debts presumably to bolster his allegation that ms arias had controlled their mutual finances when respondent’s counsel drew mr agudelo’s attention to the fact that the document listed mr agudelo as one of the sellers and stated that he was unmarried he explained that he and his brother had inherited the land and claimed that ms arias had manipulated him into transferring the property paying only his brother he alleged that ms arias had told him to present him self as single because it was all part of some imagination thinking into the future that she could sue people like respondent’s counsel in turn while ms arias examined mr agudelo her questions suggested that he told her to put only her name on the sale record so that he would have to give money to his former wife the trial events described in the foregoing paragraphs are representative of the record as a whole mr agudelo and ms arias accused each other of lies abuse perfidy and or harassment the only fact made abundantly clear by the numerous documents they introduced--many of which were either generated by the proponent or of questionable provenance--and by their testimony is that their mutual animosity renders their allegations against one another not credible furthermore mr agudelo did not establish any causal relationship between the alleged abuse and the omission of his unemployment_compensation income from his and ms arias’ joint tax_return see eg deihl v commissioner tcmemo_2012_176 103_tcm_1935 aff’d ___ fed appx ___ 9th cir date gaitan v commissioner tcmemo_2012_3 103_tcm_1010 on the record before us we find that the abuse exception does not apply mr agudelo cannot satisfy the seven threshold conditions of revproc_2013_34 if respondent’s pretrial memorandum ptm accurately recounts the positions mr agudelo and ms arias took when communicating about this case with respondent before trial then mr agudelo changed his story according to the ptm mr agudelo allege d that intervenor retrieved the edd checks from the mailbox demanded that he sign the checks and deposited the money into her personal chase bank account at trial in contrast mr agudelo insisted that he knew nothing about the checks and that any signature on them could not be his supra and on the basis of the entire record the court concludes that it would not be inequitable to hold him liable for the deficiency attributable to his unemployment_compensation income accordingly he does not qualify for relief from joint_and_several_liability under sec_6015 iv conclusion mr agudelo received dollar_figure of unemployment_compensation from edd during and mr agudelo and ms arias should have included that compensation in income on the joint tax_return respondent’s determinations in the notice_of_deficiency are sustained mr agudelo who has the burden_of_proof has not established that he qualifies for relief from joint_and_several_liability under sec_6015 c or f the court has considered all of the parties’ contentions arguments requests and statements to the extent not discussed herein we conclude that they are meritless moot or irrelevant to reflect the foregoing decision will be entered for respondent


office_of_chief_counsel department of the treasury i n t e r n al r e v e n u e s e r v i c e washington d c date number info release date conex-141330-04 cc ita b1 uil the honorable don nickles united_states senator mid-continent tower south boston tulsa ok attention jone williams dear senator nickles i am responding to your inquiry dated date on behalf of your constituent ------- ----------------------------------------------------filed a form_3115 application_for change in accounting_method on date requesting to change its method_of_accounting for advance_payments from annual licenses for the taxable_year ended date under its present method_of_accounting -------------------------includes advance_payments in gross_income in the taxable_year received in its form_3115 ------------------ ------------asked to change to the method of including advance_payments in gross_income in the taxable_year in which earned --------------------------cited revproc_71_21 1971_2_cb_549 and notice_2002_79 2002_1_cb_964 as authority for its proposed method and did not submit a user_fee with its request on date the irs national_office sent a letter to ------------------------- explaining that the taxpayer could not rely on notice_2002_79 as authority to change its method_of_accounting for advance_payments the letter further noted that because the taxpayer could not rely on notice_2002_79 it could not change its accounting_method for advance_payments unless it filed a form_3115 in accordance with the requirements of sec_1_446-1 of the income_tax regulations the regulations and revproc_97_27 1997_1_cb_690 -------------------------asked us to clarify this letter the regulations require taxpayers to file a form_3115 during the taxable_year in which the taxpayer wants to make the change in method_of_accounting sec_1 e i of the regulations taxpayers must also pay a user_fee to request a change in accounting_method section dollar_figure of rev_proc the fee for a form_3115 is dollar_figure unless the particular method change is subject_to the automatic consent method change provisions under an accrual_method of accounting a taxpayer must include advance_payments in gross_income in the taxable_year received this general_rule applies regardless of whether the taxpayer’s advance_payments are for the sale_of_goods the provision of services or the rental of tangible or intangible_property in certain circumstances however the irs allows taxpayers to defer advance_payments for example for taxable years prior to revproc_71_21 permitted taxpayers to defer certain advance_payments for the provision of services revproc_71_21 was not subject_to the automatic consent method change provisions therefore the revenue_procedure required a taxpayer requesting a method change under revproc_71_21 for to file a form_3115 during and pay a user_fee of dollar_figure in we announced in notice_2002_79 that we were proposing to issue a revenue_procedure allowing taxpayers to defer certain advance_payments for goods services and other items the notice included a proposed revenue_procedure and solicited comments from the public on various provisions of the proposal the proposed revenue_procedure however was only a draft that we published to solicit comments it was not a final revenue_procedure the irs national_office letter dated date stated that taxpayers could not rely on the proposed revenue_procedure to request a change in accounting_method we finalized the draft revenue_procedure in revproc_2004_34 2004_22_irb_991 beginning in revproc_2004_34 supersedes revproc_71_21 and permits taxpayers to defer certain advance_payments including advance_payments for the license or lease of certain intellectual_property the license or lease of computer_software and certain subscriptions whether provided in a tangible or intangible format a taxpayer that qualifies to use revproc_2004_34 generally is permitted to include advance_payments in gross_income in accordance with its financial_accounting method as long as the taxpayer includes all the advance_payments in gross_income by the end of the taxable_year succeeding the taxable_year of receipt the automatic consent procedures for method changes generally apply to revproc_2004_34 and therefore taxpayers do not have to pay a user_fee in most circumstances i am providing a copy of revproc_2004_34 for your review in summary no authority existed for taxpayers to make an automatic method change in for advance_payments for annual licenses however revproc_2004_34 now permits taxpayers to make an automatic method change for certain advance_payments beginning with taxable years ending on or after date if ---------------------- ------------ qualifies to defer advance_payments under revproc_2004_34 it may file a form_3115 with its tax_return to make an automatic change in accounting_method see section dollar_figure of rev_proc if --------------------------has already filed its tax_return for it is automatically granted an extension of months from the due_date of its tax_return to obtain the automatic consent provided in revproc_2004_34 see section dollar_figure of rev_proc macro form rev department of the treasury - internal_revenue_service i hope this information is helpful please call me or ------------- identification_number ------------- at --------------------- if you have any questions sincerely robert m brown associate chief_counsel income_tax accounting enclosure macro form rev department of the treasury - internal_revenue_service


t c memo united_states tax_court william a egan petitioner v commissioner of internal revenue respondent docket no filed date peter b tiede for petitioner allison o woodbury for respondent memorandum findings_of_fact and opinion kroupa judge respondent determined a dollar_figure deficiency in petitioner’s federal_income_tax for and that petitioner was liable for a dollar_figure accuracy-related_penalty for substantial_understatement under sec_6662 after concessions we 1all section references are to the internal_revenue_code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated 2petitioner conceded respondent’s disallowance of continued are asked to decide whether petitioner is entitled to deduct dollar_figure as a business_bad_debt in under sec_166 and whether the accuracy-related_penalty under sec_6662 should apply we hold that petitioner is not entitled to deduct dollar_figure as a business_bad_debt and that the accuracy-related_penalty applies findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the accompanying exhibits are incorporated by this reference petitioner resided in anoka minnesota at the time he filed the petition in this case petitioner has owned and operated egan oil a sole_proprietorship for years egan oil is a distributor of exxon mobil petroleum products egan oil purchases petroleum products from exxon mobil and then resells them to customers such as service stations and convenience stores one of egan oil’s customers was brooks foods inc brooks foods a chain of food stores owned by a prominent local businessman named brooks hauser mr hauser encountered business difficulties in and and fell behind on his payments to egan oil for petroleum products brooks foods had purchased petitioner knew mr hauser was attempting to rebuild his business and was seeking to refinance to protect himself from the rapidly increasing balance petitioner decided to allow only a continued petitioner’s net farm loss and respondent’s reduction of petitioner’s home mortgage interest_deduction balance of dollar_figure at any one time this limit was approximately a week’s worth of brooks foods’ purchases of petroleum products from egan oil if brooks foods owed more than dollar_figure egan oil would not deliver any more petroleum products to brooks foods until brooks foods reduced its outstanding balance below dollar_figure brooks foods was approaching its dollar_figure credit limit with egan oil in date to allow brooks foods to continue buying fuel from egan oil mr hauser made two personal notes in date each for dollar_figure in favor of petitioner these notes represented mr hauser’s personal guaranty that the dollar_figure brooks foods owed to petitioner would be paid although there is nothing in the record showing mr hauser ever made any payments on these notes brooks foods did continue purchasing and paying for fuel from egan oil mr hauser also informed petitioner that he made petitioner a beneficiary on the life_insurance_policy insuring mr hauser’s life mr hauser died in with a balance still owing from brooks foods to egan oil after mr hauser’s death petitioner contacted the life_insurance_company insuring mr hauser’s life but learned that despite mr hauser’s representations petitioner was not in fact a beneficiary of the policy insuring mr hauser’s life petitioner began further collection efforts in petitioner first unsuccessfully demanded payment from brooks foods petitioner then filed a lawsuit against brooks foods and peggy ann hauser ms hauser mr hauser’s widow to attempt to recover the debt ms hauser’s attorneys responded by a letter to petitioner in date stating that the suit against ms hauser should be dismissed as she had no active involvement in brooks foods in addition the letter stated that secured creditors or other parties who became shareholders before mr hauser’s death had control_over all the stock of brooks foods petitioner could not recall the outcome of the litigation at the time of trial in this case but he believed it had gone to court and was apparently unsuccessful ms hauser later filed bankruptcy and received a discharge in petitioner reported egan oil’s income and expenses using the accrual_method on a schedule c profit or loss from business for petitioner deducted dollar_figure in as a business_bad_debt attributable to brooks foods petitioner reported taxable_income of dollar_figure and tax of dollar_figure petitioner claimed that brooks foods owed dollar_figure in total to egan oil and that dollar_figure represented by the notes was secured petitioner’s accountant emile rabinowitz mr rabinowitz advised petitioner to deduct dollar_figure but neither petitioner nor mr rabinowitz explained how they computed this amount at the time of trial petitioner no longer had records or business ledgers for through reflecting deliveries to or accounts_receivable from brooks foods mr rabinowitz did not think it necessary for petitioner to keep these records because respondent had already audited petitioner’s gross_receipts for through and those years had been settled federal and state regulations required petitioner to keep books_and_records for his business recording each gallon of the approximately million gallons that egan oil sold each year petitioner had a system to track sales on a 3-day and a monthly basis several different taxing authorities examined petitioner’s records including respondent as well as state sales_tax and excise_tax authorities petitioner’s accountant mr rabinowitz was convicted in of conspiracy to defraud and impede the internal_revenue_service irs and of filing a false income_tax return mr rabinowitz was imprisoned for approximately years for these crimes petitioner was aware of the trial conviction and imprisonment of mr rabinowitz but he was not involved in the crime or the criminal proceedings against mr rabinowitz respondent examined petitioner’s return for and issued petitioner a notice_of_deficiency dated date deficiency_notice disallowing petitioner’s business_bad_debt deduction attributable to brooks foods and determining that the accuracy-related_penalty should be imposed petitioner timely filed a petition for review with this court 3in the deficiency_notice respondent also disallowed petitioner’s net farm loss and reduced petitioner’s home mortgage interest_deduction petitioner has conceded these adjustments therefore the only issues before us are the business_bad_debt deduction and the accuracy-related_penalty opinion we are asked to decide whether petitioner may deduct dollar_figure as a business_bad_debt in respondent argues that petitioner may not deduct dollar_figure as a business_bad_debt because petitioner has not substantiated the amount of the deduction nor established that the debt became worthless in respondent also argues that the accuracy-related_penalty should be imposed petitioner admits that he does not have records supporting the deduction petitioner asserts that respondent is estopped from arguing that petitioner lacks the requisite documentation because respondent audited petitioner’s gross_receipts for and that year has been settled petitioner also argues that he has established that brooks foods owed egan oil more than the dollar_figure claimed and that it is irrelevant when petitioner claimed the deduction because the deduction would have resulted in a net_operating_loss that petitioner could have carried backward or forward under sec_172 sec_172 on this basis petitioner also argues that the accuracy-related_penalty should not be imposed we address each issue in turn we begin with the burden_of_proof i burden_of_proof in general the commissioner’s determinations in the deficiency_notice are presumed correct and the taxpayer bears the burden of proving that the commissioner’s determinations are in error see rule a 290_us_111 under certain circumstances however sec_7491 shifts the burden_of_proof to the commissioner provided the taxpayer complies with substantiation requirements maintains all required records and cooperates with the commissioner’s reasonable requests id we decline to shift the burden_of_proof to respondent petitioner has not substantiated the bad_debt deduction nor maintained the required records sec_7491 and b the burden_of_proof therefore remains with petitioner sec_7491 is effective with respect to court proceedings arising in connection with examinations by the commissioner commencing after date the date of enactment of the internal_revenue_service restructuring and reform act of publaw_105_206 sec a 112_stat_726 5petitioner relies on the footnote to the senate report on sec_7491 to argue that he should still be entitled to shift the burden_of_proof because his records were lost through no fault of his own see s rept pincite ndollar_figure 1998_3_cb_537 petitioner’s reliance is misplaced first petitioner misinterprets the meaning of the footnote the senate was describing the rule that permits reconstruction of records in a situation where records are destroyed by no fault of the taxpayer and stated that these existing rules would continue to apply see id see eg sec_1_274-5t temporary income_tax regs fed reg date the footnote does not suggest that a taxpayer who failed to maintain any records may still shift the burden_of_proof to the commissioner second petitioner has not introduced evidence that he maintained the requisite records if the records generated by his periodic reporting system for each gallon of gas sold were indeed damaged petitioner presumably kept ledgers or journal entries showing accounts_receivable and the outstanding balance no evidence of this type was introduced however further petitioner introduced no evidence of the damage other than a vague allusion in mr rabinowitz’s testimony that the backup records got wet or something moldy and were therefore discarded the paucity of the records introduced leaves us unable to assess whether it was appropriate to discard the backup records ii substantiation we next address whether petitioner is entitled to the dollar_figure business_bad_debt deduction respondent disallowed in the deficiency_notice deductions are a matter of legislative grace and the taxpayer has the burden of proving that he or she is entitled to the claimed deductions rule a 503_us_79 this includes substantiating the amounts claimed as deductions by maintaining the records necessary to establish that he or she is entitled to the deduction sec_6001 65_tc_87 affd per curiam 540_f2d_821 5th cir sec_1_6001-1 e income_tax regs while we may estimate the amount of allowable deductions where there is evidence that deductible expenses were incurred we must have some basis on which an estimate may be made 245_f2d_559 5th cir 39_f2d_540 2d cir 85_tc_731 without such a basis any allowance would amount to unguided largesse williams v united_states supra pincite petitioner failed to introduce evidence to substantiate the amount of the bad_debt deduction while petitioner introduced two notes made by mr hauser the notes are not in the amount of the deduction and petitioner did not explain how the dollar_figure amount was calculated nor how the dollar_figure related to the dollar_figure of notes or the dollar_figure of claimed indebtedness brooks foods owed to petitioner moreover petitioner introduced no business records showing how much brooks foods had purchased from egan oil nor any records of what the outstanding balance was from time to time we are left to speculate as to the amount and are therefore unable to estimate the amount of the deduction under the cohan_rule see cohan v commissioner supra pincite worthington v commissioner tcmemo_1999_113 kim v commissioner tcmemo_1995_598 introducing evidence of a debt is not sufficient to substantiate the deduction of a different amount the amount of the deduction is what must be substantiated see hradesky v commissioner supra petitioner also argues that respondent should be estopped from arguing that petitioner lacked the necessary documentation petitioner relying on a previous audit of petitioner’s gross_receipts for explained that he considered the year closed and therefore destroyed records for we disagree while the gross_receipts audit may have shown the amount sold it in no way establishes how much brooks foods purchased or more importantly how much brooks foods owed petitioner failed to introduce evidence of ledgers or journal entries he presumably kept showing his accounts_receivable and the outstanding balance essential information that would prove the correct amount of the deduction moreover we are skeptical how an astute businessman like petitioner expected to be repaid the amount owed if he lacked the documentation to show how much brooks foods owed if petitioner wished to deduct the bad_debt in petitioner should have taken measures to preserve the requisite records even though the sales to which the alleged debt related were in accordingly we find that petitioner has not introduced evidence to substantiate the deduction and therefore petitioner may not deduct any amount with respect to the bad_debt allegedly owed him by brooks foods iii year of worthlessness we next address petitioner’s argument that it is irrelevant which year petitioner claimed the deduction because it would have created a net_operating_loss that petitioner could have carried forward or backward under sec_172 see sec_172 petitioner’s position is contrary to established law the bad_debt deduction is available only for those debts that become worthless during the taxable_year sec_166 moreover petitioner must prove that the debt had value at the beginning of the year and that it became worthless during that 6petitioner also failed to prove that the debt was bona_fide see sec_166 petitioner did not show that a valid enforceable obligation was created to pay a fixed or determinable sum of money see sec_1_166-1 income_tax regs in addition petitioner did not show whether interest was charged whether egan oil recorded the amount allegedly owed as a debt on its books whether any payments were made on the debt or whether egan oil had any collateral other than the note or the alleged life_insurance_policy we have no proof of these facts other than petitioner’s own testimony that a petroleum purchase transaction took place between brooks foods and egan oil the notes mr hauser made to guarantee payment simply a formal indication that a debt was owed are not sufficient to establish that a bona_fide debt existed see sundby v commissioner tcmemo_2003_204 hotel cont’l inc v commissioner tcmemo_1995_364 affd without published opinion 113_f3d_1241 9th cir year hotel cont’l inc v commissioner tcmemo_1995_364 affd without published opinion 113_f3d_1241 9th cir worthlessness is an objective determination but is generally fixed by identifiable events that form the basis of reasonable grounds for abandoning any hope of recovery am offshore inc v commissioner 97_tc_579 53_tc_491 affd 467_f2d_47 9th cir hotel cont’l inc v commissioner supra debts are wholly worthless when the taxpayer had no reasonable expectation of repayment 77_tc_582 petitioner is not entitled to a bad_debt deduction in because petitioner has failed to show the debt had value at the beginning of in fact the evidence of petitioner’s collection efforts in earlier years tends to show that any value the debt had was lost before for example mr hauser died in mr hauser was the sole or majority shareholder of brooks foods there is evidence that secured creditors or other parties who became shareholders of brooks foods before mr hauser’s death had control_over all the stock shortly after mr hauser died in addition correspondence from the life_insurance_company that insured the life of mr hauser in indicated petitioner was not entitled to any life_insurance_proceeds petitioner filed a lawsuit against brooks foods and ms hauser attempting to recover the debt in which was ultimately fruitless this evidence supports the conclusion that the debt had no value by the beginning of the only evidence linking the debt to is ms hauser’s discharge_in_bankruptcy for that year we find no connection between ms hauser’s bankruptcy and the claimed bad_debt ms hauser was not the debtor and she was not connected to the business moreover petitioner has not shown how ms hauser could otherwise be liable for brooks foods’ debts accordingly we find her bankruptcy discharge is of no consequence to the worthlessness of the debt in fact the letter to petitioner from ms hauser’s attorneys indicated to petitioner that he would not likely collect from ms hauser petitioner did not introduce any evidence of actions petitioner took with respect to the debt from to unfortunately it appears that mr hauser duped petitioner the same as ms hauser’s attorneys stated that mr hauser had duped others we are convinced that any debt of brooks foods to egan oil had no value before petitioner may not therefore deduct the debt owed by brooks foods in because petitioner has not substantiated the amount of the deduction nor shown that it became worthless in iv accuracy-related_penalty we turn now to respondent’s determination in the deficiency_notice that petitioner is liable for the accuracy-related_penalty under sec_6662 respondent has the burden of production under sec_7491 and must come forward with sufficient evidence that it is appropriate to impose the penalty see 116_tc_438 respondent determined that petitioner is liable for the accuracy-related_penalty for a substantial_understatement_of_income_tax under sec_6662 for there is a substantial_understatement_of_income_tax if the amount of the understatement exceeds the greater of either percent of the tax required to be shown on the return or dollar_figure sec_6662 sec_1_6662-4 income_tax regs petitioner reported tax due of dollar_figure while respondent determined the required tax due was dollar_figure and therefore determined a deficiency of dollar_figure petitioner understated his income_tax for in an amount greater than dollar_figure or percent of the tax required to be shown on the return respondent has therefore met his burden of production with respect to petitioner’s substantial_understatement_of_income_tax the accuracy-related_penalty under sec_6662 does not apply to any portion of an underpayment however if it is shown that there was reasonable_cause for the taxpayer’s position and that the taxpayer acted in good_faith with respect to that portion sec_6664 sec_1_6664-4 income_tax regs the determination of whether a taxpayer acted with reasonable_cause and in good_faith depends on the pertinent facts and circumstances including the taxpayer’s efforts to assess his or her proper tax_liability the knowledge and experience of the taxpayer and the reliance on the advice of a professional sec_1_6664-4 income_tax regs when a taxpayer selects a competent tax adviser and supplies him or her with all relevant information it is consistent with ordinary business care and prudence to rely upon the adviser’s professional judgment as to the taxpayer’s tax obligations 469_us_241 to prove reasonable_cause due to reliance on the advice of a tax adviser however the taxpayer must show that the adviser was a competent professional with sufficient expertise to justify reliance 115_tc_43 affd 299_f3d_221 3d cir ellwest stereo theatres v commissioner tcmemo_1995_610 petitioner bears the burden_of_proof with respect to the defenses to the accuracy-related_penalty higbee v commissioner supra petitioner has not proven that either his attorneys or accountants on whom he claims to have relied were competent professionals with sufficient expertise to justify reliance or that he provided them with all relevant information see ellwest stereo theatres v commissioner supra petitioner introduced no evidence of the identity of the attorneys on whom he relied much less their qualifications and expertise in terms of tax matters see id we therefore do not find that petitioner has shown these advisers to be competent professionals with significant expertise so that his reliance on them is justified see neonatology associates p a v commissioner supra ellwest stereo theatres v commissioner supra petitioner does claim to have relied on the advice of mr rabinowitz his accountant who testified at trial we note however that petitioner knew of mr rabinowitz’s trial conviction in and incarceration for conspiracy to defraud and impede the irs and for filing a false tax_return we do not find that under these circumstances any reliance upon mr rabinowitz for tax_advice was justified nor is there proof that mr rabinowitz was supplied with all information relevant to the items on petitioner’s return thus we do not find that petitioner acted with reasonable_cause and in good_faith after considering all of the facts and circumstances we find that petitioner has failed to establish that he had reasonable_cause and acted in good_faith with respect to the understatement accordingly we find that the accuracy-related_penalty applies to petitioner’s underpayment in we therefore find that petitioner may not deduct the dollar_figure as a bad_debt in and that petitioner is liable for the accuracy-related_penalty accordingly we shall sustain respondent’s determinations in the deficiency_notice to reflect the foregoing decision will be entered for respondent


department of the treasury internal_revenue_service washington d c date number release date cc dom fs proc uilc internal_revenue_service national_office field_service_advice memorandum for district_counsel district_counsel south florida cc ser sfl mia from richard g goldman special counsel tax practice procedure field service division cc dom fs proc subject request for chief_counsel_advice ethics-effects of leasing office space upon representation 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 a b c issue sec_1 whether there is a real or potential conflict of interest on the part of a by virtue of a’s association with b whether and when we need to notify b that b may be called as a witness in the case whether there is an ethical problem in giving b_notice that b may be called to testify without providing any further information concerning the substance of that testimony conclusion sec_1 on the facts presented a’s relationship with b would not result in a conflict of interest requiring a’s removal from the court case at some point counsel will have to either serve b a subpoena or seek b’s voluntary presence if b is expected to testify at trial however there is no specific time period for when this must be done there is no ethical problem in giving b_notice that b may be called to testify without providing any further information concerning the substance of that testimony facts a is neither an associate nor a partner in b’s law firm a is not listed on this law firm’s letterhead a is not listed in martindale-hubbell as being part of b’s firm rather martindale-hubbell lists a as having his own firm a is temporarily leasing office space from b so that a shares the same address and phone number as b’s law firm it is our understanding that a will be leaving b’s premises shortly and will no longer be a lessee of b a signed the petition in this court case on behalf of c becoming the attorney of record under the signature block in the petition a listed the name address and phone number of b’s law firm a advised that this was done only as an accommodation for c and that it was always intended that another lawyer completely independent from a and b would handle this case this new lawyer has now made an appearance in the case on behalf of c a is under the impression that this new lawyer is now handling all matters with respect to the case a was not aware that a motion to withdraw was needed for him to be removed of record in the case apparently a now intends to file a motion to withdraw b was actively involved in the examination of this case b may be called as a witness in this case b is not an attorney of record in the court case law and analysis whether a has a conflict of interest under tax_court rule g due to fact that b may be called as a witness turns on the relationship between a and b under the rules of imputed disqualification lawyers associated in a firm with b would be disqualified from representing c in court if b was disqualified for a conflict of interest see model rules of professional conduct a and persons who share office space and occasionally consult with one another are not regarded as constituting a single firm for conflict purposes 896_f2d_900 5th cir cert_denied 498_us_878 see also comment to model rule_of professional conduct dollar_figure lawyers who share office space and occasionally consult or assist each other ordinarily are not regarded as constituting a firm on the facts presented here a’s relationship to b would not result in a conflict of interest requiring a’s removal it should also be noted that a’s withdrawal will render as moot the question raised by the relationship between a and b the issues concerning the timing of notice and the substance of testimony should b be called as a witness do not raise any unique ethical considerations rather these issues are a matter of trial strategy obviously at some point counsel will have to either serve b a subpoena or seek b’s voluntary presence if b is expected to testify at trial however there is no specific time period for when this must be done there is no ethical problem in giving b_notice that b may be called to testify without providing any further information concerning the substance of that testimony however the substance of b’s testimony if counsel intends to call be as a witness will be disclosed in counsel’s trial memorandum to the court case development hazards and other considerations none if you have any further questions please call the branch telephone number


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc intl b01- plr-127238-01 date date ty legend a country b date c date d date e dear this is in response to a letter dated date as supplemented by letters dated date date and date submitted by a’s authorized representative requesting a ruling under sec_877 of the internal_revenue_code code that a’s loss of u s citizenship did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code the information submitted for consideration is substantially as set forth below the ruling contained in this letter is 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 a ruling it is subject_to verification upon examination a was born in country b on date c and is a citizen and tax resident of country b a became a u s citizen at birth by virtue of the fact that a’s mother is a u s citizen a returned to country b permanently in year d a renounced her u s citizenship on date e sec_877 generally provides that a citizen who loses u s citizenship or a u s long term resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be taxed on u s source income as modified by sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former u s citizen will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual’s average income_tax_liability or the individual’s net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a former u s citizen whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary’s determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 under notice_98_34 1998_2_cb_29 modifying notice_97_19 1997_1_cb_394 an eligible former citizen will not be presumed to have a principal purpose of tax_avoidance if that former citizen submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling under sec_877 because she is a citizen and resident of the country in which she was born notice_98_34 requires that certain information be submitted with a request for a ruling that an individual’s expatriation did not have for one of its principal purposes the avoidance of u s taxes a submitted all the information required by notice_98_34 including any additional information requested by the service after review of the submission based solely on the information submitted and the representations made we conclude that a has made a complete and good_faith submission in accordance with sec_877 while this ruling rebuts the presumption of tax_avoidance under sec_877 it is not conclusive as to whether a subsequently may be found to have a principal purpose of tax_avoidance under sec_877 sec_2107 and sec_2501 based on all the facts and circumstances see sec_877 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 addition no opinion is expressed as to a’s u s tax_liability for taxable periods prior to her loss of citizenship or for taxable periods after her loss of citizenship under sections of the code other than sec_877 sec_2107 and sec_2501 a copy of this letter must be attached to a’s u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely _____________________________ w edward williams senior technical reviewer branch office of the associate chief_counsel international cc


tax_exempt_and_government_entities_division department of the treasury internal_revenue_service washington d c uniform issue list dec -4 legend company a company b company c company d company e company f company g firm m firm l date date date dear this is in response to the date letter that was submitted on your behalf by your authorized representative as supplemented by correspondence dated date in which you request an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations p a regulations to file page the notice of election described in sec_3 of revproc_93_40 1993_2_cb_535 to be treated as operating qualified_separate_lines_of_business qslobs under sec_414 of the internal_revenue_code the code and sec_1_414_r_-1 and sec_1_414_r_-4 of the income_tax regulations i t regulations’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested company a is involved in the business of manufacturing hooks and standards for the metal shelving that commercial retail establishments utilize company a sponsors the company a salary deferral and profit sharing plan the non-union plan and the company a union 401_k_plan the union plan both of which are intended to be qualified cash or deferred arrangements under sec_401 of the code both the non-union plan and the union plan have plan years ending december firmm acted as administrator for both of the company a plans during the years through and continues to act as the administrator on date company a created company b as a wholly owned subsidiary between date and date company b acquired company c company d and company e and caused company f a limited_liability_company owned by company b and disregarded for federal_income_tax purposes to purchase the assets of company g company b and its subsidiaries are involved in the manufacture and distribution of lighting fixtures and components for lighting fixtures company a retained firm l to advise it in connection with the acquisition activities of company b company a engaged firm m to provide administrative services to the non-union plan during to and currently during attorneys at firm l reviewed the non-union plan and company b’s acquisition activities and reached a preliminary conclusion that company a and company b could be classified as qslobs under the provisions of sec_414 of the code however firm l did not inform company a of the requirement to file a notice with the internal_revenue_service irs electing qslob status during early firm m provided company a with a questionnaire in order to collect information for the preparation of the form_5500 annual return report of employee_benefit_plan for the non-union plan the questionnaire did not contain any question that would elicit a response indicating that company b and its subsidiaries existed consequently firm m did not include the employees of company b and its subsidiaries when testing company a’s plan compliance and failed to advise company a of the requirement that it file a notice with the irs electing qslob status in firm m revised its questionnaire company a responded to the revised questionnaire in as a result of company a’s responses firm m became aware that nothing had been done to adapt the non-union plan to the new circumstances created by company b’s acquisition activities and notified firm l immediately page thereafter company a and firm l reviewed the plans and verified that company a and company b and its subsidiaries could be classified as two qslobs company a and firm l further determined that the only element preventing the separate lines of business from being qslobs was the failure_to_file notification of the qslob election with irs finally company a and firm l determined that the first qslob testing_period was calendar_year and that the notice of qslob election should have been filed by date thus the statute_of_limitations with respect to the qslob election had it been timely made did not expire until date ie after the request for an extension was submitted to irs your authorized representative has submitted an affidavit from firm l containing a statement that firm l did not advise company a to make a qslob notification filing before the deadline for filing the notice had passed based on the foregoing facts and representations you through your authorized ruling that the irs grant company a an extension of representative have requested a time under sec_301_9100-1 and sec_301_9100-3 of the p a regulations to file with the secretary_of_the_treasury the notice of election to be treated as qslobs as required by sec_414 of the code and revproc_93_40 in general sec_414 of the code provides that for purposes of sections d and b of the code an employer is treated as operating qualified_separate_lines_of_business during any year if the employer operates separate lines of business for bona_fide business reasons and satisfies certain other conditions under the code if the employer is treated as operating qualified_separate_lines_of_business for the year the employer may apply the minimum coverage requirements of sec_410 including the nondiscrimination requirements of sec_401 of the code and the minimum participation requirements of sec_401 of the code separately with respect to employees of each qualified separate_line_of_business sec_414 of the code indicates that one of the requirements for being treated as having qualified_separate_lines_of_business is for the employer to notify the secretary that the line_of_business is being treated as a separate_line_of_business for purposes of sec_129 and sec_410 of the code sec_3 of revproc_93_40 sets forth the exclusive rules for satisfying the notice requirement of sec_414 of the code section dollar_figure of revproc_93_40 provides that notice must be given by filing form 5310-a notice of plan merger or consolidation spinoff or transfer of plan assets or liabilities notice of qualified_separate_lines_of_business section dollar_figure of revproc_93_40 provides that notice fora testing year must be given on or before the notification date for the testing year the notification date for a testing year is the later of october of the year following the testing year or the 15th day of the 10th month after the close of the plan_year of the plan of the employer that begins earliest in the testing year section dollar_figure of revproc_93_40 provides in pertinent part that after the notification date notice cannot be modified page withdrawn or revoked and will be treated as applying to subsequent testing years unless the employer takes timely action to provide a new notice with respect to minimum coverage requirements for members of a controlled_group that undergoes a change in membership sec_410 of the code provides that the minimum coverage requirements are automatically treated as met during the period beginning on the date of change in the members of a controlled_group and ending on the last day of the first plan_year beginning after the date of the change the transition_period if the minimum coverage requirements were met immediately before each the change and the coverage under the plan is not significantly changed during the transition_period other than by reason of the change in members of the group under sec_301_9100-1 of the p a regulations the commissioner of internal revenue may grant a reasonable extension of time to make a regulatory election or certain statutory elections under subtitle a of the code if the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting the relief will not prejudice the interests of the government 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 notice that an employer has elected to be treated as operating qualified_separate_lines_of_business pursuant to sec_414 of the code and sec_3 of revproc_93_40 is a regulatory election the commissioner has authority under sec_31 and to grant an extension of time if a taxpayer fails to file a timely notice of election under sec_3 of revproc_93_40 sec_301_9100-3 provides that the commissioner will grant an extension of time when the taxpayer has acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 of the p a regulations provides that applications for relief that fall within sec_301_9100-3 of the p a regulations will be granted when the taxpayer provides evidence including affidavits described in sec_301_9100-3 to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government sec_301_9100-3 of the p a regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith i if its request for sec_301_9100-1 relief is filed before the failure to make a timely election is discovered by the service ii if the taxpayer inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii if the taxpayer failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied upon the written advice of the service or v the taxpayer reasonably relied on a qualified_tax professional page 20u709069 including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 of the p a regulations provides that ordinarily the interests of the government will be treated as prejudiced and that ordinarily the service will not grant relief when tax years that would have been affected by the election had it been timely made are closed by the statute of lirititations before the taxpayer's receipt of a ruling granting relief under this section the information presented and documentation submitted by company ais consistent with its assertion that the failure_to_file the election to be treated as qualified_separate_lines_of_business on or before the fifteenth day of the tenth month of the year following the testing year ie date was caused by its lack of awareness of the necessity of making an eléction coupled with its reasonable reliance on firm l and firm m who were attorneys tax professionals and plan administrators retained by company a and who failed to advise company a to file the notice of election of qslob status before the deadline for making the election based on the above taxpayer a meets the requirements of sec_301 b of the p a regulations clauses iii and v as a result we conclude that good cause has been shown for the failure to timely make the election provided for in sec_3 of revproc_93_40 and further that the other requirements of sec_301 have been satisfied accordingly company a is granted an extension of months from the date of the issuance of this ruling letter to file notification of the qslob election on form 5310-a with the appropriate irs office no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this ruling does not constitute a determination that a separate_line_of_business may be treated as satisfying the requirement of administrative scrutiny within the meaning of sec_1_414_r_-6 of the i t regulations 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 by others as precedent if you wish to inquire about this ruling please contact id at please address all correspondence to se t ep ra t4 sincerely yours donzell h littlejohn manager employee_plans technical group enclosures page deleted copy of this letter notice of intention to disclose notice