exxon mobil corporation and affiliated companies f k a exxon corporation and affiliated companies petitioners v commissioner of internal revenue respondent docket nos filed date the tax_reform_act_of_1986 publaw_99_514 sec a 100_stat_2744 modified sec_6621 i r c to increase the interest required to be paid_by taxpayers to the government on underpayments to a higher rate than the government was required to pay taxpayers on overpayments this resulted in taxpayers’ having to pay interest to the government even when underpayments were offset by overpayments ie when no tax was due in congress enacted sec_6621 i r c and an uncodified special rule set forth in the internal rev- enue service restructuring and reform act of publaw_105_206 112_stat_741 as amended by the omnibus consolidated and emergency supplemental appro- priations act publaw_105_277 div j sec_4002 sec_112 stat to eliminate the interest rate differen- tial on overlapping periods of interest on overpayments and underpayments ps seek relief from interest rate differentials due on underpayments for through and equivalent overpayments for and respondent disputes the jurisdiction of the court to make the determination and the applicability of interest_netting to the facts of these cases held pursuant to sec_7481 i r c this court has jurisdic- tion to determine interest_netting pursuant to sec_6621 i r c and the uncodified special rule held further sec_6621 i r c and the uncodified special rule apply to and and petitioners are entitled to eliminate the interest rate differentials for the overlap periods in the amounts stipulated by the parties kevin l kenworthy and alan i horowitz for petitioners r scott shieldes for respondent opinion haines judge these consolidated cases are before the court on respondent’s motion to dismiss for lack of jurisdic- tion petitioners’ motion for partial summary_judgment under sec_7481 and sec_6621 seeking a net interest rate of zero on equivalent underpayments and overpayments in fed- eral income taxes for overlapping periods preceding july verdate 0ct date jkt po frm fmt sfmt v files exxon sheila united_states tax_court reports and respondent’s cross-motion for partial summary_judgment in opposition to petitioners’ motion the issues presented are whether this court has juris- diction under sec_7481 to resolve petitioners’ sec_6621 interest-netting claim and whether pursuant to sec_6621 and an uncodified special rule set forth in the internal_revenue_service restructuring and reform act of rra publaw_105_206 112_stat_741 as amended by the omnibus consolidated and emer- gency supplemental appropriations act act publaw_105_277 div j sec_4002 sec_112 stat petitioners are entitled to a net interest rate of zero on equivalent underpayments and overpayments in federal income taxes for overlapping periods preceding date the parties have stipulated the facts relevant to the instant motions background petitioners in these cases exxon mobil corp affiliated cos are corporations organized and existing under the laws of the united_states petitioners are successors in interest to exxon corp affiliated cos all references to petitioners are either to exxon mobil corp affiliated cos or to exxon corp affiliated cos where the context so requires the parties have stipulated that an appeal would lie with the u s court_of_appeals for the second circuit i prior determinations petitioners filed timely consolidated federal_income_tax returns for through that were audited by the internal_revenue_service irs over a period ending in adjustments that petitioners agreed to were assessed and the assessments together with underpayment interest were paid unless otherwise specified or the context other- wise requires the term underpayment interest refers to interest provided for generally by sec_6601 the term overpayment interest refers to interest provided for gen- unless otherwise indicated all section references are to the internal_revenue_code code as amended and in effect at relevant times all rule references are to the tax_court rules_of_practice and procedure amounts are rounded to the nearest dollar verdate 0ct date jkt po frm fmt sfmt v files exxon sheila exxon mobil corp v commissioner erally by sec_6611 and the term_interest refers to either or both a the litigation on date respondent issued a notice_of_deficiency to petitioners determining income_tax deficiencies for and petitioners did not petition the court in response to the notice_of_deficiency for and and as a consequence those deficiencies were assessed and paid petitioners did however file a timely petition in response to the notice_of_deficiency for which was assigned docket no litigation on date respondent issued a notice_of_deficiency to petitioners for as well as and petitioners timely filed a petition for redetermination in this court for those years which was assigned docket no litigation during the course of respondent’s audits peti- tioners’ administrative appeals and the litigation of these cases petitioners made a number of substantial advance pay- ments to respondent of taxes and interest with respect to each of the tax deficiencies determined by respondent against petitioners for and this court has issued a number of opinions addressing the issues raised in these cases the parties ultimately resolved the remaining issues by agreement and decisions were entered in accordance with the parties’ agreed computations on date this court entered a revised stipu- lated decision in the litigation determining that peti- tioners were entitled to credit or refund of an income_tax overpayment for the revised stipulated decision became final within the meaning of sec_7481 on may before expiration of the periods of limitations on assessment for and the parties extended the time to assess for these years to date before expiration of the period of limitations on assessment for petitioners and re- spondent extended the time to assess tax for to date see eg 126_tc_36 involving determination of proper rate of interest to be applied to overpayment interest after date affd 484_f3d_731 5th cir 114_tc_293 involving the deductibility of estimated dismantlement removal and restoration costs relating to the prudhoe bay alaska oil field exxon corp v commissioner tcmemo_1999_247 involving the deductibility of interest relating to contested tax deficiencies 102_tc_721 involving the computation of percentage_depletion relating to the sale of natural_gas exxon corp v commissioner t c memo involving the allocation of profits from sales of saudi arabian crude_oil affd sub nom 98_f3d_825 5th cir exxon corp v commissioner tcmemo_1992_92 verdate 0ct date jkt po frm fmt sfmt v files exxon sheila united_states tax_court reports respondent promptly credited the overpayment determined in the litigation to petitioners’ accounts for and and paid to petitioners overpayment interest on date respondent abated income_tax and underpayment interest for in accord- ance with the decision entered in the litigation on date this court entered a stipulated decision in the litigation determining in part that petitioners were entitled to credit or refund of an income_tax overpay- ment for the stipulated decision became final within the meaning of sec_7481 on date on the same day in accordance with the decision entered in the litigation respondent refunded to petitioners the over- payment so determined and paid them overpayment interest on date respondent abated income_tax and underpayment interest for in accordance with the deci- sion in the litigation b the litigation petitioners also litigated their federal_income_tax liabil- ities for through in other forums they consented to the assessment of adjustments to which they did not agree paid the tax and interest assessed and filed claims for refund petitioners’ refund claims for through were not attributable to either interest or interest_netting but established the predicate for the subsequent refund litigation described below in respondent allowed some of petitioners’ refund claims and abated income_tax and underpayment interest that reduced but did not eliminate the underpayments previously assessed and paid for through on date petitioners timely filed a complaint in the u s court of federal claims seeking a refund of income_tax for litigation following a trial on the merits of the substantive issues in the litigation the court of federal claims issued findings_of_fact and conclu- sions of law 45_fedclaims_581 both parties appealed and the court_of_appeals_for_the_federal_circuit affirmed in part and reversed in part directing the court of federal claims to calculate the resulting refund due petitioners exxon mobil corp v united verdate 0ct date jkt po frm fmt sfmt v files exxon sheila 244_f3d_1341 fed cir on date judgment was entered in the litigation pursuant to stipulation of the parties judgment on date respondent satisfied the judg- ment on date respondent abated income_tax and related underpayment interest in compliance with the judgment that reduced but did not eliminate the underpay- ments previously assessed and paid for c the litigation on date petitioners filed a complaint in the u s district_court for the northern district of texas seeking an income_tax refund for litigation on date following a trial on the merits of the substantive issues the district_court issued findings_of_fact and conclu- sions of law 253_fsupp2d_915 n d tex petitioners appealed to the u s court_of_appeals for the fifth circuit while the litigation was docketed on appeal the par- ties reached a settlement that required a refund to be paid respondent paid the refund and pursuant to the settlement abated income_tax and related underpayment interest for that reduced but did not eliminate the underpayments previously assessed and paid for d the litigation on date petitioners filed a complaint in the u s district_court for the northern district of texas seeking income_tax refunds for and litigation the parties resolved the litigation by agreement in respondent refunded moneys to peti- tioners for both years in accordance with the resolution of the litigation respondent abated income_tax and related underpayment interest in accordance with the resolu- tion for and that reduced but did not eliminate the underpayments previously assessed and paid for and ii interest_netting before sec_6621 applied the same annual interest rate to overpayments and underpayments therefore if a verdate 0ct date jkt po frm fmt sfmt v files exxon sheila united_states tax_court reports taxpayer owed the government an underpayment and the government in turn owed the taxpayer an overpayment in an equivalent amount the amounts could be offset pursuant to sec_6402 and no interest would be paid_by either party however beginning date congress amended sec_6621 to increase the rate of interest a taxpayer paid on underpayments to a higher rate than a taxpayer received on overpayments see tax_reform_act_of_1986 tra publaw_99_514 sec a b d 100_stat_2744 thus a taxpayer could end up paying interest to the government even in situations when no tax was due ie when an under- payment and an overpayment offset each other congress recognized that taxpayers should not be paying interest to the government if no net tax was due however it took years before the problem was addressed in congress again amended sec_6621 by adding sec_6621 to authorize interest_netting for periods when over- payments and underpayments offset each other see rra sec_3301 112_stat_741 sec_6621 applied prospectively to periods of overlap after date how- ever an uncodified special rule in rra sec_3301 applied interest_netting retroactively congress subsequently added to the rule the phrase subject_to any applicable statute of limitation not having expired with regard to either a tax underpayment or a tax overpayment in a technical corrections amendment later the same year see act sec_4002 the parties are now disputing the scope of interest-netting relief granted by sec_6621 and the uncodified special rule petitioners sought both administratively and in this court to preserve their right to interest_netting during the ongoing litigation in the court of federal claims and the district_court for the northern district of texas on date petitioners requested administrative interest-netting relief under newly enacted sec_6621 and the uncodified special rule by filing a timely claim with respondent on date petitioners timely filed a motion with this court to redetermine postdecision interest for and pursuant to sec_7481 and rule both of which provisions will be discussed shortly but for the motion presently before this court petitioners have not asserted a claim attributable to interest_netting in prior litigation verdate 0ct date jkt po frm fmt sfmt v files exxon sheila exxon mobil corp v commissioner after reflecting all of the underpayments and overpay- ments together with interest_paid or credited by the parties for through the parties have stipulated the fol- lowing summary of petitioners’ income_tax underpayment and overpayment balances that have not been previously netted for interest-netting purposes pursuant to sec_6621 they have also stipulated the starting and ending dates of the periods of overlap year over - under- payment balance start date end date dollar_figure big_number big_number big_number big_number big_number big_number big_number should the court grant petitioners’ motion as it pertains to interest_netting the parties have also stipulated that peti- tioners would be entitled to additional interest in the fol- lowing amounts additional interest to be paid statutory interest date dollar_figure big_number big_number big_number i interest provisions discussion sec_6601 requires a taxpayer to pay interest on any income taxes remaining unpaid sec_6601 provides sec_6601 interest on underpayment nonpayment or extensions of time for payment of tax a general_rule -if any amount of tax imposed by this title is not paid on or before the last date prescribed for payment interest on such amount at the underpayment rate established under sec_6621 shall be paid for the period from such last date to the date paid verdate 0ct date jkt po frm fmt sfmt v files exxon sheila united_states tax_court reports conversely sec_6611 requires the government to pay interest on any overpaid income taxes sec_6611 provides sec_6611 interest on overpayments a rate -interest shall be allowed and paid upon any overpayment in respect of any internal revenue tax at the overpayment rate established under sec_6621 before interest_netting was accomplished through sec_6402 which authorizes the irs to credit an overpayment owed to a taxpayer from one year against an underpayment owed by the same taxpayer to the government from a dif- ferent year after the two amounts were offset the interest rate was applied to the net underpayment or net overpay- ment automatically resulting in less interest being paid or received by the taxpayer an offset pursuant to sec_6402 was used only if the underpayment and overpayment were both outstanding effective date tra sec a b and d increased the rate of interest a taxpayer pays on under- payments to a higher rate than a taxpayer receives on over- payments the interest rate differential under sec_6621 applied to underpayments that were still outstanding at the end of as well as to new tax_liabilities that arose after after the enactment of tra the irs no longer offset an outstanding overpayment and underpayment and applied an interest rate to the net amount pursuant to sec_6402 rather underpayment interest was calculated at the higher underpayment rate while overpayment interest was calculated at the lower overpayment rate if the tax- payer had equivalent overlapping overpayments and under- payments for a period the government collected net interest even though no tax was due to the extent of the overlap when tra was enacted congress recognized the need for a global interest-netting procedure that would prevent taxpayers from having to pay net interest to the extent underpayments and overpayments were equivalent congress also recognized however that the irs requires substantial lead time to develop the data processing capability to net such underpayments and overpayments in applying differen- tial interest rates s rept pincite 1986_3_cb_1 accordingly congress provided for a year transition_period during which interest_netting would verdate 0ct date jkt po frm fmt sfmt v files exxon sheila exxon mobil corp v commissioner be governed by irs regulations h conf rept vol ii at ii-785 1986_3_cb_1 by the close of that period congress stated that the irs should have implemented the most comprehensive netting procedures that are consistent with sound administrative practice id by the department of the treasury treasury and the irs had initiated a study but had not begun to implement regulations or comprehensive interest-netting procedures see announcement 1996_4_irb_99 notice_96_18 1996_1_cb_370 in date congress became impatient and statutorily commissioned the secretary_of_the_treasury or_his_delegate to conduct a study of the manner in which the internal_revenue_service has implemented the netting of interest on overpayments and underpayments and of the policy and administrative implications of global_netting and to submit that study to congress within months see tax- payer bill of right sec_2 publaw_104_168 sec 110_stat_1473 report treasury in response treasury submitted a report to congress in date which acknowledged that congress has pre- viously concluded that comprehensive interest_netting is desirable to the maximum extent feasible see department of the treasury office of tax policy report to the congress on netting of interest on tax overpayments and under- payment sec_2 available at http treasury gov resource - center tax - policy documents t0neting pdf but the treasury report stated that the treasury lacked statutory authority to implement global interest_netting and recommended that congress grant such authority with the following limitations adopt the interest equalization approach rather than an extension of the credit offsetting approach and require at least one over- lapping period to have an outstanding balance in order for the interest equalization approach to apply limit interest_netting to income taxes apply interest_netting only to tax years that are not barred by statute citing principles of finality require the taxpayer to initiate interest_netting and bear the burden of establishing entitlement and allow a phase-in period of years see id pincite congress rejected most of the recommendations either in whole or in part when it enacted sec_6621 see rra sec_3301 sec_6621 provides verdate 0ct date jkt po frm fmt sfmt v files exxon sheila united_states tax_court reports sec_6621 elimination of interest on overlapping periods of tax overpayments and underpayments -to the extent that for any period interest is payable under subchapter_a and allowable under sub- chapter b on equivalent underpayments and overpayments by the same taxpayer of tax imposed by this title the net rate of interest under this section on such amounts shall be zero for such period sec_6621 adopted the interest equalization approach but rejected the requirement that there be a balance out- standing for one overlap period see h conf rept pincite 1998_3_cb_747 stating that interest_netting under sec_6621 is applied without regard to whether an overpayment or an underpayment is currently outstanding further the net interest rate of zero applied even when special rules increased the rate of interest for large corporate underpayments under sec_6621 or decreased the rate of interest for large corporate overpay- ments under sec_6621 id interest_netting was not limited to income taxes and was made available for any period and for any_tax imposed by this title the burden was not placed on the taxpayer to initiate interest_netting or to establish entitlement rather sec_6621 required the irs to automatically apply the net rate of zero on equivalent overpayments and underpayments for the overlapping period sec_6621 significantly broadened the availability of interest_netting beyond what was recommended by the treasury report sec_6621 was effective for periods of overlap begin- ning after date the enactment of sec_6621 was accompanied by an uncodified special rule special rule that permitted taxpayers to seek application of the interest- netting relief of sec_6621 for periods of overlap pre- ceding date so long as certain administrative filing_requirements were met see rra sec_3301 the special rule initially enacted did not refer to a statute of limitation a technical correction provision act sec_4002 amended rra sec_3301 by adding sub- ject to any applicable statute of limitation not having expired with regard to either a tax underpayment or a tax overpay- ment the special rule as amended provides special rule -subject to any applicable statute of limitation not having expired with regard to either a tax underpayment or a tax overpay- ment the amendments made by this section shall apply to interest for verdate 0ct date jkt po frm fmt sfmt v files exxon sheila exxon mobil corp v commissioner periods beginning before the date date of the enactment of this act if the taxpayer- a reasonably identifies and establishes periods of such tax overpay- ments and underpayments for which the zero rate applies and b not later than date requests the secretary_of_the_treasury to apply sec_6621 of the internal_revenue_code_of_1986 as added by subsection a to such periods the irs promulgated revproc_99_43 1999_2_cb_579 to implement procedures for a taxpayer to request interest net- ting under sec_6621 and the special rule on date petitioners requested administrative interest-net- ting relief by filing a timely claim with respondent on form_843 claim_for_refund and request for abatement in accord- ance with the revenue_procedure rra sec_3301 also added sec_6601 to clarify the offset provision of sec_6402 sec_6601 provides sec_6601 satisfaction by credits -if any portion of a tax is satis- fied by credit of an overpayment then no interest shall be imposed under this section on the portion of the tax so satisfied for any period during which if the credit had not been made interest would have been allowable with respect to such overpayment the preceding sentence shall not apply to the extent that sec_6621 applies if an outstanding overpayment is used to offset an out- standing underpayment under sec_6402 a zero interest rate applies to the underpayment so offset however sec_6402 applies only when the underpayment and the overpay- ment are both outstanding therefore as sec_6601 pro- vides it does not apply to situations covered by sec_6621 where there may be no outstanding balances at the time the interest-netting determination is made ii tax_court jurisdiction the tax_court is a court of limited jurisdiction and we may exercise our jurisdiction only to the extent authorized by congress see sec_7442 before it was well settled that this court’s jurisdiction to redetermine a deficiency in tax generally did not extend to statutory interest imposed under sec_6601 see 13_f3d_54 2d cir asciutto v commissioner tcmemo_1992_564 affd per order 26_f3d_108 9th cir the only recourse for a taxpayer who disputed the amount of underpayment interest was to pay the disputed interest file a claim for verdate 0ct date jkt po frm fmt sfmt v files exxon sheila united_states tax_court reports refund and then file a separate action either with a federal district_court u s c sec_1346 or with the court of federal claims u s c sec_1491 in contrast consistent with sec_6601 the tax_court did have jurisdiction to redetermine statutory interest if a tax- payer had properly invoked the court’s overpayment jurisdic- tion pursuant to sec_6512 see 97_tc_548 in the enactment of sec_7481 in the technical_and_miscellaneous_revenue_act_of_1988 publaw_100_647 sec a 102_stat_3751 gave the tax_court jurisdiction to decide underpayment interest disputes after a decision for a deficiency became final see h conf rept vol ii pincite 1988_3_cb_473 providing that the new section allowed a motion to redetermine interest if a dispute arises over the irs’ computation of the interest due on a deficiency there was some confusion however because sec_7481 did not refer to overpayment interest in congress amended sec_7481 in the taxpayer_relief_act_of_1997 publaw_105_34 sec a 111_stat_1054 to clarify that the tax court’s jurisdiction to redeter- mine the amount of interest under sec_7481 does not depend on whether the interest is underpayment or overpay- ment interest see h conf rept pincite 1997_4_cb_1457 sec_7481 provides sec_7481 jurisdiction over interest determinations - in general -notwithstanding subsection a if within year after the date the decision of the tax_court becomes final under sub- section a in a case to which this subsection applies the taxpayer files a motion in the tax_court for a redetermination of the amount of interest involved then the tax_court may reopen the case solely to determine whether the taxpayer has made an overpayment of such interest or the secretary has made an underpayment of such interest and the amount thereof thus sec_7481 grants the tax_court nonexclusive jurisdiction along with federal district courts and the court of federal claims to determine disputes with respect to the determination of underpayment and overpayment interest h conf rept supra pincite c b vol pincite explaining that the clarification of this juris- diction was not meant to limit any other remedies that tax- verdate 0ct date jkt po frm fmt sfmt v files exxon sheila exxon mobil corp v commissioner payers may currently have with respect to such determina- tions including in particular refund proceedings relating solely to the amount of interest due in order for sec_7481 to apply this court must have determined that there is an underpayment pursuant to sec_6214 or an overpayment pursuant to sec_6512 and the decision with respect to the overpayment or under- payment must be final sec_7481 defines the cir- cumstances when a decision of the tax_court becomes final as a general_rule this court lacks jurisdiction once a deci- sion becomes final 64_tc_741 affd without published opinion 538_f2d_314 2d cir however sec_7481 provides a limited statutory exception to finality by authorizing the court to reopen a case in which a final_decision has been entered only for the purpose of determining postdecision interest disputes if the taxpayer files a motion for redetermination of interest within year from the date the decision became final the revised stipulated decision of this court in the litigation docket no establishing an overpayment for became final within the meaning of sec_7481 on date the stipulated decision of this court in the litigation docket no establishing an over- payment for became final within the meaning of sec_7481 on date on date peti- tioners timely filed a motion with this court to redetermine interest for and pursuant to sec_7481 and rule although respondent concedes that petitioners have com- plied with the procedural requirements set forth in sec_7481 and rule respondent contends that sec- there are limited exceptions to this rule the court may grant a motion for leave to consider whether the court had jurisdiction to enter the decision in the first instance 868_f2d_1081 9th cir or whether the decision entered was the result of fraud on the court 859_f2d_115 9th cir affg 86_tc_1319 rule proceeding to redetermine interest a commencement of proceeding how proceeding is commenced a proceeding to redeter- mine interest on a deficiency assessed under code sec_6215 or to redetermine interest on an overpayment determined under code sec_6512 shall be commenced by filing a motion with the court the petitioner shall place on the motion the same docket number as that of the action in which the court redetermined the deficiency or determined the overpayment when proceeding may be commenced any proceeding under this rule must be com- menced within year after the date that the court’s decision becomes final within the meaning of code sec_7481 verdate 0ct date jkt po frm fmt sfmt v files exxon sheila united_states tax_court reports tion c does not grant this court jurisdiction to deter- mine interest_netting pursuant to sec_6621 citing lincir v commissioner tcmemo_2009_153 respondent argues that sec_6621 is not an interest rate provision but a computation of a separate interest-netting amount for respondent to administratively apply if there are no out- standing balances to offset under sec_6402 respondent argues that the determination of a net rate of interest of zero will result in the payment of money to the taxpayer thus respondent posits a claim under sec_6621 constitutes a general claim for money against the government which must be brought in a separate proceeding we disagree sec_6621 is at its core an interest rate provision sec_6601 requires a taxpayer to pay interest on any income taxes remaining unpaid sec_6611 requires the government to pay interest on any overpaid income taxes both provisions refer to sec_6621 to determine the rate of interest sec_6621 initially sets the general overpay- ment and underpayment rates subject_to adjustments required by sec_6621 and c sec_6621 reduces the interest rate set pursuant to sec_6621 to the net rate of zero during overlap periods when underpayments and overpayments are equivalent the fact that interest_netting may result in the government’s owing money to a taxpayer does not morph sec_6621 into a general claim for money sec_6621 does not refer to an amount only to a rate in lincir v commissioner supra we recognized that sec_6621 is an interest rate provision lincir dealt with the interaction of sec_6621 and the interest component of the addition_to_tax for negligence under repealed sec_6653 the taxpayer argued that interest_netting should apply to the interest calculated on the underpayment attrib- utable to negligence the court held against the taxpayer finding that interest_netting under sec_6621 applies only to interest on underpayments and overpayments not to interest on penalties or additions to tax lincir does not stand for the proposition that sec_6621 requires an amount to be determined lincir was a collection_due_process case in which the abuse_of_discretion standard was applied in deciding whether to sustain the commissioner’s deter- mination verdate 0ct date jkt po frm fmt sfmt v files exxon sheila exxon mobil corp v commissioner congress directed the irs to implement the most com- prehensive netting procedures that are consistent with sound administrative practice h conf rept vol ii supra at ii-785 c b vol pincite such a state- ment is not limited to sec_6402 it also applies to sec_6621 in response the irs promulgated revproc_99_43 supra which sets forth interest-netting procedures for sec_6621 interest-netting claims should for the most part be resolved in administrative proceedings sec_6621 does not require an interest-netting claim to be initi- ated in a separate action within the irs or in a particular forum respondent’s assertions to the contrary notwith- standing if however the interest-netting claim under sec_6621 cannot be settled administratively various courts have been given concurrent jurisdiction to resolve the dis- pute a taxpayer may file a suit_for_refund or for payment of additional overpayment interest in a federal district_court u s c sec_1346 a or in the court of federal claims u s c sec_1491 sec_2501 in addition the taxpayer may pursuant to sec_7481 file a motion to redetermine interest when postdecision interest is dis- puted after a decision has become final petitioners have timely filed a motion with this court to redetermine interest for and pursuant to sec_7481 we therefore hold that we have jurisdiction pursuant to sec_7481 to determine interest_netting under sec_6621 iii the scope of jurisdiction respondent makes several arguments seeking to limit the scope of this court’s jurisdiction a determination of interest rates respondent contends that because the court is a court of limited jurisdiction our jurisdiction under sec_7481 must be limited to the determination of interest rates the title of sec_7481 is jurisdiction over interest determinations however the text clearly provides that the tax_court may reopen the case solely to determine whether the taxpayer has made an overpayment of such interest or verdate 0ct date jkt po frm fmt sfmt v files exxon sheila united_states tax_court reports the secretary has made an underpayment of such interest and the amount thereof emphasis added rule b b identifies the elements required to redetermine the amount of interest involved in an overpay- ment as the amount and date of each payment in respect of which the overpayment was determined and the amount and date of each credit offset or refund received from the commissioner in respect of the overpayment and interest claimed by the petitioner determining the amount of interest under sec_7481 requires the court to analyze the applicable_rate the principal_amount and the length of time the overpayment or underpayment is outstanding con- sequently our jurisdiction under sec_7481 necessarily covers the factors required to determine the proper amount of overpayment interest with respect to the years before the court and is not limited to determination of interest rates within this framework overpayment interest can be deter- mined without the necessity of multiple proceedings b original jurisdiction respondent contends that our interest determinations under sec_7481 must be limited to and years over which we have original jurisdiction and not to prior years over which we have no jurisdiction in order to put this argument into perspective we turn to sec_6214 entitled determinations by tax_court sec_6214 provides sec_6214 jurisdiction over other years and quarters -the tax_court in redetermining a deficiency of income_tax for any taxable_year shall consider such facts with relation to the taxes for other years as may be necessary correctly to redetermine the amount of such deficiency but in so doing shall have no jurisdiction to determine whether or not the tax for any other year has been overpaid or underpaid the word determine as it is used in sec_6214 has a specific and narrow meaning that is not implicated in this case in 95_tc_437 the court stated that it has distinguished our authority under sec_6214 to compute a tax for a year not before the court from our lack of authority under that same section to ‘determine’ a tax for such year see also lone manor farms verdate 0ct date jkt po frm fmt sfmt v files exxon sheila exxon mobil corp v commissioner inc v commissioner 61_tc_436 holding that sec_6214 does not prevent us from computing as distinguished from ‘determining ’ the correct_tax liability for a year not in issue when such a computation is necessary to a determination for a year that has been placed in issue affd without published opinion 510_f2d_970 3d cir petitioners argue and we agree that it is unnecessary for this court to make any determinations for the underpayment years over which we have no jurisdiction the underpayment for was determined after a trial on the merits of the substantive issues and appeal to the court_of_appeals_for_the_federal_circuit 244_f3d_1341 fed cir judgment was entered on date pursuant to stipulation of the parties the underpayments for and were determined by settlement after petitioners had filed com- plaints in the district_court for the northern district of texas the settlement for was reached while the case was on appeal to the court_of_appeals for the fifth circuit after a trial on the merits of the substantive issues 253_fsupp2d_915 n d tex these determinations by courts of competent jurisdiction do not require further determinations by this court the par- ties have stipulated the balances of underpayments and over- payments for through the applicable overlap periods and the applicable_amounts of interest we may con- sider these facts related to the underpayment years to determine interest_netting for the and overpay- ment years years over which we do have jurisdiction see sec_6214 iv the impact of the special rule a introduction for convenience we again quote pertinent portions of the special rule special rule -subject to any applicable statute of limitation not having expired with regard to either a tax underpayment or a tax overpay- ment the amendments made by this section shall apply to interest for verdate 0ct date jkt po frm fmt sfmt v files exxon sheila united_states tax_court reports periods beginning before the date date of the enactment of this act when the special rule was originally enacted it extended interest-netting relief retroactively and did not contain the introductory language see rra sec_3301 the subject_to language was added a few months later and was explicitly designated a technical correction see act sec_4002 subject_to the parties have stipulated that the period for filing suit for payment of additional overpayment interest for and the overpayment years before us as generally provided under u s c secs and had not expired as of date however the parties do not ask us to decide in this proceeding the status of with respect to the subject_to language of the special rule petitioners argue that retroactive application of sec_6621 via the special rule is available where the limitations_period for either the overpayment period or the under- payment period had not expired as of date respondent argues that the special rule as amended restricts retroactive interest_netting to cases where both the overpayment and underpayment years are open as of date the effective date of sec_6621 the same arguments were made in fnma v united_states 379_f3d_1303 fed cir fnma i where the court_of_appeals_for_the_federal_circuit when inter- preting the special rule stated we agree that the language at issue-‘ s ubject to any applicable statute of limitation not having expired with regard to either a tax underpayment or a tax overpayment’-is equally subject_to both proffered interpretations the parties’ efforts to persuade us to the con- trary notwithstanding we also find the subject_to lan- guage susceptible to either interpretation and cannot deter- mine from the language itself which interpretation con- gress intended respondent bases his position on revproc_99_43 supra which pronounced that both periods had to be open and the court of appeals’ decision in fnma i which came to the ulti- mate conclusion that the special rule was a waiver of sov- ereign immunity that required strict construction of the statute in favor of the government verdate 0ct date jkt po frm fmt sfmt v files exxon sheila exxon mobil corp v commissioner b revproc_99_43 both periods of respondent argues that we should give skidmore deference to revproc_99_43 supra see 323_us_134 the revenue_procedure was promulgated months after the special rule’s enactment and states that the special rule requires that limitation applicable to the tax underpayment and to the tax overpay- ment must have been open on date revproc_99_43 sec_4 c b pincite the pronounce- ment in the revenue_procedure is not supported by any anal- ysis of text or legislative_history or any other relevant guid- ance it is not an interpretation but a litigation position the extent to which deference is accorded a given agency pronouncement depends upon the thoroughness evident in its consideration the validity of its reasoning its consistency with earlier and later pronouncements and all those factors which give it power to persuade skidmore v swift co supra pincite because the pronouncement in revproc_99_43 supra that both periods of limitation must be open is unaccompanied by any supporting rationale it is not entitled to deference and does not provide a basis for resolving the issues before us accord fnma i f 3d pincite9 c fnma i in fnma i a three-judge panel of the court_of_appeals_for_the_federal_circuit held that although revproc_99_43 supra does not provide a basis to decide the case the special rule constitutes a waiver of sovereign immunity because it discriminates between those claims for overpaid interest congress has authorized and those it has not id pincite neither party in the case had raised sovereign immunity as an issue the court_of_appeals went on to hold that the waiver was expressly conditioned by the introductory lan- guage subject_to any applicable statute of limitation not having expired thus the court concluded that the term of consent in the special rule limited a court’s jurisdiction to entertain a suit that the principle of strict construction had to be applied and that the principle assumed primacy over any other tools or principles of statutory construction id pincite n therefore the principle of strict construction required an interpretation of the special rule in favor of the verdate 0ct date jkt po frm fmt sfmt v files exxon sheila united_states tax_court reports government the court_of_appeals remanded the case to the court of federal claims to determine whether the limita- tions period for the underpayment year was closed on date on remand the court of federal claims granted summary_judgment to the government see fnma v united_states 69_fedclaims_89 affd 469_f3d_968 fed cir in affirming the court of federal claims the court_of_appeals reaffirmed its position in fnma i with all due respect to the court_of_appeals for the fed- eral circuit sec_6621 as modified by the special rule is a remedial statute that must be interpreted to achieve the remedial purpose congress intended ie taxpayer relief from disparate interest rates and such an interpretation is appropriate regardless of whether the special rule constitutes a waiver of sovereign immunity see 963_f2d_1146 9th cir when the federal government waives its immunity the scope of the waiver is construed to achieve its remedial purpose the supreme court has cautioned against overbroad use of the strict construction principle if a waiver of sovereign immunity is involved see 537_us_465 463_us_206 the strict construc- tion principle is actually no more than an aid in the task of determining congressional intent 461_us_273 o’connor j dissenting the mere observation that a statute waives sovereign immunity cannot resolve questions of construction the court still must consider all indicia of congressional intent id pincite see also 467_us_512 scope of waiver of sovereign immunity can only be ascertained by reference to underlying congressional policy sec_6611 provides that interest shall be allowed and paid upon any overpayment in respect of any internal revenue tax sec_6611 waives sovereign immunity see e w scripps co subs v united stat420_f3d_589 6th cir gen elec co subs v united_states 56_fedclaims_488 such a waiver exists in sec_6611 affd in part and remanded in part 384_f3d_1307 fed cir while we find that the special rule is not verdate 0ct date jkt po frm fmt sfmt v files exxon sheila exxon mobil corp v commissioner a waiver of sovereign immunity but an interest rate provi- sion the fact that the special rule is based on an existing waiver in sec_6611 does not mean that the special rule itself is governed by the strict construction principle see 553_us_474 concluding that a substantive provision in a section did not have the same high hurdle of being narrowly construed in favor of the government as the waiver sovereign immunity provision even though they were in the same section see also 546_us_481 465_us_848 n the subject_to language was added by a technical correc- tion unlike a typical statutory amendment that operates prospectively and is designed to change prior_law a technical correction relates back to the original date of enactment congress turns to technical corrections when it wishes to clarify existing law or repair a scrivener’s error rather than to change the substantive meaning of the statute 177_f3d_1204 11th cir 89_f3d_942 2d cir as a technical correction there is no doubt that the special rule was not intended to restrict interest_netting but to extend interest-netting relief to periods of overlap pre- ceding date that were open on that date after considering the statutory text legislative_history and relevant policies surrounding sec_6621 and the special rule we hold that interest_netting should be available even if only one applicable limitations_period was open on date otherwise any closed period would trump an open one moreover two different limitation periods may apply to the same tax_year by way of example if a taxpayer can file a timely suit for additional overpayment interest for a given tax_year such a year should be considered open even if a suit to redetermine the underlying tax_liability is time barred for the foregoing reasons we hold that we have juris- diction pursuant to sec_7481 to determine interest net- ting under sec_6621 and the special rule the scope of our jurisdiction is limited to a determination of interest_netting for and years for which the applicable limitations periods were open as of date section verdate 0ct date jkt po frm fmt sfmt v files exxon sheila united_states tax_court reports d and the special rule require only one leg of the limitations_period to be open as of date and peti- tioners are entitled to additional interest pursuant to sec_6621 and the uncodified special rule in accordance with the stipulations and agreements of the parties in reaching our holdings we have considered all argu- ments made and to the extent not mentioned we conclude that they are moot irrelevant or without merit to reflect the foregoing an order will be issued granting peti- tioners’ motion for partial summary judg- ment and denying respondent’s motion to dis- miss for lack of jurisdiction and cross-motion for partial summary_judgment f verdate 0ct date jkt po frm fmt sfmt v files exxon sheila


qwhuqdo 5hyhqxh 6huylfh department of the treasury number release date index nos washington dc person to contact telephone number refer reply to cc ita - plr-143891-01 date date legend a b v w y year year company court dear this letter responds to your request for a letter_ruling on behalf of a and b regarding the change in title of b’s stock certificates you request rulings that no gain_or_loss will be recognized to a or b as a result of the change in title and the change in title does not constitute a gift_for gift_tax purposes facts as a result of marital difficulties a and b divorced a divorce decree order was issued by the court in year the order resolved all legal issues arising from the marital relationship including apportionment of the marital property at the time of the divorce proceeding a’s and b’s marital assets included y shares of company a closely_held_business the shares were titled in a’s name under state plr-143891-01 law however the shares of company regardless of how title is held constitute marital property subject_to division between the parties in order to equalize the marital property the order allocated v percent of the shares to a and w percent of the shares to b b’s w percent interest in company combined with other assets she received gave her one-half of the marital estate although the stock certificates for b’s w percent interest in company were never titled in her name the order stated that the true ownership of that interest is apportioned to her a and b represent that the record ownership of the w percent interest was left in a’s name to protect the value of the stock encourage investment in company and enhance the future marketability of the stock further it is represented that a and b did not enter into a written_agreement relative to their marital property rights prior to year the year of the divorce in year b filed a lawsuit asking the court to direct that the w percent interest in company be titled in her name as a result of mediation of the issues raised in the lawsuit the parties submitted this request for a private_letter_ruling law and analysis sec_1041 of the internal_revenue_code provides that no gain_or_loss shall be recognized on a transfer of property from an individual to or in trust for the benefit of a spouse or a former spouse but only if the transfer is incident to the divorce sec_1041 provides that in the case of any sec_1041 transfer of property for purposes of subtitle a the property shall be treated as acquired by the transferee by gift and the basis of the transferee in the property shall be the adjusted_basis of the transferor sec_1041 provides that for purposes of sec_1041 a transfer of property is incident to the divorce if such transfer occurs within one year after the date on which the marriage ceases or is related_to_the_cessation_of_marriage sec_1_1041-1t q a-7 of the temporary income_tax regulations provides that a transfer of property is treated as related to the cessation of the marriage if the transfer is pursuant to a divorce_or_separation_instrument as defined in sec_71 and the transfer occurs not more than years after the date on which the marriage ceases a divorce_or_separation_instrument includes a modification or amendment to such decree or instrument any transfer not pursuant to a divorce_or_separation_instrument and any transfer occurring more than years after the cessation of the marriage is presumed to be not related to the cessation of the marriage this presumption may be rebutted only by showing that the transfer was made to effect the division of property owned by the former spouses at the time of the cessation of the marriage for example the presumption may be rebutted by showing that a the transfer was not made within the one- and six-year periods described above because of factors which hampered an earlier transfer of the property such as legal or business impediments to transfer or disputes concerning the value of the property owned at the time of the cessation of the marriage and b the transfer is effected promptly after the impediment to transfer is removed plr-143891-01 sec_71 provides that the term divorce_or_separation_instrument means a a decree of divorce or separate_maintenance or a written instrument incident to such a decree b a written_separation_agreement or c a decree not described in subparagraph a requiring a spouse to make payments for the support or maintenance of the other spouse in the present case b has sought an order from the court directing that b’s w percent interest in company be titled in her name if granted the change in title will represent a transfer pursuant to a divorce_or_separation_instrument within the meaning of sec_71 the transfer however will not be made before the expiration of years from the date the marriage ended thus under sec_1_1041-1t q a-7 of the temporary regulations there is a rebuttable_presumption that the transfer is not related to the cessation of the marriage notwithstanding the presumption it is our position that the transfer in title of the shares of company is related to the cessation of the marriage of a and b first it is clear that the transfer of company stock from a to b is being made to effect the division of property owned by a and b at the time of the divorce the company stock was marital property owned by a and b at divorce and the order issued by the court at the time of the divorce allocated w percent of the shares to b a and b have simply chosen to delay the transfer of title of such shares for more than six years after the cessation of the marriage second a and b have represented that there are compelling business reasons concerning why the transfer will occur more than years from the date the marriage ended these reasons include maintaining investor confidence in company enhancing the marketability of the stock and facilitating future growth thus valid business reasons exist to explain the delay in the transfer accordingly the transfer is related to the cessation of the marriage under sec_1041 even if it occurs more than six years after the cessation of a’s and b’s marriage with respect to the issue relating to the applicability of the gift_tax provisions sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during the calendar_year by an individual sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that where property is transferred for less than an adequate_and_full_consideration in money or money’s worth then the amount by which the value of the property exceeded the value of the consideration shall be deemed a gift under b of the gift_tax regulations as to any property or part thereof or interest therein of which the donor has so parted with dominion and control as to leave in him no power to change its disposition whether for his own benefit or the benefit of another the gift is complete but if upon a transfer of property whether in trust or otherwise the donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all plr-143891-01 the facts in the particular case accordingly if a transfer of property is subject_to a reserved power the terms of the power must be examined and its scope determined sec_25_2511-2 provides that a gift is incomplete in every instance in which the donor reserves the power to revest the beneficial title to the property to himself sec_2516 provides that where a husband and wife enter into a written_agreement relative to their marital property rights and divorce occurs within the 3-year period beginning on the date year before such agreement is entered into whether or not such agreement is approved by the divorce decree any transfers of property or interests in property made pursuant to such agreement - to either spouse in settlement of his or her marital rights or to provide a reasonable allowance for the support of issue of the marriage during minority shall be deemed to be transfers made for a full and adequate_consideration in money or money’s worth in the present case it is represented that a and b did not enter into a written_agreement relative to their marital property rights prior to year the year a and b were divorced the determination of a’s and b’s respective marital property rights were delineated in the court’s order under the order the court directed that the parties divide the y shares of company so that the stock remains titled in the name of a but the true ownership is apportioned between the parties v to a and w to b b is to be treated as and considered a shareholder and is to receive her proportionate share of any dividends stock splits or other matters affecting the structure and or value of the stock the parties are to share in the proceeds benefits consideration resulting from the sale of the stock in the same percentages as they hold ownership a is not permitted to sell pledge or otherwise transfer directly or indirectly any stock that he owns in company without prior written consent of b the order irrevocably assigned w of company stock to b in year a cannot revoke the order and revest b’s interest in the w to himself in addition he is required to take all necessary steps to protect b’s interest although legal_title of the stock has remained on the books of company in the name of a since the time of the order b has received all the benefits of any sales of the stock as well as other economic benefits such as appreciation in the stock’s value no dividends have been paid on the stock under sec_2516 where a husband and wife enter into a written_agreement relative to their marital property rights and divorce occurs within the 3-year period beginning on the date which is one year before the agreement is entered into any transfers of property interests made pursuant to such agreement to either spouse in settlement of his or her marital rights is deemed to be a transfer made for a full and adequate_consideration in money or money’s worth based upon the requirements of we conclude that the transfer of w of the y shares to b is a transfer made for adequate_consideration in money or money’s worth within the meaning of accordingly the proposed change in title of company stock from a’s name to b’s name will not result in the application of the federal gift_tax under sec_2501 of the internal_revenue_code holdings plr-143891-01 the transfer of title to be made between a and b pursuant to the order and the amended order will qualify for nonrecognition of gain under sec_1041 the proposed change in title of b’s w of company stock from a’s name to b’s name will not result in the application of the federal gift_tax under sec_2501 caveats except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any item discussed or referenced in this letter a copy of this letter must be attached to any income_tax return to which it is relevant we enclose a copy of the letter for this purpose also enclosed is a copy of the letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under sec_6110 of the internal_revenue_code this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file we are sending a copy of this letter to both of the taxpayers sincerely stephen j toomey assistant to branch chief branch office of associate chief_counsel income_tax accounting cc


department of the treasury internal_revenue_service washington d c date cc dom fs p si uilc number release date internal_revenue_service national_office field_service_advice memorandum for from assistant chief_counsel field service cc dom fs subject 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 issue s whether interest on the fraud_penalty which runs from the due_date of the return with extensions may be deducted as an administrative expense under sec_2053 of the internal_revenue_code conclusion interest on the fraud_penalty actually paid_or_accrued is deductible provided it is allowable as an expense of the estate under local law and the expense is incurred for the benefit of the estate facts the estate was assessed the fraud_penalty for willful failure to disclose assets of the estate on the estate_tax_return 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_2053 provides that the value of the taxable_estate shall be determined by deducting from the value of the gross_estate such amounts for administration_expenses as are allowed by the laws of the jurisdiction whether within or without the united_states under which the estate is being administered sec_20_2053-3 of the estate and gift_tax regulations provides that deductible administration_expenses are those expenses that are actually and necessarily incurred in the administration of the decedent’s estate expenditures not essential to the proper settlement of the estate but incurred for the individual benefit of the heirs legatees or devisees may not be taken as deductions sec_6663 provides that if any part of any underpayment_of_tax required to be shown on a return is due to fraud there shall be added to the tax an amount equal to percent of the portion of the underpayment which is attributable to fraud revrul_81_154 1981_1_cb_470 holds that the failure to pay or failure_to_file penalties are not deductible as a necessary administration expense under sec_2053 of the code even if the expense is allowable under local law the willful failure_to_file the estate_tax_return is a breach of the executor’s fiduciary duty and the resulting penalty would not be an expense necessarily incurred in the administration of the decedent’s estate similarly the filing of a fraudulent estate_tax_return is a breach of the executor’s fiduciary duties and cannot be considered a necessary expense of administration of the estate revrul_81_154 however does not address the question of the deductibility of interest on the penalty it does address the deductibility of interest on the late payment of the tax itself and holds that the interest is deductible as an expense of administration of the estate it cites 68_tc_74 acq 1978_1_cb_1 for the proposition that interest_expense is allowable under sec_2053 without regard to the manner in which it was incurred it has been consistently recognized by this and other courts that 'interest on a tax is not a tax but something in addition to a tax ' 23_bta_848 similarly interest on a penalty is not a penalty but something other than a penalty thus even though the penalty may not be deductible for purposes of determining the taxable_estate the interest on the penalty is a separate item and must be evaluated on its own merits to be deductible_interest must be allowed by the laws of the jurisdiction under which the estate is being administered that is it must be allowable as a charge against the probate_estate generally interest on an obligation of an estate is allowed as an expense of administration under the laws of the jurisdiction in which this estate is being probated we have found nothing to indicate that there is an exception to the general_rule for interest on penalties additionally to be allowed as a deduction the interest must be for the benefit of the estate that is the interest must have been actually and necessarily incurred for the benefit of the estate expenses that are not necessary to the settlement of the estate but instead are incurred for the benefit of heirs legatees or devisees are not deductible this does not mean however that there can be no benefit to heirs merely that there must be benefit to the estate see 76_tc_369 and 49_tc_207 as explained by the tax_court a given expense associated with the administration of an estate may be incurred for several reasons this is the sale may have been initiated for the benefit of the heirs but at the same time it may have been necessary to acquire cash to pay expenses preserve the estate or to effect a distribution in such a situation it may be more appropriate to ignore the personal aspects of the transaction and allow the executor to deduct the incurred expenses park's 57_tc_705 it should be noted that in park's estate the court disallowed the claimed deduction of selling_expenses because the estate had sufficient cash available to pay all of the expenses of administration that it was claimed necessitated the sale of estate assets the court concluded that the sale was solely for the benefit of the heirs it is our understanding that here the estate did not have sufficient cash or liquid_assets to pay the tax penalty and interest assessed against it and had to wait until other assets could be sold in addition the estate contested the penalty in the tax_court even though it conceded the omission and undervaluation of many of the assets that generated an underpayment of federal estate_tax it did not concede that the underpayment was with fraudulent intent thus the estate can argue that its delay in payment of the penalty and the incurring of interest on the penalty pending a judicial determination were for the purpose of preserving the assets of the estate and therefore was for the benefit of the estate you note that the allowance of interest on the penalty as an administrative expense will reduce the amount of the taxable_estate and thereby reduce both the amount of the tax and the penalty which is computed on a percentage of the underpayment attributable to fraud in estate of bahr the tax_court fail ed to see the significance of the fact that the interest if deductible would reduce the taxable_estate and thus the ultimate amount of estate_tax paid the result is the same when interest is paid to a private lender as in 36_bta_698 and 57_tc_288 a deductible administration expense by definition reduces the taxable_estate to deny an administration expense deduction upon the mere basis that it would otherwise reduce the amount of estate_taxes paid would result in the disallowance of all administration_expenses we agree that a reduction in both the amount of tax and any addition to the tax computed as a percentage of the tax is inherent in the allowance of deductions from the taxable_estate case development hazards and other considerations if you have any further questions please call by william c sabin senior technician reviewer


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh release number release date date date legend b name c high school name d name e name of family f date g website y dollars amount dear you asked for advance approval of your scholarship grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scholarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provide in code sec_117 description of your request your letter indicates you will operate a scholarship program called b your purposes are exclusively charitable educational scientific literary and or religious including making distributions to other organizations for such purposes you intend to letter catalog number 58263t establish b which will further your purpose by enabling deserving high school students from c to advance their education at accredited higher education institutes b will also promote the higher education of high school students showing excellence in the areas of leadership scholarship citizenship and sportsmanship b is named for d a teacher who inspired several members of e but is otherwise unrelated to you any graduating student from c accepted by and seeking a degree from an accredited higher educational institute may be considered for the scholarship students need not have an a average but should be of a caliber to indicate an ability to benefit from and be intellectually equal to work at a post-secondary level approximately individuals were eligible to apply for the scholarship for the last academic year but because c is a public high school this number is expected to vary there are two scholarships for y dollars per year recipients of the award will include one male and one female graduating student at c each year the program is in effect the number and amount for the scholarship is fixed depending on the success of the program and funds available to you the number and amount may be adjusted at your sole discretion furthermore the grants are for tuition fees books supplies and equipment required for educational courses at an accredited higher educational_institution described in sec_170 a ii and will be awarded on an objective and non- discriminatory manner you have developed an online application system through the website g which contains the actual application as well as the history and other details of b’s application process applicants must submit a completed application along with transcripts official act sat scores and results and a resume detailing work history extracurricular activities community involvement and anything else they believe will show commitment or performance in areas of leadership scholarship citizenship and sportsmanship while attending c moreover applicants must prepare an essay describing a topic of choice that would help show their character to the committee the selection criteria for the scholarship will include a demonstrated high level of commitment and performance in the combined areas of leadership scholarship citizenship and sportsmanship during a student's time at c financial need of the applicants can be considered by the selection committee but is a secondary consideration to merit and used primarily as a tiebreaker the selection committee shall be composed of the following the c principal one counselor and two teachers selected by the principal one representative of you and d for as long as he is able and inclined to serve members of the selection committee will not be in a position to derive private benefit directly or indirectly if certain potential grantees are selected over others a recipient cannot be related to a member of the committee or to any disqualified_person in relation to you you will be responsible for determining and replacing your representative c will be responsible for determining and replacing its principal school counselor and two teachers for the selection committee letter catalog number 58263t recipients will be selected and informed in their senior year on or about f approximately days in advance of the deadline to confirm enroliment at most educational institutions the scholarship can be renewed annually up to a maximum of four years total provided that a student is attending an accredited higher educational_institution described in sec_170 is not on academic or disciplinary probation and is making satisfactory progress toward completion of a degree awards will be distributed directly to the student progress reports including documentation of courses taken and grades received will be obtained and verified with the educational_institution each quarter semester or other applicable academic period upon completion of the grantee’s study a final report will be collected from the grantee if no report is filed by the student or if reports or other information indicate that the funds are not being used in furtherance of the scholarship purpose a member of your board_of trustees will investigate the jeopardized grant as provided in reg sec_53 c while conducting this investigation you will withhold further payments from the grantee and will take reasonable and appropriate steps to recover grant funds until it has determined that the funds are being used for their intended exempt_purpose alternatively scholarships may be supervised as provided in reg sec_53 c you will retain all records submitted by the grantees and their educational institutions including documents relating to the qualifications of potential grantees identification of grantees amount and purpose of each grant and follow-up reports and investigations you will obtain and maintain in a file evidence that no recipient is related to you or to any members of the selection committee basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to the provisions of code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 a ii catalog number 58263t this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don’t differ significantly from those described in your original request other conditions that apply to this determination_letter e e e e this determination applies only to you it may not be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the office of exempt_organizations at internal_revenue_service exempt_organizations determinations you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 b you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely director exempt_organizations letter catalog number 58263t


internal_revenue_service department of the treasury number release date index nos washington dc person to contact telephone number refer reply to cc ita plr-144004-03 date date legend year year dear this is in reference to a form_1128 application to adopt change or retain a tax_year submitted on behalf of the taxpayer tin requesting permission to change its accounting_period for federal_income_tax purposes from a week tax_year ending on the saturday nearest to december to a week tax_year ending on the saturday nearest september effective september year the taxpayer has requested that the form_1128 be considered timely filed under the authority contained in sec_301_9100-3 of the procedure and administration regulations the taxpayer is a partnership and its form_1128 requesting a change in accounting_period to a week tax_year ending on the saturday nearest september was due on or before april year the information furnished indicates that the application_for the change in accounting_period was filed late because of an error or misunderstanding however this application_for sec_301_9100-3 relief was filed within days of the return’s due_date revproc_2002_38 2002_1_cb_1037 provides the exclusive procedures for certain partnerships s_corporations electing s_corporation and personal_service_corporations to obtain automatic approval to change their annual accounting periods under sec_442 of the internal_revenue_code a taxpayer complying with all the applicable provisions of this revenue_procedure has obtained the consent of the commissioner of the internal_revenue_service to change its annual_accounting_period under sec_442 and the income_tax regulations thereunder section dollar_figure of revproc_2002_38 provides that a form_1128 filed pursuant to this revenue_procedure will be considered timely filed for plr-144004-03 purposes of sec_1_442-1 only if it is filed on or before the time including extensions for filing the return for the short_period required to effect such change sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the instant case must be made under the rules of sec_301_9100-3 requests for relief subject_to 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 the granting of relief will not prejudice the interests of the government based on the information submitted and the representations made it is held that the taxpayer has acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government accordingly the requirements of the regulations for granting relief have been satisfied in this case and the taxpayer's late filed form_1128 requesting permission to change to a week tax_year ending on the saturday nearest september effective september year is considered timely filed since a change in accounting_period under revproc_2002_38 is under the jurisdiction of the director internal_revenue_service center where the taxpayer’s returns are filed we have forwarded the application to the director ogden service_center any further communication regarding this matter should be directed to the service_center the ruling contained in this letter is based upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as part of an examination process this ruling addresses the granting of sec_301_9100-3 relief only no opinion is expressed regarding the tax treatment of the instant transaction under the provisions of any other sections of the code or regulations that may be applicable thereto or regarding the tax treatment of any conditions existing at the time of or effects resulting from the instant transaction specifically no opinion is expressed as to whether the taxpayer is permitted under the code and applicable regulations to change to the tax_year requested in the subject form_1128 plr-144004-03 this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent sincerely robert a berkovsky branch chief office of associate chief_counsel income_tax and accounting enclosures copy of this letter copy for sec_6110 purposes


t c summary opinion united_states tax_court kevin wade hamblin petitioner v commissioner of internal revenue respondent docket no 7617-99s filed date kevin wade hamblin pro_se sara j barkley for respondent couvillion special_trial_judge this case was heard pursuant to sec_7463 in effect when the petition was filed ’ the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined a deficiency of dollar_figure in petitioner' sec_1 unless otherwise indicated section references hereafter are to the internal_revenue_code in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure federal_income_tax for the issue for decision is whether certain amounts received by petitioner from his former employer during in connection with the settlement of a class action against his former employer are excludable from gross_income under sec_104 in his petition petitioner alleged my ex-wife filed for the year of and i do not remember signing a for that tax season so i cannot attest to its correctness nor should i be held accountable if it is incorrect as to her income at trial petitioner filed a trial memorandum in which he stated that his former spouse carol l fuhr hamblin mrs hamblin falsely reported on their joint_return income from a trade_or_business activity conducted by her in the amount of dollar_figure and the reason for reporting such income was solely for the purpose of claiming an earned_income_credit under sec_32 with respect to the tax on that income petitioner claims relief from joint liability under sec_6015 respondent agrees while not making any concession that the issue is appropriate but cannot now be considered by the court for the reason that respondent had no knowledge prior to trial that petitioner intended to claim relief from joint liability and accordingly petitioner's former spouse was not provided notice as regquired by sec_6015 see also 115_tc_118 interim rule some of the facts were stipulated those facts with the annexed exhibits are so found and are incorporated herein by reference at the time the petition was filed petitioner was a legal resident of canon city colorado petitioner was an employee of payless drug stores northwest inc payless in colorado from sometime during until date he worked in several different positions including that of floor supervisor although his assignments varied ranging from stocking shelves to the supervision of employees shortly after his employment began with payless petitioner realized that his employer was overly demanding he and other employees were required to work from to hours per week at least and sometimes days per week he found the work overwhelming and finally realized he could no longer bear the in the notice_of_deficiency respondent disallowed the earned_income_credit of dollar_figure claimed on petitioner's joint_return for for the reason that the inclusion of petitioner's class action award in income exceeded the earned_income amount as provided in sec_32 and b if the court sustains respondent on the class action income issue respondent's adjustment disallowing the earned_income_credit would likewise be sustained however the question of whether petitioner is entitled to relief from joint liability under sec_6015 with respect to the trade_or_business income attributable to his former spouse would remain additional information regarding petitioner's joint_return relative to this issue is provided later in the body of the opinion emotional and physical strains of the job he left the employment with payless in date and went into real_estate on date an action was filed in the u s district_court for the district of idaho against payless by four of its former employees for themselves and on behalf of other present and former employees of payless the complaint alleged that the purpose of the action was to recover on behalf of the class of employees unpaid overtime compensation liquidated_damages attorney's_fees and costs under section b of the fair labor standards act of ch 52_stat_1069 currently codified pincite u s c secs petitioner was not one of the plaintiffs instituting the action however petitioner qualified for participation as a member of the class of employees for whom the action was filed petitioner never elected to be excluded from the class nor did petitioner ever claim or institute any separate action against payless the class action did not proceed to trial but was settled payless agreed to pay dollar_figure million for the benefit of all qualifying members of the class including petitioner as part of the settlement the plaintiffs in the class action executed a written settlement agreement and release the settlement agreement effective date in consideration for payment of the dollar_figure million by payless the settlement agreement included a release by the plaintiffs of payless that was embodied as sec_3 and provided in pertinent part the plaintiffs hereby release and discharge payless from all actions claims or demands for damages liabilities costs or expenses which the plaintiffs have against payless on account of or in any way arising out of the claims that were asserted or that could have been asserted in the lawsuit by the plaintiffs including but not limited to claims for personal injuries intentional infliction of emotional distress negligent infliction of emotional distress and from all known claims whether based on tort statute or contract which are based in whole or in part or arise out of or in any way relate to the lawsuit and anything done or allegedly done by payless arising out of or in conjunction with or relating to the employment of any and or all plaintiffs by payless the settlement agreement additionally included section entitled liability denial and basis for settlement which provided payless denies any liability on its part and enters into this agreement solely to avoid litigation and to buy its peace all settlement proceeds are paid to plaintiffs on account of personal injuries this settlement agreement and the releases contained herein settle and resolve all claims which have to this point been contested and denied by the parties as well as all other claims released by paragraph sec_3 and of this settlement agreement none of the provisions of this settlement agreement and nothing contained in this settlement agreement shall be construed as an admission of any liability whatsoever by any party hereto to any other party hereto emphasis added as a member of the class of former employees of payless petitioner during received dollar_figure from which dollar_figure was deducted for attorney's_fees and costs for a net amount of dollar_figure the amount recovered included back pay liquidated_damages an amount for participating as a member of the class and another amount for testifying in a deposition the parties did not provide an itemization of these various amounts except that the notice_of_deficiency listed dollar_figure as liquidated_damages and dollar_figure as wages or back pay as part of the settlement petitioner executed an individual certification and release in favor of payless wherein he acknowledged receipt of documents regarding settlement of the class action acknowledged receiving a copy of the settlement agreement that was incorporated by reference as part of his release expressly affirmed the authority of the named plaintiffs to release my claims and settle the lawsuit and individually released payless in paragraph of the release that provided in pertinent part in exchange for the payment of the amount to petitioner i hereby release and discharge payless from all actions claims or demands for damages liabilities costs or expenses which the plaintiffs individually or collectively have against payless on account of or in any way arising out of the claims that were asserted or that could have been asserted in the lawsuit by the plaintiffs which lawsuit is hereby acknowledged as not fully plead further including but not limited to claims for personal injuries intentional infliction of emotional distress negligent infliction of emotional distress and from all known claims whether based on tort statute or contract which are based in whole or in part or arise out of or in any way relate to the lawsuit and anything done or allegedly done by payless arising out of or in conjunction with or relating to the employment of any and or all plaintiffs prior to date by payless emphasis added petitioner and his then wife mrs hamblin filed a joint federal_income_tax return for the amount received by petitioner from payless was not included as income on the return at the time the return was filed in date petitioner was incarcerated the return was not signed by petitioner however mrs hamblin signed the return on his behalf pursuant to a general durable_power_of_attorney petitioner had previously executed appointing mrs hamblin as his agent with authority to perform such acts on his behalf the items of income reported on the return are as follows wages and salaries dollar_figure taxable interest_income schedule c business income big_number other income house cleaning total dollar_figure the earned_income reported on the return was attributable solely to mrs hamblin and included schedule c income from a real_estate sales activity conducted by mrs hamblin under the business name of heritage realtors the return also included an internal_revenue_service form schedule eic harned income credit which listed two qualifying children the amount of the earned_income_credit claimed was dollar_figure petitioner and mrs hamblin separated in and were divorced in respondent issued one notice_of_deficiency to petitioner and mrs hamblin and determined that the dollar_figure gross amount received by petitioner from payless constituted gross_income and dollar_figure of the attorney's_fees and costs related to the payless award was allowable as an itemized_deduction ’ because the standard_deduction claimed on the return was less than the allowed itemized_deduction respondent substituted the dollar_figure in attorney's_fees and costs for the standard_deduction claimed on the return the dollar_figure in earned_income_credit on the return was also disallowed in full see supra note petitioner filed a timely petition in this court mrs hamblin did not petition this court petitioner contends that the amount he received in the settlement represented damages for the physical and mental strain he suffered in the undue hours and days he was required to work for payless which he could no longer endure and resulted in his leaving the employment more specifically when questioned at trial as to what was the personal injury he sustained petitioner the allowed amount presumably consists of the dollar_figure withheld from petitioner's award le sec_2 percent of adjusted_gross_income that is not allowable under sec_67 ‘ petitioner has not challenged respondent's inclusion of the dollar_figure in attorney's_fees in gross_income and allowance of that amount as an itemized_deduction reduced by the sec_67 limitation see miller v commissioner tcmemo_2001_55 219_f3d_941 9th cir affg tcmemo_1998_395 answered it was fatigue stress headaches the fact that i was going around like a zombie the fact that i had -- that i was making bad decisions there's -- that pretty much covers everything but it was such a tremendous amount of stress that i was having a hard time dealing with life and it was manifesting itself petitioner also contends that his physical and emotional injuries were a contributing cause of his subsequent commission of a felony for which he was sentenced to prison no action was ever instituted by petitioner against payless for the above injuries petitioner described nor do any of the settlement documents between payless and its former employees address any specific injury to any of the former employees who instituted the action including petitioner as a member of the class sec_104 provides that gross_income does not include the amount of any damages received whether by suit or agreement on account of personal injuries or sickness under sec_1_104-1 income_tax regs damages means a recovery based upon tort or tort type rights see also 515_us_323 while personal injuries under sec_104 may generally include both physical as well as nonphysical emotional injuries such as pain and suffering emotional distress harm to reputation or other -- - consequential damages eg a ruined credit rating the supreme court has distinguished such personal injuries from legal injuries of an economic character such as those arising out of the unlawful deprivation of the opportunity to earn wages through a wrongful termination 504_us_229 damages received for lost wages in connection with the settlement of economic rights such as those arising out of a breach of contract are not excludable from income under sec_104 see 102_tc_116 affd in part revd in part on another issue 70_f3d_34 5th cir sec_1_104-1 income_tax regs provides the term damages received whether by suit or agreement ' means an amount received through prosecution of a legal suit or action based upon tort or tort type rights or through a settlement agreement entered into in lieu of such prosecution thus in order to exclude damages from gross_income pursuant to sec_104 the taxpayer must prove the underlying cause of action is based upon tort or tort type rights and the damages were received on account of personal injuries or sickness commissioner v schleier supra pincite where amounts are received pursuant to a settlement agreement the nature of the claim that was the actual basis for settlement controls whether such amounts are excludable from gross_income under sec_104 see united_states v burke supra pincite the crucial question is in lieu of what was the settlement amount_paid 105_tc_396 affd 121_f3d_393 8th cir determining the nature of the claim is a factual inquiry see robinson v commissioner supra pincite here the complaint in the class action was exclusively for recovery_of overtime compensation liquidated_damages attorney fees and costs under the fair labor standards act of nowhere in the complaint or in the settlement agreement is there any reference to or any indication that the recovery included damages for physical or mental injuries moreover the record satisfies the court that petitioner's claim to physical and mental injuries was not called to the attention of payless or its attorneys in connection with the class action since there was no claim made for such injuries by petitioner the rhetorical question posed in bagley v commissioner supra is that whatever the settlement was for it certainly was not for personal injuries attributable to the injuries petitioner claims moreover the general language relied on by petitioner in the settlement agreement that all settlement proceeds are paid to plaintiffs on account of personal injuries is inconsistent with indeed some of the injuries petitioner complains of occurred long after his employment with payless the other provisions of the agreement that quite clearly indicate and establish that the settlement was intended to satisfy the claims made in the class action such language relied on by petitioner in the settlement agreement therefore can be ignored see peaco v commissioner tcmemo_2000_122 an express allocation such as petitioner relies on may be disregarded if the facts and circumstances surrounding a payment such as exists in this case indicate that the payment was intended by the parties to be for a different purpose see bagley v commissioner supra robinson v commissioner supra 87_tc_1294 affd 848_f2d_81 6th cir burditt v commissioner tcmemo_1999_117 the court therefore finds that the amounts awarded to petitioner were for back pay and liquidated_damages under the fair labor standards act pursuant to the class action initiated by the former employees of payless as such the amount_paid to petitioner constituted gross_income and such amount is not excludable under sec_104 see commissioner v schleier supra respondent therefore is sustained reviewed and adopted as the report of the small_tax_case division in order to present petitioner's claim to relief from joint liability under sec_6015 as an issue before this court which includes the right of intervention by petitioner's former spouse an appropriate order will be issued


internal_revenue_service number release date index number ------------- ---------------------- ---------------------------- ---------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b1 plr-106007-09 date date legend x -------------- ----------------------- w -------------------------------------------------- ------------------------------- y -------------------------------------------------- -------------------------------- z -------------------------------------------------- ------------------------------------------ state date date date date ------ ----------------------- ---------------------- ------------------------ -------------------------- dear ----------------- this responds to your request dated date on behalf of x requesting that x be given an extension of time in which to elect to treat its wholly- plr-106007-09 owned subsidiaries w y and z as qualified subchapter_s subsidiaries qsubs under sec_1361 of the internal_revenue_code facts according to the information submitted x was incorporated under state law on date and elected subchapter_s status on date y was incorporated on date and w and z were each incorporated on date w y and z are each wholly-owned subsidiaries of x x intended to treat y as a qsub effective date and to treat w and z as qsubs effective date however x inadvertently failed to timely file the proper elections x represents that it has acted reasonably and in good_faith that granting relief will not prejudice the interests of the government and that it is not using hindsight in making the election law and analysis sec_1361 defines the term qualified_subchapter_s_subsidiary as a domestic_corporation which is not an ineligible_corporation as defined in sec_1361 if an s_corporation holds percent of the stock of the corporation and that s_corporation elects to treat the subsidiary as a qsub section a of the income_tax regulations provides that an s_corporation may elect to treat an eligible subsidiary as a qsub by filing with the appropriate service_center the form prescribed by the internal_revenue_service the election may be effective no more than two months and days prior to the date of the filing provided that the subsidiary otherwise qualifies as a qsub for the entire period for which the retroactive relief is in effect notice_2000_58 2000_2_cb_491 provides that form_8869 qualified_subchapter_s_subsidiary election should be used to elect qsub treatment if a valid qsub election is made the subsidiary is not treated as a separate corporation and all assets liabilities and items of income deduction and credit of the qsub are treated as assets liabilities and items of income deduction and credit of the parent s_corporation under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i 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 sec_301_9100-1 defines the term plr-106007-09 regulatory election as including an election whose due_date is prescribed by a regulations published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 section 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 conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of time of sixty days from the date of this letter to file a form_8869 with the appropriate service_center to elect to treat y as a qsub effective date and to elect to treat w and z as qsubs effective date a copy of this letter should be attached to the elections a copy is enclosed for that purpose 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 specifically no opinion is expressed concerning whether x is an s_corporation or whether w y or z is a qsub for federal tax purposes this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter will be sent to the taxpayer_representative sincerely curt g wilson curt g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc