t c memo united_states tax_court harish k and maggy m pariani petitioners v commissioner of internal revenue respondent docket no filed date abhijit modak for petitioners christina d moss and david w johnson for respondent memorandum findings_of_fact and opinion gale judge respondent determined the following deficiencies in petitioners' federal income taxes and the following accuracy-related_penalties year deficiency dollar_figure big_number accuracy-related_penalty sec_6662 dollar_figure big_number unless otherwise noted all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure after a concession by petitioners we must decide the following issues whether during the years in issue petitioner harish k pariani was an employee or an independent_contractor of his wholly owned professional association for federal_income_tax purposes we hold that he was an employee whether petitioners are liable for the accuracy-related_penalties as determined by respondent we hold that they are so liable findings_of_fact some of the facts have been stipulated and are so found we incorporate by this reference the stipulation of facts first supplemental stipulation of facts and attached exhibits at the time of filing the petition petitioners resided in humble texas the professional association petitioner harish k pariani dr pariani is a doctor of medicine in dr pariani organized under the laws of the state of texas a professional association called harish k pariani m d p a the association during the years in issue and during all times relevant to this case dr pariani was the sole shareholder and president of the association performed medical services for the association and had no supervisors further dr pariani exercised supervision over the association's day-to-day affairs and he was the only individual who supervised controlled and directed the business of the association including the making of management decisions also dr pariani had authority to sign corporate checks on behalf of the association other doctors occasionally performed medical services for the association asit modak served as bookkeeper for dr pariani starting in and also for the association from its inception in through the years in issue he also prepared the tax returns of the association and of petitioners personally tax returns on their tax returns the association and petitioners were not consistent with respect to the way in which they reported the compensation paid to dr pariani the association paid dollar_figure to dr pariani and deducted this amount as compensation of officers however petitioners reported dollar_figure as income from a sole_proprietorship ie self-employment_income on its return the association reported that it paid dollar_figure to dr pariani and deducted this amount as compensation of officers in addition the association paid dollar_figure to dr pariani for medical professional services performed by him and deducted this amount under the heading other deductions petitioners reported wages of dollar_figure which included the dollar_figure paid_by the association and dollar_figure of mrs pariani's wages petitioners reported dollar_figure as income from a sole_proprietorship the association paid dollar_figure to persons other than dr pariani for medical professional services and deducted this amount under the heading other deductions information returns for the tax_year no forms w-2 or forms were issued to dr pariani by the association or by any other person for the tax_year the association issued a form_w-2 to dr pariani showing dollar_figure paid as compensation of officers no other forms w-2 and no forms were issued to dr pariani by the association or by any other person for however the association issued forms to other individuals at least one of whom was a doctor for opinion evidentiary matters petitioners did not appear or testify at the trial of this case and called only one witness asit modak who was the the association did not include the payment of dollar_figure in its reportable wages on any form_941 employer's quarterly federal tax_return filed for bookkeeper for petitioners and the association for the years in issue and several years prior at trial respondent made various objections to portions of mr modak's testimony based on lack of personal knowledge relevance and hearsay on which we deferred ruling we hereby overrule those objections and admit the challenged testimony employee or independent_contractor the first issue is whether dr pariani provided services to the association as an employee or as an independent_contractor if dr pariani was an employee of the association several consequences follow first petitioners may not deduct contributions to a keogh_plan see sec_401 sec_404 sec_1402 c jacobs v commissioner tcmemo_1993_570 second petitioners are liable for the 10-percent excise_tax on the nondeductible_contributions sec_4972 see frick v commissioner tcmemo_1989_86 affd without published opinion 916_f2d_715 7th cir finally petitioners are not liable for the tax on self-employment_income and in would not be entitled to the deduction for one-half of self-employment_tax sec_1401 sec_1402 sec_164 this court has described the question of whether a taxpayer is an we conclude that mr modak's longstanding relationship with dr pariani and the association as bookkeeper and tax_return_preparer for both gave him sufficient personal knowledge to testify with respect to the matters challenged by respondent employee or an independent_contractor as a question of fact weber v commissioner 103_tc_378 affd per curiam 60_f3d_1104 4th cir however the court_of_appeals for the fifth circuit to which an appeal in this case would lie has held that the determination of employment status is a question of law 900_f2d_49 5th cir in any event petitioners have the burden_of_proof rule a 290_us_111 the definition of employee found in sec_3121 that applies for purposes of the federal_insurance_contributions_act also applies to the issues involved in this case namely the tax on self-employment_income and the deductibility of contributions to a keogh_plan sec_1402 sec_401 sec_404 sec_3121 provides for purposes of this chapter the term employee means-- any officer of a corporation or any individual who under the usual common_law rules applicable in determining the employer-employee relationship has the status of an employee respondent argues that dr pariani was an employee both under sec_3121 because he was an officer of the association and under the common_law test incorporated in sec_3121 although petitioners appear to concede that dr pariani was an employee of the association with respect to his duties as president they argue that he was an independent_contractor with respect to the medical services he provided to the association dr pariani was an officer of the association and therefore an employee under the general_rule of sec_3121 although the regulations under sec_3121 provide an exception to this general_rule for corporate officers who as such do not perform more than minor services or receive any compensation sec_31_3121_d_-1 employment_tax regs dr pariani does not qualify for this exception because he performed substantial services for and received compensation from the association with respect to the medical services dr pariani provided to the association we look to the common_law test incorporated in sec_3121 under the common_law test we examine numerous factors to decide whether an individual is an independent_contractor or common_law_employee among which are the following the degree of control exercised by the principal over the details of the work which party invests in the facilities used in the work the opportunity of the individual for profit or loss whether the principal has the right to discharge the individual whether the work is part of the principal's regular business the permanency of the on brief petitioners characterize the amounts received by dr pariani with respect to his managerial duties as wages relationship the relationship the parties believe they are creating and whether fringe_benefits are provided weber v commissioner supra pincite lozon v commissioner tcmemo_1997_250 other_relevant_factors are the degree of skill required on the part of the worker and whether the worker makes his services available to more than one company and to the general_public breaux daigle inc v united_states supra pincite jacobs v commissioner supra in this case the degree of control exercised by the principal is of little or no relevance since the worker dr pariani is president and sole shareholder and therefore controls the principal the association jacobs v commissioner supra on the basis of the remaining factors we conclude that dr pariani was an employee rather than an independent_contractor dr pariani had a permanent relationship with the association the association's line_of_business was the provision of medical services and the work dr pariani performed was not just part of this line_of_business but coterminous with it dr pariani was integral to the association's business in his compensation_for medical services was over four times as great as the compensation paid to all other providers of medical services his services were essential to the association see weber v commissioner supra pincite jacobs v commissioner supra although he was not the sole provider of medical services he was the key worker see 918_f2d_90 9th cir there is no evidence that dr pariani made his services available to another company or to the general_public the only factor that weighs in favor of finding that dr pariani was an independent_contractor is the fact that the type of work that he provided medical services requires a high degree of skill considering all the facts and circumstances we conclude that dr pariani was an employee of the association under the common_law rules petitioners offered no evidence or argument that dr pariani qualifies as an independent_contractor under the common_law standard rather petitioners rely on sec_530 of the revenue act of sec_530 for their position that dr pariani was an independent_contractor rather than an employee asit modak testified that dr pariani performed services in the emergency room at york plaza hospital the hospital up to whether this includes or not there is no evidence that dr pariani was paid_by the hospital or that he had a contract to work for the hospital he did not receive a form_w-2 or a form_1099 from the hospital moreover if there was an arrangement with the hospital it could have been with the association rather than with dr pariani in which case any services that dr pariani performed at the hospital might have been services performed for the association all references to sec_530 of the revenue act of publaw_95_600 92_stat_2763 are to that section as amended and in effect for the years in issue sec_530 of the revenue act of was originally an interim relief provision that was eventually extended indefinitely by sec_269 of the tax equity and fiscal responsibility act of publaw_97_248 96_stat_324 respondent makes two arguments in response first respondent argues that petitioners may not invoke sec_530 because its relief is available only to employers with respect to their liability for subtitle c employment_taxes and dr pariani was not an employer so liable second respondent argues that even if petitioners could invoke sec_530 the threshold requirements of that section have not been satisfied we agree with respondent sec_530 by its clear terms has limited application the section designates certain circumstances where an individual who has not been treated as an employee by the taxpayer shall be deemed not to be an employee for purposes of applying employment_taxes with respect to the taxpayer sec_530 flush language taxpayer as used in the context of sec_530 refers to an employer and employment_tax for purposes of the section is defined as any_tax imposed by subtitle c of the internal_revenue_code sec_530 thus sec_530 by its terms is confined to the applicability of subtitle c taxes to an employer-taxpayer and operates to terminate such taxes if certain conditions are met as subtitle c taxes are not at issue in this case sec_530 is of no help to petitioners moreover even if petitioners could the heading of sec_530 states termination of certain employment_tax liability invoke sec_530 they could not meet its terms one of the threshold requirements for obtaining sec_530 relief is that the taxpayer-employer must have filed all required federal tax returns including information returns on a basis consistent with the treatment of the worker as not being an employee sec_530 for both and the association failed to file returns consistent with the treatment of dr pariani as an independent_contractor the association did not issue a form_1099 with respect to any payments made to dr pariani for either year accuracy-related_penalties petitioners bear the burden of proving that the determinations pursuant to sec_6662 are erroneous rule a petitioners introduced no evidence relating to these determinations therefore they are liable for the accuracy- related penalties under sec_6662 to reflect the foregoing decision will be entered under rule


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 ita b05 plr-119906-08 date date tys -------------------------------------------------------------------------------------------- legend date ------------------ date ----------------------- date ---------------------- date -------------------------- company --------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- company ------------------------ market -------------------------------------------------------------- exchange ------------------------------ month -------------- representative -------------------------------------- representative -------------------------- state ------------- plr-119906-08 taxpayer ---------------------------------------------------- -------------------------- year ------- year ------- year year ------- ------- year ------- year ------- year ------- year ------- n ------------- o ------------ p -------- q ----------- r --------------- s ------------- t -------------------------- u ----------- v -------------------------------- dear --------------- this letter is in response to your request under sec_301_9100-1 and -3 of the procedure and administration regulations for an extension of time to elect the application of sec_1045 of the internal_revenue_code to defer the recognition of gain realized on the sale of qualified_small_business_stock qsbs plr-119906-08 facts in early february of year the taxpayer was notified that his form_1040 individual_income_tax_return form_1040 for year had been selected for audit during the revenue agent’s pre-audit analysis and research he discovered that the taxpayer was a founder of company and had sold stock of company during year the taxpayer failed to report dollar_figureo in sales of company stock on his year form_1040 based on the taxpayer’s unreported sales of company stock false statements by representative and representative 1’s actions intended to impede the audit and frustrate the revenue agent’s attempts to obtain needed information the audit was expanded to include the taxpayer’s tax returns for year and year after receiving approval of area_counsel concerning the applicability sec_6501 of the code the taxpayer’s tax returns for year year and year were also included in the audit the revenue_agent provided information indicating that the examination of the returns for year through year resulted in discovery of dollar_figurev in sales of company stock during each year which would not have qualified for deferral of recognition of gain even if the taxpayer had made a timely election for application of sec_1045 since he did not purchase replacement qsbs stock within days of the respective sales the taxpayer’s tax_return for year was not examined company was incorporated under the laws of state in month on date the taxpayer purchased n shares of company at a price of dollar_figurep per share the stock of company was initially traded on the market the stock was subsequently listed on the exchange where it its successor currently trades it has been represented that at all times during its existence company has been a c_corporation and has met the active business requirement of sec_1202 of the code it has also been represented that the stock of company has at all times satisfied the criteria provided in sec_1202 for characterization as qsbs in year the taxpayer co-founded company company was organized under the laws of state it has been represented that at all times during its existence company has been a c_corporation and has met the active business requirement of sec_1202 of the code it has also been represented that the stock of company has at all times satisfied the criteria provided in sec_1202 for characterization as qsbs an affidavit provided by the taxpayer indicates that during year and year he realized dollar_figurer from the sale of q shares of company stock most of those sales as well as sales of company stock in year and year either were not reported or were improperly reported on the taxpayer’s form_1040 for the year in which the respective sales took place in both year and year the taxpayer claimed a loss on sales of company stock the reported losses were the result of using an amount significantly in excess of the taxpayer’s actual basis of the stock sold as the basis for the purpose of determining gain loss the taxpayer actually realized significant gains on the sales plr-119906-08 during the period beginning on date and ending with date the taxpayer purchased s shares of company stock at an aggregate cost of dollar_figuret based on the information provided the amount of company stock which the taxpayer purchased in year and year may have been sufficient to support deferral of the gain the taxpayer realized on the sale of company stock in the respective years if the taxpayer had elected the application of sec_1045 an affidavit provided by the taxpayer includes the following statement i was informed and believed based upon conversations with a sophisticated investor shareholder and director of company that i could roll over the gain from the sale of stock in one start- up company to another without recognizing gain prior to date however i was not aware of the necessity of making an election on my tax returns to qualify for such treatment the affidavit also includes a statement acknowledging the taxpayer’s acquisition of n shares of stock of company at a cost of dollar_figurep per share in the affidavit the taxpayer states that he reported no gain from sales of company stock in year and year schedule d of a copy of an unsigned year form_1040 included in the taxpayer’s request for relief includes an entry to report gain on a dollar_figureu sale of company stock under its name at the time schedule d of a copy of an unsigned year form_1040 included in the request for relief includes an entry to claim a loss on sale of company stock in year the taxpayer’s year form_1040 was not audited consequently it is not possible to determine whether the copy of an unsigned year form_1040 included with the request for relief is a copy of the form_1040 the taxpayer filed for year similarly the accuracy of the information reported on the copy of the form_1040 could not be verified where the information in the taxpayer’s affidavit was inconsistent with information shown on copies of unsigned form 1040s the information on the taxpayer’s affidavit rather than that shown on copies of unsigned tax returns was considered to be accurate in december of year the taxpayer consulted with representative with respect to the pending audit of his form 1040s for year and year several days after their initial meeting representative informed the taxpayer of the necessity of electing the application of sec_1045 the taxpayer employed representative an enrolled_agent to prepare his form_1040 for year year and year the information provided does not indicate that the taxpayer informed representative that he was a co-founder of company that he purchased stock of company at original issuance or that he believed he could rollover gain from the sale of stock of company to stock purchased in another startup company representative was apparently unaware of sec_1045 and apparently did not timely advise the taxpayer of the necessity to elect the application of sec_1045 for years in which he sold qsbs consequently the taxpayer did not elect the application of sec_1045 for year or year based on the loss reported on the sale of company stock plr-119906-08 in year there would have been no reason to elect the application of sec_1045 for that year representative provided an affidavit in which he states that he was not aware of the procedure prescribed by revproc_98_48 1998_2_cb_367 for electing the application of sec_1045 applicable law and analysis sec_1045 provides in part that in the case of any sale of qualified_small_business_stock held by a taxpayer other than a corporation for more than months and with respect to which such taxpayer elects the application of this section gain from such sale shall be recognized only to the extent that the amount_realized on such sale exceeds -- the cost of any qualified_small_business_stock purchased by the taxpayer during the 60-day period beginning on the date of such sale reduced by any portion of such cost previously taken into account under this section the time and manner for making the election allowed by sec_1045 is prescribed by revproc_98_48 1998_2_cb_367 under the revenue_procedure the election must have been made no later than the due_date including extensions for filing the tax_return for tax_year and for tax_year sec_1045 provides that the term qualified_small_business_stock has the meaning given such term by sec_1202 sec_1202 provides as one of the defining characteristics of qualified_small_business_stock that it be acquired by the taxpayer at its original issue directly or through an underwriter in exchange for money or other_property or in exchange for services provided to such corporation was acquired based on the information and representations provided by the taxpayer and the forgoing analysis it appears that recognition of the gains realized on the sale of company stock in year year and year could have been deferred under sec_1045 if the amount_realized had been timely reinvested in other qsbs and the taxpayer had made a timely election to have sec_1045 apply sec_301_9100-2 and sec_301_9100-3 provide the standards the commissioner uses to determine whether to grant an extension of time to make a regulatory election an extension of time is available for elections that a taxpayer is otherwise eligible to make however the granting of an extension of time to make elections is not a determination that the taxpayer is otherwise eligible to make one plr-119906-08 the taxpayer has requested relief in the form of a grant of an extension of time to make a regulatory election pursuant to the provisions of sec_301_9100-3 for this purpose sec_301_9100-1 defines the term regulatory election to include an election whose deadline is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure or notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides in part that requests for relief will be granted when the taxpayer provides evidence including affidavits described in paragraph e of this section to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides in part that except as otherwise provided in paragraphs b i through iii of that section a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer i requests relief under this section before failure to make the regulatory election is discovered by the irs or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election the taxpayer’s request for relief under sec_301_9100-3 was filed more than two years after the internal_revenue_service discovered that the taxpayer had failed to report sales of company stock and reported losses on other sales on which he actually realized gains the taxpayer’s request for relief under sec_301_9100-3 was filed more than months after representative advised him of the necessity of electing the application of sec_1045 sec_301_9100-3 provides in part that a taxpayer is deemed to have not acted reasonably and in good_faith if the taxpayer i seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief taking into account any qualified_amended_return filed within the meaning of sec_1_6664-2 and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief in connection with hindsight if specific facts have changed since the due_date for making the election that make the election advantageous to the taxpayer the irs will not ordinarily grant relief in such a case the irs will grant relief only when the taxpayer provides strong_proof that the taxpayer's decision to seek relief did not involve hindsight the taxpayer seeks to alter return positions unreported sales and improperly reported sales for which accuracy-related_penalties had been imposed under sec_6662 at the time the taxpayer requested relief the new positions require regulatory elections for which relief is requested the taxpayer seeks relief in the form of a grant of additional time to plr-119906-08 elect the application of sec_1045 to sales of company stock that he either did not report or that he improperly reported as having resulted in losses sec_301_9100-3 provides in part that the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment the taxpayer will not have a lower tax_liability in the aggregate for any of the years in which the election will apply than taxpayers would have had if the elections had been timely made taking into account the time_value_of_money no taxable_year that would be affected by the elections had they been timely made is closed by the period of limitations on assessment the taxpayer’s form sec_1040 for all of the years for which additional time is requested to elect the application of sec_1045 were not filed as if timely elections had been made for the application of sec_1045 on the year form_1040 the taxpayer reported a loss on one or more sales of company stock on which he in fact realized a gain the taxpayer failed to report one or more sales of company stock during year if timely elections had been made to apply sec_1045 those sales would have been reported if the copy of an unsigned year form_1040 included in the request for relief is a copy of the return the taxpayer actually filed for year and includes i all of the taxpayer’s company stock sales during year ii the correct basis of the stock sold and iii the correct sales_price of all the company shares sold the information reported on the return would be consistent with the entries that would have been made if the taxpayer had made a timely election for the application of sec_1045 however in his affidavit the taxpayer states that he did not report sales of company stock on his year tax_return circumstances in which a taxpayer fails to report a sale of qsbs are prejudicial to the interest of the government even if the taxpayer reinvests the amount_realized in other qsbs within the 60-day period specified by sec_1045 failure to report a sale of qsbs deprives the internal_revenue_service of information it requires to determine whether the taxpayer has properly accounted for any gain loss on the sale of the qsbs and if the taxpayer has purchased replacement qsbs reduced the basis of the replacement qsbs by the amount of the gain that was not recognized gain on the sale of the qsbs stock failure to report the gain from a sale of property eg qsbs stock is generally indicative of an intent to evade tax on the gain unless the taxpayer’s return is audited and the unreported gain is discovered the unreported gain escapes taxation a position that would provide relief in the form of a grant of additional time to make an election for application of sec_1045 with respect to unreported sales or improperly reported sales eg losses reported on transactions that resulted in gains would eliminate the adverse consequences of such actions taxpayers would have an incentive not to plr-119906-08 report sales of qsbs which resulted in gains and take their chances on the audit_lottery if their return was not audited they would evade tax on the unreported gain if the unreported gain was discovered during an audit the taxpayer would request relief under sec_301 for additional time to make an election for application of sec_1045 any position that would provide an incentive for taxpayers to take such action is prejudicial to the interest of the government the taxpayer’s sales of company stock in year and year illustrate the potential for tax_evasion information provided by the revenue_agent indicates that the taxpayer failed to report sales of qsbs stock in year and year on which he realized gains of dollar_figurev the gains would not have qualified for nonrecognition under sec_1045 since the taxpayer did not purchase replacement qsbs within the time period specified in sec_1045 if the taxpayer’s tax returns for those years had not been examined the taxpayer would have evaded tax on the gain on the unreported sales for some of the years involved in the subject case the taxpayer indicated that he treated the basis of the qsbs he sold as being equal to the amount of the sales proceeds that he used to purchase replacement qsbs such treatment precludes a determination that the taxpayer realized a gain on the sale of the qsbs in the absence of a gain there would be no basis for application of sec_1045 for example if the taxpayer sold big_number shares of qsbs stock a total of dollar_figure the basis in the stock that was sold was dollar_figure per share under the taxpayer’s treatment the transaction would have been determined to result in no gain_or_loss sales_price reduced by basis - actual basis of qsb stock dollar_figure sold - dollar_figure taxpayer treated the amount_realized on the sale of qsbs that was used to purchase replacement qsbs stock as the basis of the qsbs stock sold big_number gain loss on sale of qsbs dollar_figure - - the treatment described above results in no indication that a gain was realized on the sale of qsbs stock absent a realized gain there would be no basis for application of sec_1045 and no reason to reduce the basis of the replacement qsbs the result would be the evasion of tax on the qsbs stock and the internal_revenue_service would never be put on notice that the basis of the replacement qsbs was to be reduced by the amount of the unrecognized_gain on the sale of the qsbs although no current tax_liability would be due under a proper application of sec_1045 if the taxpayer who sold the qsbs used the amount_realized to purchase replacement qsbs the sale would be reported on the taxpayer’s tax_return for the year in which the sale occurred as a result of reporting the gain the internal_revenue_service would be put on notice that the plr-119906-08 basis of other qsbs replacement qsbs held by the taxpayer was subject_to reduction by the amount of the gain that was not recognized on the sale of the qsbs circumstances in which a taxpayer reports a loss on a sale of qsbs as a result of claiming a basis significantly in excess of his actual basis in the stock sold may represent an attempt to evade tax based on information provided by the revenue_agent who conducted the audit in this case the taxpayer reported losses on sales of company stock in year and year although the sales in each of those years resulted in the realization of gains even if the taxpayer had purchased sufficient replacement qsbs within the time prescribed by sec_1045 to defer recognition of the gain realized on the sale of the qsbs if a timely election had been made for application of sec_1045 reporting a loss on the sale of the qsbs could have facilitated tax_evasion if the taxpayer’s return had not been audited the improper reporting of the qsbs sales might not have been discovered by the internal_revenue_service the reported losses would have resulted in a reduction of the taxpayer’s tax_liability on income that was reported and may have facilitated evasion of tax on the gains realized on the sale of the qsbs either as a result of such gains not being reported or the basis of replacement qsbs stock not being reduced by the amount of the gains on the sale of qsbs stock that were not recognized if the taxpayer’s year form_1040 had not been selected for audit the taxpayer may have been able to evade tax on the gain realized on the sales of company stock and claim a cost_basis in the company stock when it was sold similarly a taxpayer who did not report a sale of qsbs and either did not purchase sufficient or any replacement qsbs stock within the period specified by sec_1045 might be able to evade tax on the gain realized on the sale of the qsbs taken together the circumstances described above indicate that granting the requested relief in the form of additional time for the taxpayer to make elections for the application of sec_1045 to stock sales which it either did not report or reported as resulting in losses when the transactions resulted in the realization of gains would be prejudicial to the interest of the government accordingly the taxpayer’s request for relief in the form of an extension of time to make an election for application of sec_1045 to sales of company stock in year and year is denied the request for relief for year is denied unless the taxpayer can demonstrate to the satisfaction of personnel in examination or appeals that the information reported on the unsigned copy of the year form_1040 included in the request for relief is a copy of the form_1040 he filed for year and that it correctly reflects all of his sales of company stock during year and that such return has not been amended if the taxpayer can make such a demonstration he will be granted additional time to elect the application of sec_1045 for year except as expressly provided herein no opinion is expressed or implied concerning the application of any provision of the code or the tax consequences of any item discussed or referenced in this letter specifically no opinion is expressed or implied concerning plr-119906-08 whether the company stock sold by the taxpayer or the company stock purchased by the taxpayer constituted qsbs or was otherwise eligible to be treated as such or whether the other statutory and regulatory prerequisites for deferral under sec_1045 were satisfied this letter is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of the letter is enclosed showing the deletions proposed to be made when it is disclosed under sec_6110 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely george f wright senior technician reviewer branch office of associate chief_counsel income_tax accounting


internal_revenue_service number release date index number -------------------------------------------------------- ----------------------------- ------------------------------------- re -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no --------------- ----------------- telephone number ---------------------- refer reply to cc psi b04 plr-120968-16 date date legend decedent spouse date date --------------------------------------------- ---------------------- ------------------- ------------------------ dear --------------- this letter responds to your personal representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election it is represented that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of decedent’s death including any taxable_gifts made during his lifetime plr-120968-16 you request an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 plr-120968-16 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely-filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 plr-120968-16 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date it is represented that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly-prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-120968-16 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs special industries by lorraine e gardner lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si date date legend fund1 fund2 fund3 fund4 y pr sec_1 gp z a b c d1 cc dom p si state country1 country2 this responds to your letter dated date and prior correspondence submitted on behalf of y requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to file an election to be disregarded as an entity separate from its owner for federal tax purposes under sec_301_7701-3 facts fund3 is a limited_partnership formed under the laws of state fund3 is the sole owner of y an entity formed under the laws of country1 on d1 y represents that fund3 has limited_liability as to the debts of or claims against y pr sec_1 is a limited_partnership organized under the laws of country1 gp is a limited_partnership formed under the laws of country1 and owns an a general_partnership interest in pr sec_1 y owns a b limited_partnership_interest in pr sec_1 z is a publicly traded corporation formed under the laws of country2 pr sec_1 owns a c interest in z in addition to fund3 there are three other u s entities fund1 fund2 and fund4 the funds that hold interests through limited_partnerships in z both fund3 and y intended for y to make an election to be disregarded as an entity separate from its owner under sec_301_7701-3 however due to mistakes made by y’s outside tax counsel the election was not timely made y has represented that there is no current intention to sell its interest in pr sec_1 and pr sec_1 has no current intention to sell its interest in z further z has no current intention to liquidate y also represents that if the u s investors of gp and the funds were treated as one u s shareholder the aggregate ownership of z by all u s shareholders within the meaning of sec_951 would not be greater than percent of the total combined voting power of all classes of stock of z or the total value of z stock law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner can cc dom p si elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that unless the entity elects otherwise a foreign eligible_entity is an association if all members have limited_liability under sec_301_7701-3 a foreign eligible_entity with a single owner who has limited_liability can elect to be classified as a disregarded_entity by filing a form_8832 to be valid an election must generally be signed by the member of the electing entity or any officer manager or member of the electing entity who is authorized under local law or the entity’s organizational documents to make the election and who represents to having such authorization under penalties of perjury see sec_301_7701-3 the effective date specified on form_8832 can not be more than days prior nor more than months after the date on which the election is filed sec_301_7701-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_service bulletin sec_301_9100-1 through provide standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result y is granted an extension of time for making the election to be disregarded as an entity separate from its owner for federal tax purposes effective d1 until days following the date of this letter the election should be made by following the procedure set forth in form_8832 a copy of this letter should be attached to the election 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 cc dom p si this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer and the taxpayer’s second listed authorized representative sincerely signed paul f kugler paul f kugler assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes