t c memo united_states tax_court chih h and chu f chu petitioners v commissioner of internal revenue respondent docket no filed date chih h and chu f chu pro sese david r jojola for respondent memorandum opinion chiechi judge this case is before the court on petition- ers’ motion for leave to file motion to vacate decision peti- tioners’ motion respondent filed an objection to petitioners’ motion and a declaration by david r jojola mr jojola in support of that objection petitioners filed a reply to respon- dent’s objection petitioners’ reply we shall deny petition- ers’ motion background on date respondent issued a notice of defi- ciency notice to petitioners that determined the following deficiencies in and fraud penalties under sec_6663‘ on petitioners’ federal_income_tax tax_fraud penalty year deficiency under sec_6663 a dollar_figure dollar_figure big_number big_number big_number big_number on date petitioners timely filed pro sese a petition this case was calendared for trial at the court’s trial session in los angeles california that commenced on date on date robert h appert mr appert entered an appearance on behalf of petitioners on date the parties filed a stipulation of settled issues a first supplemen-- tal stipulation of settled issues and a second supplemental stipulation of settled issues collectively stipulations of settled issues each of those stipulations was signed on date by mr appert on behalf of petitioners as well as by each petitioner and by mr jojola on behalf of respondent on date the parties submitted to the court a stipu- ‘a11 section references are to the internal_revenue_code in effect at relevant times all rule references are to the tax_court rules_of_practice and procedure lated decision document stipulated decision document that was signed on date by mr appert on behalf of petitioners and by a representative of respondent and that reflected the agreement of the parties as set forth in the stipulations of settled issues on date the court entered a decision in this case pursuant to the agreement of the parties as reflected in the stipulated decision document’ that petitioners are not liable for the fraud_penalty under sec_6663 for any of the years at issue and that they are liable for deficiencies in and accuracy- related penalties under sec_6662 on petitioners’ tax as follows fraud_penalty accuracy--related penalty year deficiency under sec_6663 a under sec_6662 a dollar_figure none dollar_figure big_number none big_number big_number none big_number discussion the court’s decision in this case was entered pursuant to the agreement of the parties on date no notice of appeal or timely motion to vacate or revise the decision was filed in this case see sec_7483 and rule and the decision herein became final on date see sec_7481 fed r app p a 7on date after the decision in this case was entered mr appert filed a motion to withdraw as attorney of record for petitioners in this case on date the court granted mr appert’s motion q4e- petitioners’ motion was filed on date almost two years after the court entered the decision in this case and months after that decision became final once a decision becomes final the court may vacate it only in narrowly circum-- scribed situations such as where the decision was obtained through fraud on the court see 859_f2d_115 9th cir affg 86_tc_1319 or where the decision is void or a legal nullity for lack of this court’s jurisdiction over either the subject matter or the party see 868_f2d_1081 9th cir 90_tc_103 the court_of_appeals for the ninth circuit has defined the phrase fraud on the court to be an unconscionable plan or scheme which is designed to improperly influence the court in its decision ’ 441_f2d_930 9th cir quoting 281_f2d_304 9th cir vacating 52_tc_295 see abatti v commissioner ‘the court_of_appeals for the fifth circuit has indicated that in extraordinary circumstances this court has the power in its discretion to vacate and correct a final_decision where it is based on a mutual mistake of fact see 63_f2d_630 5th cir the court_of_appeals for the ninth circuit to which an appeal in this case would normally lie does not recognize this court’s power to vacate and correct a final_decision where it is based on a mutual mistake of fact see 859_f2d_115 9th cir affg 86_tc_1319 235_f2d_97 9th cir affd per curiam 352_us_1027 - - supra in order to prove fraud on the court petitioners have the burden of establishing that an intentional plan of deception designed to improperly influence the court in its decision has had such an effect on the court 86_tc_1319 affd 859_f2d_115 9th cir see 113_f3d_670 7th cir affg tcmemo_1995_209 and cases cited therein the court has carefully reviewed petitioners’ motion and petitioners’ reply petitioners’ motion states in pertinent part irs hold the document from the bank_deposits and made the copies of receipts back to of tax- able year but never exchange to tax- payer or cpa even requested for years to see what the results from and run out of the appealing time jumped to the conclusion which no one would believe it it was found irs made mistakes for taxable_year of by double taxing on the petitioners because irs always using the worksheets to jot down the numbers which could be partially reported and irs examiners never recreated on the official forms to show or exchange to the taxpayers irs eventually released the data in dec of and petitioners hired the attorney robert h appert to check and recreate the official forms for taxable_year of as the refer- ence to the tax_court the counsel for petitioners did not attend the conference meeting on time held by judge carolyn chiechi nor recreated the schedule c offi- cial forms as all the receipts cancelled checks were available the motion to withdraw the counsel of petitioners was ordered from the court because robert with cpa background charging dollar_figure hr and did not prepare the forms either as the supporting document to the court and both parties from the irs booklets when all the data are available the professionals require only hours to fill out forms actually back to when auditor jennifer was in cpa’s office to examine the taxable_year of the cpa took only half hour to accomplish the forms with schedule c to auditor for information when all the receipts and cancelled checks were copied by the auditor the reason to use official forms was easy to communicate with the other party and should any number in doubt the taxpayers can have receipts or cancelled check or bank statement to prove it to prevent irs examiners to hide or delete items or made partial report to jump to the conclusion misleading the judgments it must have the forms to be as the reference it does not matter which forms to be used the petitioner has been in electronics industry for years and being laid off from date due to the eaton corp closed completely in los an- geles since the petitioners have no idea of ac- counting book keeping every year must have the cpa tax specialist to prepare the forms in petitioner could not find the right job after being laid off for almost one year starting to do import trade business using the savings or tra funds to purchase the goods the cost of goods in the year was around dollar_figure plus the operation expenses of startup this new field of business definitely the operating_expenses schedule c for this new trade business was far more than the profits of selling the products it does not matter which official forms ez or 1040a to be used the results of the income loss profits should be the same it does not matter what method to be used to anal- ysis the new startup business the bank saving dropping from to indicated the seeds - jj - money being used up for the import business start- up and in even could not afford to hire the part time bookkeeper mrs chu majoring in music helped to just put all the receipts aside without knowing how to organize it but everyone knows without investing or buying the seeds to fertilize it the fruits will not be there years after in other words no one would expect the profits fruits in the first few years of startup a new business seeds reproduced literally petitioners’ reply states in pertinent part this court has jurisdiction to vacate a final_decision if the decision of the court was obtained by fraud on the court partially report the cog is the act of fraud which would influence the judgment treating petitioners unfairly or dif- ferently will be justified by the court as the act of fraud or one kind of discriminating the peti- tioners had no tax_accounting background or knowl- edge the definition of fraud is an act of deliberate deception with the design of securing something by taking unfair advantage of another-new interna- tional dictionary a deliberate deception for unfair or unlawful gain-american heritage diction- ary respondent is a tax professional hold the documents retrieved from the bank without exchange to the petitioners for four years and jump to the decision without providing the appeal meeting for petitioners to explain until tax solv- ing date requested by the congressman to release the files to the petitioners to check to prove such fraud petitioners no tax back- ground hired the cpa and attorney to analyze and prepare the detailed forms and schedule c for easy understanding without eliminating or modified the numbers where the banks statements or re- ceipts cancelled checks were all available the respondent professional tax expert claimed in his office the preparation of forms need one more year and he could not find help to prepare it based on the receipts cancelled checks and bank transaction statement actually respondent spent only two hours to put the numbers into the forms see exhibit a but hold the progress of checking the taxable years of and because respondent knowing that petitioner lost the main job in and started to import the different small quantities of samples of audio devices from april of respondent deliber- ately hold the progress of reviewing the expenses of start-up business which was about two weeks from date deadline to turn in the paper to the court the petitioners hired the attorney to continue to review and prepare the form and schedule c which estimated only need four hours required but not successful and on feb 6th petitioners being told that counsel could do it at the second_phase first_phase he did not care about what respondent did this was the main reason the petitioner had the motion to withdraw the counsel the legal counsel was hired to make the progress of reviewing the cogs of and few ex- penses items which respondent deliberately hold or partially report in his stipulation report dur- ing the time of hiring not only the counsel was late in the meeting called by the judge but he did not make any progress report to petitioners until feb 6th two days away from the dead- line set by the court besides the petitioner spouse had the operation of the chest and under daily radiation treatment of cancer disease under such mentally pressure robert forced the peti- tioners to sign the incompletely stipulation re- port by saying he can fix it at the second_phase as the fraud is an act only if the professional made it later can be caught what did the respon- dent make during the stage of professional’s intention to design the scheme it was hard to get the evidence as fraud is an act using profes-- sional knowledge to take advantage of the non- professionals by treating the taxpayer unfairly differently or not just as people say that non- professionals might use tangible weapons to rob the bank to get money illegally but profession-- als can use intangible way their knowledge to write the makeup figures to take the money from the taxpayer pockets illegally as the profes-- sional always use the rules in favor of his mis-- conduct as the fraud activity he would never tell anyone by holding such case for how many years would dismiss drop the case since by holding the case irs put the interest on it and when irs owed petitioner money also holding the check for the taxable_year of without releasing by making the excuses as there are two different issues because of the following reasons the settlement was never reached a the deficiency of taxable_year and came out without giving the petitioners the documents describing where the figures from or how it was calculated the only paper received was last week the exhibits of respondent letter which had lots of expenses items being deleted or par- tially report in other words the stipulation issues were not only vague incomplete but very confusing to the court if the judge knowing in and the petitioners had no main job and using up the savings or even the ira fund as emer- gency seed money used to start_up the new trade business the tax_deficiency in petitioner lost the main job was calculated twice as higher as in the dollar_figure dollar_figure which petitioner still had the main job in the second year of the new start-up trade business the defi- ciency was calculated eight times dollar_figure dollar_figure higher than the it would make the judge very confused by just looking at the above figures made-up by the respondent deliberately to deceive the court judgment b before the deadline date judge agreed the withdrawal of petitioners counsel because no progress report and even negligence of the meeting called by the judge c the petitioner spouse was under cancer treatment and mentally in the bad shape peti- tioners have to totally trust and rely on the counsel hired with the dollar_figure hr rate -- - d under above stress conditions the petition- ers’ counsel talked into the petitioners to sign the incomplete stipulation issues made up by the respondent at the last minute on feb 6th by saying he could do the second_phase work or he would not represent the petitioners on the feb 8th in the court be in the morning about a m of feb 8th petitioner did turn in the above situation paper and requested the judge to consider the cogs of and few expenses items which respon- dent deliberately drop or cut off in respondent issues two days ago showing the stipulations has the figures made up by the respondent except the taxable_year of starting from the end of date the respondent just hold the pro- gress of reviewing the taxable_year of and do not mention to exchange the documents or provide the opportunity for petitioners until feb 6th all the papers were prepared for last minutes signatures this was the way the profes-- sional designed the trap to take advantage of the taxpayers unfairly by giving petitioners no oppor- tunity at all saying the court need the signatures to turn in the petitioners did not sign the stipulations of facts at the first place because the respondent did not provide the complete ex- penses report when reviewing the taxable_year of i believe the laws give the taxpayers to know how the deficiency being calculated and based on respondent hold or hide the documentations and provided no chance for petitioners to explain or exchange are not only unfair but trying to stop the court to review what figures respondent made up deliberately to take advantage of the petitioners is obviously seen if the respondent did not make up the figures or untruth report to the court respondent should not be afraid of any questions to be asked by the judge during the next investigation reproduced literally we find petitioners’ motion and petitioners’ reply to be vague and confusing however those filings do not appear to suggest or argue that we had no jurisdiction over the subject matter or petitioners in this case nor do petitioners’ motion and petitioners’ reply appear to suggest or argue that there was any corruption of the court assuming arguendo that petitioners are contending in petitioners’ motion and petitioners’ reply that some sort of fraud was perpetrated on the court on the instant record we reject any such contention that record establishes that petitioners retained legal counsel shortly before the scheduled trial in this case was to begin after retaining legal counsel the parties reached a basis of settlement and memorial- ized that settlement in the stipulations of settled issues which were signed by petitioners’ counsel mr appert on behalf of petitioners as well as by each petitioner and by mr jojola on behalf of respondent the court entered a decision in this case pursuant to the agreement of the parties as shown in the stipu- lated decision document that was signed by mr appert on behalf of petitioners and by a representative of respondent and that reflected the stipulations of settled issues and petitioners did not appeal the decision in this case or timely move to vacate it is noteworthy that the stipulated decision document reflects a substantial concession by respondent regarding the determinations in the notice -contrary to the allegations in petitioners’ motion and petitioners’ reply petitioners’ counsel mr appert did not file a motion to withdraw as attorney of record for petitioners in this case until date after the decision in this case was entered on date the court granted that motion on date or revise that decision based on our review of the entire record before us we find that petitioners have failed to show that the decision entered in this case is the result of fraud on the court or any other situation that warrants our exercise of our discretion under rule to grant petitioners’ motion based on that record we find that petitioners have failed to persuade us that we should grant them leave to file a motion to vacate the decision to reflect the foregoing an order will be issued deny- ing petitioners’ motion for leave to file motion to vacate decision


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 b01 plr-152002-05 date date ------------------- --------------------- --------------------------------- legend legend x -------------------------------------------------- country d dear ------------- correspondence written on behalf of x requesting an extension of time under ' and ' of the procedure and administration regulations to elect to be treated as a partnership for federal tax purposes this letter responds to the letter dated date and related facts the information submitted states that x was incorporated under the laws of country on d x intended to file a form_8832 entity classification election to be treated as a partnership for federal tax purposes effective d however the election was not timely filed law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under ' b or an eligible_entity can elect its classification for federal tax purposes elections are necessary only when an plr-152002-05 eligible_entity does not want to be classified under the default classification or when an eligible_entity chooses to change its classification sec_301_7701-3 provides that except for certain existing entities described in sec_301_7701-3 unless a foreign eligible_entity elects otherwise the entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single member that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under ' b by filing form_8832 with the appropriate service_center under ' c iii this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed 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 e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the federal_register commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-1 through provide the standards the conclusion based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of and and therefore it is granted an extension of time of sixty days from the date of this letter to file a form_8832 to elect to be treated as a partnership for federal tax purposes effective d a copy of this letter should be attached to the election a copy is enclosed for that purpose plr-152002-05 except as specifically set forth above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being mailed to your authorized representative sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purposes cc


significant index no department of the treasury internal_revenue_service washington d c government entities division oct t ep ra'alv re dear this letter constitutes notice that the company’s requests for waivers of the minimum_funding_standard for the salaried and hourly plans for the plan years ending date and have been granted subject_to the following conditions the company provides the pension_benefit_guaranty_corporation pbgc’ with a copy of any ruling_request it makes under sec_412 of the - internal_revenue_code code within five business days of the date of the ruling letter the company makes contributions to the salaried and hourly plans in the amounts necessary to satisfy the minimum_funding_standard for each plan for the plan years ending date and date including interest to the actual date of the contributions starting with the quarterly contributions due on date the company makes the required quarterly contributions to the salaried and hourly plans in a timely fashion while each of the plans is subject_to waivers of the minimum_funding_standard for this purpose the total amount of each quarterly contribution will be determined in accordance with sec_430 and sec_430 of the code and can be comprised of several installments made prior to the respective due_date of the quarterly contribution the company makes contributions to the salaried and hourly plans in amounts sufficient to a meet the minimum_funding requirements for each of the plans for the plan years ending date through by date through respectively without applying for a waiver of the minimum_funding_standard and b maintain credit balances equal to the outstanding balance of the amortization bases with respect to the waived amounts that are established and maintained under either sec_412 of the code as in effect prior to the pension_protection_act of ppa or sec_430 of the code as in effect after ppa as applicable if the service determines that pre-2008 funding waiver amortizations are not carried over as a separate amortization base for post-2007 plan years the company will make excess annual contributions to the salaried and hourly plans as if the waiver amortizations were carried over as a separate base such that the waivers will be paid off in five years the pre-funding balance shall be increased by these additional contributions and maintained until the end of the 5-year period at which time there must be an election to reduce the prefunding balance by the accumulated amount of the excess_contributions the company will a make its best efforts to cease benefit accruals for participants in the hourly plan effective with the termination of the collective bargaining agreement on date and b if the company and the union can reach an agreement to cease benefit accruals under the hourly plan provide a copy of the plan amendment ceasing benefit accruals under the hourly plan to the service and to the pbgc using the fax numbers or addresses below and the company provides proof of payment of all contributions described above in a timely manner to the service and to the pbgc using the fax numbers or addresses below information must be provided to both of the service and to of the pbgc or other individuals designated by the respective agencies using the addresses or fax numbers below internal_revenue_service ep classification commerce st dal dallas tx fax pension_benefit_guaranty_corporation disc k street n w washington dc fax your authorized representative agreed to these conditions in a letter dated date if any one of these conditions is not met the funding waivers for the salaried and hourly plans for the plan years ending date and are retroactively null and void these conditional waivers have been granted in accordance with sec_412 of the code and sec_303 of the employee_retirement_income_security_act_of_1974 erisa for each plan for the plan_year ending date the amount of the conditional waiver is equal to the contributions that would otherwise be required to reduce the balance in the funding_standard_account of the salaried and hourly plans to zero for each plan for the plan_year ending date the amount of the conditional waiver is the amount of the minimum_required_contribution for the plan_year not taking into account the amount described in sec_412 of the code as in effect after ppa the company manufactures edible collagen casings for a variety of foodservice applications it is owned by the holding_company which is in turn owned by the parent company the salaried plan is a non-contributory defined_benefit_plan the salaried plan covers all employees of the company hired before date excluding leased employees and employees covered by a collective-bargaining contract the plan was amended effective date to close participation to employees hired on or after date and to cease benefit accruals the hourly plan is a non-contributory defined_benefit_plan covering employees represented by the union pursuant to a collective-bargaining agreement with the union the current collective bargaining agreement with the union runs through date the company began to experience a financial hardship in early when its largest u s customer reduced its purchases after switching to a new technology that does not use the product manufactured by the company to respond to the reduced demand for its products the company froze all new hiring shut down one-quarter of its production lines and laid off both salaried and hourly employees this resulted in a significant reduction in fixed and variable expenses but the company was still forced to borrow dollar_figure additional dollar_figure from foreign banks reaching the credit limit with its lenders and an for the parent company to keep its operations running the company feels that itis in a position to effect a recovery in the near future by concentrating on new products and increasing its customer base trials of a new product have begun with its largest customer and the company is certain that it will meet the customer's qualification requirements in the near future foreign sales have increased as a result of the company's efforts to expand its presence in those markets and domestic sales continue to grow for certain of the company's products the company expects to be operating at full capacity in the near future because the parent company is confident that the company's financial difficulties are temporary the parent company provided a capital infusion of dollar_figure date to the company on the company has also resumed funding both the salaried and hourly plans the company made contributions of dollar_figure plans to satisfy the first and second required quarterly payment for the plan years ending date the company has represented that it will also make the required contributions due on date and date furthermore the company has agreed to make a contribution equal to the amount necessary to fully amortize the funding waivers that it has requested approximately dollar_figure million if the funding waiver requests are granted on date and date to the it is clear from our analysis of the information submitted with the request that the company has suffered a substantial business hardship it also appears that the business hardship is temporary therefore the company’s requests for waivers of the minimum_funding_standard for the salaried and hourly plans for the plan years ending date and have been granted subject_to the conditions described above your attention is called to sec_412 of the code and sec_304 of erisa _ which describe the consequences that would result in the event either the salaried or hourly plans is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting while any portion of the waived funding deficiencies remain unamortized please note that any amendment to a profit sharing plan or any other retirement plans covering employees covered by either the salaried or hourly plan maintained by the company to increase the liabilities of those plans would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa similarly the establishment of a new profit sharing plan or any other retirement_plan by the company covering employees covered by either the salaried or hourly plan would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent we have sent a copy of this letter to the to the and to your authorized representative pursuant to a power_of_attorney on file in this office we suggest that you furnish a copy of this letter to the enrolled_actuary who is responsible for the completion of the schedule b if you require further assistance in this matter please contact sincerely yours bdo f andrew e zuckerman director employee_plans rulings agreements


significant index number department of the treasury internal_revenue_service washington c mar tax exempt and vernment entities 20u stitiep 2a az re taxpayer - dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of date for the above-named plan which are described in sec_431 and sec_431 of the internal_revenue_code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning date this extension applies to the amortization charge bases as identified in your application submission established as of date with a total outstanding balance of dollar_figure the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 of the code sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 including a certification from the plan’s actuary as of that date that i absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ii the plan_sponsor has adopted a plan to improve the plan's funding status 20vu924052 o n iii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided we have sent a copy of this letter to the manager and to the manager this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact sincerely yours a of lh a a david m ziegler manager ep actuarial group


t c memo united_states tax_court john gallo petitioner v commissioner of internal revenue respondent docket no filed date john gallo pro_se jeffrey a schlei for respondent memorandum opinion nameroff special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 respondent determined a deficiency in petitioner’s federal_income_tax for the taxable_year in the amount of dollar_figure the all section references 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 sole issue for decision is whether petitioner is entitled to claim a schedule c loss in the amount of dollar_figure from his paralegal boat repair business for the taxable_year during these proceedings petitioner filed a motion to dismiss for respondent’s intentional dirty tricks bad faith and obstructive behavior motion the court took the motion under submission at the conclusion of the trial some of the facts have been stipulated and they are so found the stipulation of facts and the attached exhibits are included herein by this reference petitioner resided in santa ana california at the time he filed his petition from to petitioner earned his living primarily as a freelance boat worker repairer petitioner would paint or varnish a boat do minor engine repairs eg changing the belts sparkplugs and pumps transport a boat or do just about anything a client would need suffice it to say that petitioner enjoyed working in the outdoors on boats during this period petitioner purchased a substantial number of hand tools for use in the boat repair activity these included special fasteners and bolts screwdrivers wrenches power tools drills and routers in addition petitioner purchased a bench saw a band saw and a drill press because of a series of unrelated injuries petitioner was forced to suspend his activities as a boat worker repairer hoping and expecting that some day he would be able to return to the business petitioner stored his tools in a commercial facility in the cost of the storage was dollar_figure near the end of or the beginning of petitioner disposed of the tools before petitioner enrolled in coastline community college coastline and studied in its real_estate program petitioner earned an aa degree and a certificate in real_estate he then obtained a real_estate salesman’s license in addition he studied the escrow field and obtained an escrow certificate moreover in early petitioner obtained from coastline a certificate of achievement in legal assisting which licensed petitioner as a paralegal prior to that time petitioner was involved in a serious car accident that required substantial medical_care and physical therapy petitioner’s physical condition was such that he was not able to accept work as a paralegal until date in and petitioner earned dollar_figure and dollar_figure respectively working as a paralegal temp for an agency that placed paralegals in either temporary or permanent positions also in petitioner earned dollar_figure as an employee of a paralegal services company that did on-site and off-site paralegal project work for various law firms and other entities the parties have stipulated that in and the petitioner regularly donated paralegal services to the coastline community college legal clinic where for some work he did for them in they paid him dollar_figure in and petitioner suffered additional injuries and accidents we will not dwell on the details of these incidents except to note that petitioner’s physical and mental conditions were such that he was incapable of working for any extended period of time without incurring substantial physical pain while petitioner was previously working as an employee for various agencies he was of the opinion that he could earn income as an independent_contractor by working as a paralegal out of his home thereby creating his own work schedule in furtherance of this plan in petitioner acquired a legal library at a cost of dollar_figure and a facsimile machine and supplies costing dollar_figure in petitioner moved into a larger apartment and acquired office furniture bookcases computer_software a printer and copier legal text updates for his legal library and other items for the purpose of completing his home_office for his paralegal activities during and petitioner did not earn any income as a paralegal primarily due to his physical incapacity petitioner had to turn down several opportunities because of his condition petitioner was under constant doctors’ care although his medical providers generally gave a positive prognosis for his full recovery on the schedule c attached to petitioner’s return petitioner reported no income from his paralegal boat repair busine sec_2 and claimed the following expenses dollar_figure depreciation office expense pension and profit sharing plans rent repairs and maintenance storage trade books paralegal association big_number big_number total big_number as indicated earlier the storage costs of dollar_figure pertain to his boat activity the dollar_figure for pension and profit sharing plans was a maintenance fee for his keogh_plan all of the other expenses are directly related to petitioner’s paralegal activity petitioner has adequately substantiated the above amounts and substantiation is not an issue in this case because a possible remedy would be to dismiss this case in favor of petitioner if we were to grant petitioner’s motion we will deal with the motion first in his motion petitioner contends that respondent’s actions with regard to petitioner’s discovery request and at the branerton_conference violated petitioner’s reported income was from withdrawals from an individual_retirement_account 61_tc_691 is continued petitioner’s constitutional rights of due process and equal protection and were so egregious as to require dismissal of the case in favor of petitioner petitioner also contends that respondent’s actions in this case demonstrated persecution vindictiveness and bad faith during these proceedings petitioner a 64-year-old individual at the time of trial was financially destitute and the victim of a series of unfortunate incidents nevertheless we must view the issues without regard to the special circumstances in which petitioner finds himself petitioner’s complaint with regard to respondent’s failure to comply with his discovery requests stems from petitioner’s response to a conference invitation letter from respondent’s counsel dated date in respondent’s letter as discovery request no one respondent’s counsel informally requested all documentation records notes statements memoranda or correspondence in your possession and any legal authority statutory or case law which supports your claim that you are entitled to claim a schedule c loss of dollar_figure for the taxable_year discovery request no two requested the identity of continued the seminal case setting the requirements for informal consultation prior to embarking on formal discovery see also rule each and every person expected to be called as a witness and the substance of his or her expected testimony in response thereto petitioner agreed to a meeting and concluded his letter dated date with two similar discovery requests respondent failed to comply with petitioner’s discovery requests the court did not receive a formal request from petitioner to enforce his discovery requests by order dated date this case was continued from the court’s trial session in los angeles california on date and recalendared for date rule contains general provisions for discovery in this court rule a provides in part discovery shall not be commenced without leave of the court before the expiration of days after joinder of issue and shall be completed unless otherwise authorized by the court no later than days prior to the date set for call of the case from a trial calendar rule a provides that any party may without leave of court serve on any other party a request to produce documents rule b however provides in part the party upon whom the request is served shall serve a written response within days after service of the request the court may allow a shorter or longer time rule b further provides to obtain a ruling on an objection by the responding party on a failure to respond or on a failure to produce or permit inspection the requesting party shall file an appropriate motion with the court and shall annex thereto the request with proof of service on the other party together with the response and objections if any prior to moving for such a ruling neither the request nor the response shall be filed with the court if we assume that petitioner’s discovery request is a request for production of documents from the above it can readily be seen that petitioner’s informal_discovery request was commenced less than days prior to trial and could not possibly have been completed no later than days prior to the date set for call of the case from a trial calendar rule a moreover petitioner failed to file an appropriate request for review of respondent’s failure to respond in accordance with rule b petitioner merely complained about it accordingly petitioner’s unsuccessful discovery request is not grounds to grant his motion and sanction respondent the fact that respondent made an equally unenforceable informal_discovery request with which petitioner attempted to comply is irrelevant as indicated in respondent’s informal_discovery request petitioner was requested to bring numerous documents in attempting to comply with this request petitioner assembled two boxes of records one of which he painfully carried from the parking lot at respondent’s office building to the conference petitioner complains that respondent failed to look at any of the documents he had brought notwithstanding respondent’s rejected offer to carry the box back to petitioner’s car petitioner then incurred great pain and aggravation returning to his car with the box we do not believe that this vignette requires us to sanction respondent’s counsel finally petitioner characterizes respondent’s actions as demonstrating obstructionism vindictiveness and general bad faith considering respondent’s motion to dismiss for lack of jurisdiction on the grounds of an untimely filed petition subsequently denied respondent’s motion to dismiss for lack of prosecution upon petitioner’s failure to appear at the original call of this case on date and the aforementioned problems with discovery and the branerton_conference petitioner characterizes himself as a victim due to his penury and physical and mental impairments and as such prays that the case be dismissed each of the incidents of which petitioner complains was not by itself irregular and they have only become heightened in combination by reason of petitioner’s particular situation we do not ascribe any vindictiveness or bad faith to respondent’s individual actions which had at each time some justification accordingly we find no grounds to grant petitioner’s motion and it shall be denied we now turn to the merits of this case sec_162 allows deductions for all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business as a threshold matter this section requires that a taxpayer incur the expenses in carrying_on_a_trade_or_business sec_162 whether petitioner is engaged in a trade_or_business and the nature of that trade_or_business are questions of fact 56_tc_1300 affd per curiam 487_f2d_1025 9th cir the temporary cessation of a trade_or_business does not preclude a finding that a taxpayer was carrying_on_a_trade_or_business during the period of cessation 40_tc_2 thus even an unemployed taxpayer may be considered to be carrying_on_a_trade_or_business if the taxpayer was previously involved in and intended to return to a particular trade_or_business id in order to take advantage of what is described as the hiatus principle a taxpayer must show that during the hiatus he intended to resume the same trade_or_business see 762_f2d_264 2d cir citing sherman v commissioner t c memo affg 83_tc_368 in haft v commissioner supra pincite we stated as follows plainly petitioner did not cease to be in the costume jewelry business in and merely because he temporarily had no merchandise to sell it was a period of transition in which he was actively seeking another connection that would enable him to continue to serve the same customers with whom he had previously dealt we think that the respondent’s position that petitioner was not carrying_on_a_trade_or_business in these circumstances gives an unduly narrow interpretation to the statute his failure to make sales in by reason of his temporary lack of access to a source of costume jewelry to sell is not controlling the present case involves petitioner’s claim for deductions for expenses from two separate activities boat repair and paralegal work petitioner was engaged in the boat repair business from through during which he accumulated a substantial number of tools and supplies in petitioner incurred expenses for storage for these tools and supplies after petitioner did not perform boat repairs and did not earn any income from that activity as the years passed it became less and less likely that petitioner would ever return to that activity or that his services would be desired by boat owners or previous clients there is no indication in the record that petitioner maintained contact with his former clients in this regard on the other hand petitioner after sought other means of earning a living he obtained his paralegal certificate in and attempted to obtain employment beginning in date he was successful through earning in excess of dollar_figure from that activity all earnings from the paralegal activity were as an employee however it became clear that because of his physical infirmities he would be unable to handle the time restraints required of an employee but he honestly and sincerely believed that he could still function and earn money as a paralegal as an independent_contractor out of his home in accordance with his belief petitioner set up his home_office with the necessary research materials and equipment during and while petitioner did not derive income from his paralegal skills he was hopeful that he was on the road to recovery based upon the representations of his medical providers clearly the activities of a boat repair person and a paralegal are separate and distinct it is not logical that these two activities be combined as one trade_or_business on one schedule c accordingly we hold that the income and expenses for each activity should be treated separately we further hold that petitioner in realistically had no likelihood of reentering the boat repair field his maintenance of the tools some of which were monogrammed was more for sentimental reasons than for business potential consequently in he was no longer in hiatus from that activity and thus no longer carrying on that trade_or_business accordingly petitioner is not entitled to deduct the storage expense incurred for his boat supplies and tools on the other hand petitioner was in hiatus from earning his living as a paralegal indeed the actions he took in and to bolster his opportunities and abilities to earn a living from that profession support this conclusion respondent’s contentions that petitioner was merely in a startup phase of his independent_contractor business pertains only to the form of the activity and not its substance having been engaged in the paralegal business as an employee see 54_tc_374 petitioner did not change the general nature of his business activities by working out of his home_office therefore we conclude that petitioner in was carrying_on_a_trade_or_business as a paralegal and is entitled to deduct all of the other expenses at issue with the exception of the two following items the first item is the claimed expenses for dollar_figure for a portion of the rent associated with petitioner’s residential premises as applicable herein sec_280a provides that no deduction shall be allowed with regard to the use of residential property of the taxpayer some exceptions are provided in sec_280a however sec_280a clearly provides that no deduction shall be allowable in excess of the income derived from such use in other words no deduction for use of a residential unit can be taken if said deduction gives rise to a loss accordingly even though petitioner’s use of his residence may have qualified as one of the exceptions under sec_280a through sec_280a disallows the claimed rental_expense_deduction as petitioner had no paralegal income for moreover it is irrelevant whether petitioner claims the deduction under sec_212 if it is not allowable under sec_162 it is well established that a taxpayer is not entitled to a home_office expense deduction for a sec_212 activity that does not rise to the level of a trade_or_business within the meaning of sec_162 721_f2d_810 fed cir 73_tc_766 the second item petitioner’s expenditure of dollar_figure for maintenance of his keogh_plan would not be an expense of carrying on petitioner’s paralegal activity but would be deductible under sec_212 as a schedule a itemized_deduction see revrul_84_146 1984_2_cb_61 in his reply brief petitioner alleges that if the court sustains the disallowance of some of the claimed expenses he has additional unclaimed expenses as an offset attached to the reply brief were copies of numerous documents which were not offered at trial petitioner contends that he is entitled to claim the additional expenses under rule petitioner is wrong the time for presenting evidence is at trial generally the court does not try a case piecemeal new issues may not be raised after the trial has been concluded and the record closed moreover evidence may not be submitted or attached to posttrial briefs petitioner’s claim for additional expense deductions is therefore denied an order will be issued denying petitioner’s motion and decision will be entered under rule


t cc no ll united_states tax_court dennis l hayden and sharon e hayden petitioners v commissioner of internal revenue respondent docket no filed date ps are the sole partners in l during l expended dollar_figure on sec_179 property and elected to expense dollar_figure of that amount without regard to this deduction l had no taxable_income for the taxable_year the deduction under sec_179 flowed through to ps' return sec_1_179-2 income_tax regs provides that a partnership may not allocate to its partners as a sec_179 expense deduction for any taxable_year more than the partnership's taxable_income limitation for that taxable_year ps contend that the regulation is invalid held sec_1_179-2 income_tax regs is valid and respondent's disallowance of the deduction is sustained dennis l hayden and sharon e hayden pro_se brian m harrington for respondent opinion dawson judge this case was assigned to special_trial_judge carleton d powell pursuant to sec_7443a and - rule sec_180 sec_181 and sec_182 the court agrees with and adopts the opinion of the special_trial_judge that is set forth below opinion of the special_trial_judge powell special_trial_judge respondent determined a deficiency in petitioners' federal_income_tax and an accuracy-related_penalty under sec_6662 in the respective amounts of dollar_figure and dollar_figure the issues are whether petitioners are entitled to a deduction in the amount of dollar_figure under sec_179 and whether petitioners are liable for the accuracy-related_penalty under sec_6662 at the time the petition was filed in this case petitioners resided in frankfort indiana the facts may be summarized as follows petitioners are the sole partners in a partnership known as leddos frozen yogurt llc leddos that commenced operations on date during leddos purchased equipment for dollar_figure on the partnership return form_1065 leddos reported the following gross_receipts dollar_figure cost_of_goods_sold big_number total income loss big_number the partnership reported total deductions in the amount of dollar_figure and showed a loss in the amount of dollar_figure these figures did not include any deduction for the expense of sec_179 property on form_4652 depreciation and amortization unless otherwise indicated all section references are to the internal_revenue_code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure - - attached to the partnership return leddos elected under sec_179 to expense dollar_figure of the dollar_figure invested in equipment this deduction flowed through to petitioners' federal_income_tax return on schedule e ’ petitioner dennis l hayden petitioner is a certified_public_accountant whose practice includes a substantial amount of tax work petitioner operated and practiced an accounting business as a sole_proprietorship the proprietorship has employees and maintains an account for payroll_taxes that includes employment_taxes paid to the federal government during the taxable_year petitioner paid petitioners' federal_income_tax liability in the amount of dollar_figure from the bank account of the proprietorship and that amount was charged to the sole proprietorship's account for payroll_taxes on the proprietorship's schedule c attached to petitioners' joint federal_income_tax return petitioner deducted dollar_figure as payroll_taxes which amount included petitioners' federal_income_tax liability of dollar_figure the correct amount of the payroll_taxes paid_by the accounting practice for was dollar_figure upon examination respondent disallowed the dollar_figure sec_179 deduction and the portion of the deduction claimed on schedule c that was expended for federal income taxes respondent further determined an accuracy-related_penalty was due leddos qualifies as a so-called small_partnership under sec_6231 b and the partnership provisions of sec_6221 through do not apply - - on the underpayment resulting from disallowance of the portion of the schedule c deduction expended for federal income taxes sec_179 sec_179 provides a taxpayer may elect to treat the cost of any sec_179 property as an expense which is not chargeable to capital_account any cost so treated shall be allowed as a deduction for the taxable_year in which the sec_179 property is placed_in_service under sec_179 the deduction is limited inter alia to dollar_figure and shall not exceed the aggregate amount of taxable_income of the taxpayer for such taxable_year which is derived from the active_conduct by the taxpayer of any trade_or_business during such taxable_year sec_179 a for purposes of sec_179 a taxable_income is computed without regard to the sec_179 deduction see sec_179 c sec_179 further provides in the case of a partnership the limitations of subsection b shall apply with respect to the partnership and with respect to each partner the regulations amplify the taxable_income limitation applies to the partnership as well as to each partner thus the partnership may not allocate to its partners as a sec_179 expense deduction for any taxable_year more than the partnership's taxable_income limitation for that taxable_year and a partner may not deduct as a sec_179 expense deduction for any taxable_year more than the partner's taxable_income limitation for that taxable_year sec_1_179-2 income_tax regs petitioners acknowledge that under sec_1_179-2 income_tax regs the sec_179 deduction claimed here is not allowable they argue however that the regulation is invalid - - a treasury regulation must be sustained if it implements the congressional mandate in some reasonable manner 455_us_16 quoting 389_us_299 the issue is not how the court itself might construe the statute to which the regulation relates in the first instance 'but whether there is any reasonable basis for the resolution embodied in the commissioner's regulation ' 105_tc_227 quoting 434_us_528 normally treasury regulations must be sustained unless unreasonable and plainly inconsistent with the revenue statutes 333_us_496 the code section primarily involved here is sec_179 b a and d which is directed to the limitations in the case of partnerships for purposes here these limitations have two sources the genesis of sec_179 is section a the small_business tax revision act of publaw_85_866 72_stat_1606 that provided a deduction for an additional_first-year_depreciation there was a dollar_figure dollar_figure for joint returns limitation on the cost of the property subject_to the additional_depreciation that statute did not provide any limitation on partners sec_179 relating to partnership limitations first appeared in the tax reform act of publaw_94_455 90_stat_1525 the legislative - - history provides that with respect to a partnership the cost of the property on which additional_first-year_depreciation is calculated for the partnership as a whole is not to exceed dollar_figure s rept pincite 1976_3_cb_49 sec_179 was amended again by the economic_recovery_tax_act_of_1981 publaw_97_34 sec a 95_stat_172 to provide for an election to expense the cost of property rather than taking additional_depreciation and that provision did not amend sec_179 the committee report states similarly the same type of dollar limitations will apply in the case of partnerships as currently apply under sec_179 under the committee bill as under sec_179 both the partnership and each partner are subject_to the annual dollar limitation s rept pincite 1981_2_cb_412 the taxable_income limitation contained in current sec_179 b a was added by the tax_reform_act_of_1986 publaw_99_ sec a 100_stat_2085 while the senate version of the taxable_income limitation of section a was limited to taxable_income of the business in which property was used see s rept pincite c b vol v sec_179 as enacted applied to taxable_income from any trade_or_business of the taxpayer see h conf rept at ii-49 1986_3_cb_1 see also staff of joint comm on taxation general explanation of the tax_reform_act_of_1986 jt comm print pincite concurrently sec_179 pertaining to partnerships was amended to read as it does now by the tax_reform_act_of_1986 publaw_99_514 sec d 100_stat_2085 petitioners contend that since for purposes of the sec_179 b a limitation they may aggregate taxable incomes from their different trades_or_businesses they should be able to aggregate their taxable_income with the income of the partnership under sec_179 to determine the partnership's taxable_income in this regard petitioners argue that sec_179 b a applies only to the taxable_income of the taxpayer derived from the trade_or_business by the taxpayer petitioners contend that under sec_701 a partnership is not a taxpayer therefore that section cannot apply to a partnership the taxable_income limitation in sec_179 a is therefore meaningless when applied to a partnership and sec_1_179-2 income_tax regs is accordingly invalid the gravamen of petitioners' argument is that a partnership is not a taxpayer under the definition contained in sec_7701 a it should be noted initially that this is literally incorrect a taxpayer is defined as any person subject_to any internal revenue tax sec_7701 in turn a person shall be construed to mean and include inter alia a partnership sec_7701 under sec_701 a partnership generally is not subject_to the income_tax rather the partners are liable for income_tax only in their separate or individual capacities but a partnership may be subject_to a variety of internal revenue taxes including eg employment_taxes under sec_311ll a 877_f2d_843 - - 10th cir or other excise_taxes 283_f2d_909 9th cir equally important the terms such as taxpayer and partnership have certain elastic applications within the internal_revenue_code while a partnership generally is not subject_to income taxes concepts such as taxable_income are fully applicable sec_703 provides that with exceptions the taxable_income of a partnership shall be computed in the same manner as in the case of an individual in 410_us_441 the supreme court noted for the purpose of computing taxable_income that the partnership is regarded as an independently recognizable entity apart from the aggregate of its partners there are many examples of the term partnership being used in place of the word taxpayer or other similar designations sec_446 provides taxable_income shall be computed under the method_of_accounting on the basis of which the taxpayer regularly computes his income in keeping his books emphasis added for purposes of sec_446 however the taxpayer is the partnership see 66_tc_74 affd per curiam 555_f2d_634 7th cir sec_1033 a a provides that at the election of the taxpayer a gain may not be recognized emphasis added for sec_1033 purposes when a partnership is involved the taxpayer is the partnership see 457_f2d_1 3d cir affg 54_tc_1691 sec_183 regarding --- - not for profit activities speaks in terms of an individual or an s_corporation but when a partnership is involved the so- called for profit analysis focuses on the partnership and not the individual see 80_tc_972 affd without published opinion 742_f2d_1441 2d cir affd sub nom 731_f2d_230 4th cir in this regard it should be noted that the election in sec_179 is phrased in terms of a taxpayer may elect surely petitioners would not contend that an election may not be made for property in a business conducted by a partnership for purposes of sec_179 a a partnership is a taxpayer it becomes apparent then that petitioners' dissatisfaction is not with the regulation per se but rather with the incorporation of the sec_179 a limitation in sec_179 thus if we were to hold for petitioners we would have to read the sec_179 a limitation out of sec_179 this we cannot do sec_179 specifically states in the case of a partnership the limitations of subsection b apply to the partnership and the partners it does not say that only subsection b and shall apply see green v commissioner tcmemo_1998_356 applying sec_179 b a to an s_corporation at trial petitioners also seemed to argue that the term taxable_income as used in sec_179 a should be interpreted to mean gross_receipts of the trade_or_business carried on as a partnership this argument has no basis in law - ' t axable income' means gross_income minus the deductions allowed sec_63 gross_income is derived from gross_receipts less cost_of_goods_sold see 106_tc_268 sec_1_61-3 income_tax regs furthermore as pointed out above the determination of the taxable_income of a partnership is essentially the same as with an individual sec_703 there is no indication that in enacting the taxable_income limitation in sec_179 a congress did not understand and intend these terms to have their settled meaning in short sec_1_179-2 income_tax regs flows directly from the requirements of sec_179 a and d 18s consistent with the statutes and their legislative histories and is valid therefore respondent's determination on this issue is sustained section 6662-penalty sec_6662 imposes a penalty with respect to any portion of an underpayment_of_tax required to be shown on a return which is attributable to negligence or disregard of rules or regulations sec_6662 the penalty is in an amount equal to percent of the portion of the underpayment to which this section applies sec_6662 petitioners claimed on schedule c a deduction in the amount of dollar_figure as payroll_taxes of that amount dollar_figure was payment made for petitioners' federal_income_tax liability sec_275 provides no deduction shall be allowed for federal income taxes petitioners do not dispute that the deduction of dollar_figure is not allowable the deduction is clearly prohibited by statute and petitioner was aware that federal income taxes cannot be deducted negligence is a lack of due care or the failure to do what a reasonable and ordinarily prudent person would do under the circumstances 89_tc_849 quoting marcello v commissioner 380_f2d_499 5th cir affg on this issue 43_tc_168 and tcmemo_1964_299 cert_denied 389_us_1004 affd 904_f2d_1011 5th cir affd on other grounds 501_us_868 the guestion then is whether petitioner has established that his conduct meets the reasonable or prudent person standard see rule a see also freytag v commissioner t c pincite petitioner argues that the deduction was the result of a reasonable mistake caused by an employee who erroneously posted the amount of the check s to pay federal income taxes to the payroll account we may agree that the posting mistake of the employee was understandable but we have difficulty with petitioner's explanation petitioner either prepared or directly supervised the preparation of the tax_return he is an accountant anda large part of his business related to tax matters the dollar_figure in income taxes deducted as payroll_taxes constitutes approximately percent of the taxable_income of the accounting practice moreover it represent sec_53 percent of the deduction claimed for payroll_taxes these are not insignificant figures and we find it hard to believe that when preparing or supervising the preparation of the return petitioner would not have questioned the deduction of this size this is particularly true because petitioner was aware that his federal income taxes had been paid from the bank account used for the accounting practice a practice which in and of itself is suspect hither he closed his eyes to the facts or he simply did not properly supervise the preparation of the return petitioner has not established that he was not negligent therefore respondent's determination as to the accuracy-related_penalty under sec_6662 is sustained decision will be entered for respondent


t c memo united_states tax_court han kook llc i-i han kook llc ii-i chenery capital management inc and chenery management inc partners other than the tax_matters_partner petitioners v commissioner of internal revenue respondent docket no filed date roy e hahn an officer for petitioners trent d usitalo for respondent memorandum opinion laro judge petitioners as partners other than the tax_matters_partner filed a petition_for_readjustment of partnership items under sec_6226 this case is before the court on 1section references are to the applicable version of the continued respondent’s motion to dismiss for lack of jurisdiction on the ground that the petition_for_readjustment was not filed within the time prescribed by sec_6226 or sec_7502 petitioners object to respondent’s motion and counter that the petition in this case was timely filed we will grant respondent’s motion background on date respondent issued a notice of final_partnership_administrative_adjustment fpaa by certified mail to the general unnamed tax_matters_partner of han kook llc i-i for the taxable years ended december and among the adjustments proposed in the fpaa was the disallowance of dollar_figure in losses claimed by han kook llc i-i the fpaa was mailed to addresses in san francisco california and newport beach california on date respondent sent a copy of the fpaa to petitioner chenery management inc chenery the fpaa informed chenery that respondent had mailed the fpaa to the tax_matters_partner on date and stated that a petition_for_readjustment filed by a partner other than the tax_matters_partner must be filed on or before the 150th day from the date the fpaa was mailed to the tax_matters_partner the fpaa advised chenery that you may wish to contact the tax_matters_partner of the partnership to discuss this matter the continued internal_revenue_code copy of the fpaa was mailed to chenery at the same address in san francisco california that respondent used in mailing the fpaa to the tax_matters_partner petitioners mailed a petition_for_readjustment by private delivery service on date and the court filed that petition on date respondent filed a motion to dismiss this case for lack of jurisdiction on the ground that the petition was not timely filed respondent supports his motion with a postal service form_3877 which indicates that the fpaa was sent to the tax_matters_partner by certified mail on date petitioners filed an objection to respondent’s motion and allege therein that the fpaa was neither delivered to nor received by the tax_matters_partner petitioners do not assert however that the fpaa was not mailed to either the tax matters partner’s or the notice partner’s correct address respondent filed a response to petitioners’ objection discussion our jurisdiction to review adjustments related to an fpaa is limited by sec_6226 see sec_6226 pursuant to sec_6226 the tax_matters_partner ha sec_90 days to file a petition_for_readjustment of partnership items 131_tc_206 where the tax_matters_partner does not timely file such a petition sec_6226 allows any notice_partner and any 5-percent group to file a petition_for_readjustment of partnership items within days after the close of the 90-day period described in sec_6226 sec_6231 generally defines a notice_partner as one who is entitled to notice under sec_6223 that is any partner in a partnership with or fewer partners and a partner with a 1-percent or greater profits interest in a partnership with more than partners 85_tc_900 sec_6231 defines a 5-percent group as a group of partners who for the partnership taxable_year involved had profits interests which aggregated percent or more measured as of the close of the partnership’s taxable_year see sec_301_6231_d_-1 proced admin regs petitioners assert that because the fpaa was allegedly not delivered to nor received by the tax_matters_partner the subsequent 60-day period of sec_6226 did not begin to run until the copy of the fpaa was sent on date though they do not do so explicitly petitioners essentially argue that the fpaa mailed to the tax_matters_partner was invalid we disagree the validity of a properly mailed fpaa is not contingent upon actual receipt by the tax_matters_partner see 102_tc_683 citing 89_tc_806 an fpaa is legally sufficient if in addition to providing adequate notice to the taxpayer that respondent has determined adjustments to the partnership return it is mailed to the address shown on the partnership tax_return or to an address furnished to the commissioner by the tax_matters_partner or any other person in accordance with regulations prescribed by the commissioner see sec_6223 95_tc_610 see also sirrine bldg no v commissioner tcmemo_1995_185 the fpaa is to the litigation of partnership items the equivalent of the statutory_notice_of_deficiency in other cases affd without published opinion 117_f3d_1417 5th cir respondent mailed a copy of the fpaa to chenery on date and petitioners do not dispute that they received it the fpaa notified chenery that respondent had mailed the original fpaa to the tax_matters_partner on date it provided detailed instructions on the period within which partners other than the tax_matters_partner could request judicial review of the proposed adjustments it also advised chenery to contact the tax_matters_partner with respect to the proposed adjustments given that the original and the copy of the fpaa were mailed to the same address we find it doubtful that the original fpaa was not received by the tax_matters_partner in that regard respondent submitted a postal service form_3877 as proof that the fpaa was sent to the tax_matters_partner on date that form is prima facie evidence that the fpaa was delivered to the tax_matters_partner see sec_7502 regardless of whether the tax_matters_partner complied with its obligation to inform petitioners of the administrative proceedings see sec_6223 we are satisfied that almost months’ notice within which petitioners could have filed a petition with this court was ample time for petitioners to protect their interests see triangle investors ltd pship v commissioner supra pincite notice_partner received copy of fpaa with ample time to file a timely petition the fpaa was mailed to the tax_matters_partner for han kook llc i-i on date the 90-day period following the mailing of the fpaa within which the tax_matters_partner could file a petition_for_readjustment of partnership items expired on date a sunday and was thus extended day to date see sec_6226 the subsequent 60-day period during which any notice_partner and any 5-percent group could file a petition_for_readjustment of partnership items expired on date see sec_6226 petitioners mailed their petition_for_readjustment on date days after the expiration of the subsequent 60-day period because the petition was not mailed within the prescribed 60-day period sec_7502 is inapplicable see sec_7502 treating a timely mailed document as timely filed only if the postmark date falls within the prescribed period for filing thus we treat the petition as being filed on date days after the fpaa was mailed to the tax_matters_partner and days after the expiration of the subsequent 60-day period petitioners did not mail the petition within the 60-day period prescribed by sec_6226 this court therefore lacks jurisdiction over this partnership-level proceeding and we are required to grant respondent’s motion to dismiss for lack of jurisdiction to reflect the foregoing an appropriate order of dismissal will be entered


internal_revenue_service number release date index number ----------------------------------------------- ------------------------------------ ---------------------------------------------------------- ------------------------------------------- --------------------------------- in re ----------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------------------------- telephone number --------------------- refer reply to cc psi b04 plr-144148-04 date february -------------------- legend legend settlor daughter -------------------------------------------------- trust state state date date date date date court ----------------------------------------------------------------------- ---------- -------- -------------------------- -------------------------- ------------------------- ---------------- ------------------ ------------------------------------------------------------------------------------------------- ------- ----------- x dear ------------------ this is in response to your date letter and other correspondence requesting a ruling concerning the gift and generation-skipping_transfer gst tax consequences of the proposed modification of a_trust you have requested the following rulings the modification of the trust and the implementation of the court’s order modifying the trust will not result in a transfer by any beneficiary of the trust that is subject_to the gift_tax under sec_2501 the modification of the trust and the implementation of the court’s order modifying the trust will not cause the trust to lose its gst tax exempt status under sec_26_2601-1 of the generation-skipping_transfer_tax regulations article third a provides that daughter is to have the discretionary lifetime settlor executed trust under the laws of state on date trust became article first provides that trust is to be for the use and benefit of daughter and article second a provides that during the lifetime of daughter the net_income of plr-144148-04 the facts submitted are as follows irrevocable upon settlor’s death on date before date on date the trustee elected under the terms of trust to have the laws of state govern the administration of trust for daughter’s children the trust is to be paid over and distributed annually or at more frequent intervals to or for the benefit of daughter special_power_of_appointment exercisable by her at any time during her life to direct the trustee to pay over and distribute any portion of trust principal from trust to or for the benefit of any or all of her children or grandchildren article third b provides that daughter is to have the right during her lifetime to direct the trustee to pay to or apply for her benefit such amounts from the principal of trust as she may designate up to but not exceeding the sum or value of dollar_figure or percent of the trust principal whichever is larger in any one calendar_year the right to make withdrawals is non-cumulative sources of which the trustee has knowledge is not sufficient to suitably support maintain and provide for the comfort of daughter or any of the other beneficiaries in the manner to which they are accustomed or in the event of an emergency such as illness accident or other distress the trustee is authorized to use and expend such part of the principal of the trust as the trustee may deem necessary or desirable to make up such deficiencies article third d provides that upon the death of daughter the entire principal of trust and any undistributed_income is to be paid over and distributed by the trustee to the children and or grandchildren of daughter in such amounts or proportions as daughter may direct by her will appointment upon daughter’s death the entire principal in trust and undistributed_income if any is to be divided into equal shares and held in further trust for the benefit of daughter’s children if any child of daughter predeceases daughter and has children surviving then the share of trust which would have been set_aside for the benefit of the article third c provides that if in the opinion of the trustee the income from all article fourth a provides that if daughter fails to exercise her special power of article fourth d provides that if prior to the full distribution of the portion of the plr-144148-04 deceased child is to be divided and set_aside and held in trust for the benefit of the deceased child’s surviving children article fourth b provides that the net_income from the respective portions of the trust estate set_aside for the beneficiaries are to be paid out and distributed annually or at more frequent intervals to or for the benefit of the respective beneficiary article fourth c provides that if prior to the full distribution of any portion of the trust estate set_aside for the benefit of any beneficiary the income_beneficiary of such portion dies with children surviving then the net_income from that portion of the trust estate is to be paid out and distributed annually or at more frequent intervals to or for the benefit of the children in proportion to which the children are entitled to receive eventual distribution of the trust principal under trust provided however that the interest in income of any such child to whom a share of the principal may be distributed is to cease upon the distribution to him or her of his or her share of principal or upon his or her earlier death trust estate set_aside for the benefit of any beneficiary the beneficiary and all his or her children if any shall die then any undistributed_net_income of the portion of the trust set_aside for the deceased beneficiary is to be added to and become a part of the principal of the portion of the trust set_aside for the beneficiary article fourth e provides that when a beneficiary for whose benefit a portion of the trust estate has been set_aside attains the age of years he or she is to receive outright and free from trust one-third of either the then value of the portion of the trust estate set_aside for his or her benefit or an undivided one-third interest in the then assets in said portion upon attaining the age of years he or she is to receive one- half of the then value of the remainder of the portion set_aside for him or her or an undivided one-half interest in such portion and upon attaining the age of he or she is to receive the balance of the properties in the portion set_aside for him or her free and discharged from all trusts trust estate set_aside for the benefit of any beneficiary the beneficiary dies and is survived by children then the principal and any undistributed_income in said portion of the trust estate is to be paid out and distributed to or for the benefit of the then living children of the deceased beneficiary provided however that if any such children are then under years of age the trustee is to retain such child’s share in trust and shall use so much or all of such child’s share and the income therefrom as the trustee in its sole discretion deems desirable for the best interests of the child and his or her education comfort and support when each child attains the age of or upon the date years after the death of the survivor of the children and grandchildren of settlor who were living at the time of settlor’s death whichever is earlier the trustee is to pay article fourth f provides that if prior to the full distribution of the portion of the the trustee represents that daughter has never exercised her limited power of article fifteenth provides in part that all trusts created by trust are to terminate the trustee proposes to modify trust to limit the time during which daughter may plr-144148-04 over and distribute to the respective beneficiary the portion of trust principal including any undistributed_income which was retained for his or her benefit article fourth g provides that if prior to complete distribution of any portion of the trust estate set_aside for the benefit of a beneficiary such beneficiary and all his or her children if any die then the entire principal and any undistributed_income of the respective portion of the trust estate created for the beneficiary are to be distributed among the surviving children and grandchildren of daughter per stirpes on the principle of representation at the expiration of years after the death of the last to die among settlor her children and her grandchildren living at the time of settlor’s death at the termination the principal and all undistributed_income is to vest and be distributed absolutely and free and clear of all trusts to the beneficiaries entitled to take withdrawal and that she never intends to exercise the power exercise her limited_power_of_withdrawal pursuant to article third b to the first days of the month of x during each calendar_year the trustees believe the modification is warranted because it will reduce the likelihood that percent of trust assets would be treated as an asset of daughter’s for estate_tax purposes on date the trustee submitted a petition to court seeking judicial approval of the modification on date court issued a ruling approving the proposed modification conditioned on the receipt of a favorable letter_ruling from the internal_revenue_service all living beneficiaries of trust have consented to the proposed modification under state law minors and unborn beneficiaries may be represented and bound by individuals having substantially identical interests with respect to a particular issue the parents of each of these minor children have interests in trust which are substantially identical to their respective children’s interests in trust in that they are all remote contingent_remainder beneficiaries person has contributed assets to the trust since that date there have been no additions actual or constructive to trust since date law and analysis ruling the trustee represents that trust was irrevocable on date no sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during the calendar_year by any individual resident or nonresident sec_2512 provides that where property is transferred for less than an sec_2511 provides that the tax imposed by sec_2501 applies whether sec_2512 provides that if the gift is made in property the value thereof at plr-144148-04 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 the date of the gift is considered the amount_of_the_gift 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 is deemed to be a gift and is included in computing the amount of gifts made during the calendar_year appointment created after date is deemed the transfer of property by the individual possessing such power sec_2514 defines a general_power_of_appointment as a power which is exercisable in favor of the individual possessing the power his estate his creditors or creditors of his estate appointment created after date within a specified time so that the power lapses constitutes a release of the power however under sec_2514 a lapse during any calendar_year is considered as a release for gift_tax purposes only to the extent that the property which could have been appointed exceeds in value the greater of dollar_figure or percent of the aggregate value of the assets out of which or the proceeds of which the exercise of the lapsed power could be satisfied under sec_25_2514-3 the failure to exercise a general power of under sec_2514 the exercise or release of a general power of in this case after the proposed modification each beneficiary will have the same interest in trust assets as each beneficiary had before the modification because the beneficial interests rights and expectancies of the beneficiaries of trust are substantially_similar both before and after the proposed modification no transfer of property for less than adequate_and_full_consideration in money or money’s worth will occur as a result of the proposed modification accordingly based on the facts submitted and representations made we conclude that the modification of the trust and the implementation of the court’s order modifying the trust will not result in a transfer by any beneficiary of the trust ruling sec_2601 imposes a tax on every generation-skipping_transfer the term ageneration-skipping transfer is defined in sec_2611 as a taxable_distribution a taxable_termination or a direct_skip under section a of the tax_reform_act_of_1986 act and section plr-144148-04 a of the generation-skipping_transfer gst tax regulations the gst tax is generally applicable to generation-skipping transfers made after date however under section b a of the act and sec_26_2601-1 the gst tax does not apply to a transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in his or her gross_estate under sec_2038 or sec_2042 if the settlor had died on date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the generation-skipping_transfer_tax will not cause the trust to lose its exempt status the regulation provides that the rules contained in the paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for generation-skipping_transfer_tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the gst tax if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a generation-skipping_transfer or the creation of a new generation-skipping_transfer a modification that is administrative in nature that only indirectly increases the amount transferred will not be considered to shift a beneficial_interest in the trust in this case trust is exempt from the gst tax imposed by sec_2601 because the trust became irrevocable on or before date and no additions actual or constructive have been made to the trust since that date after the proposed modification daughter will continue to have a noncumulative power to withdraw the greater of dollar_figure or percent of trust however daughter's right of withdrawal will be limited to the first days of the month of x during each calendar_year the proposed modification of trust will not result in a shift of any beneficial plr-144148-04 interest in trust to any beneficiary who occupies a generation lower than the persons holding the beneficial interests prior to the modification further the modification of trust will not extend the time for vesting of any beneficial_interest in trust beyond the period provided for in the original trust accordingly based on the facts submitted and representations made we conclude that the modification of the trust and the implementation of the court’s order modifying the trust will not cause the trust to lose its gst tax exempt status under sec_26_2601-1 in accordance with the power_of_attorney on file with this office copies of this except as expressly provided herein no opinion is expressed or implied the rulings contained in this letter are based upon information and letter are being sent to your authorized representatives concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer s requesting it sec_6110 of sincerely yours _________________________ lorraine gardner senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosure copy of letter for sec_6110 purposes


internal_revenue_service number info 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 genin-162136-05 date date dear ------------------------ we are answering correspondence requesting late s_corporation relief this letter provides general information relating to your request automatic relief is unavailable under revproc_97_48 because the internal_revenue_service failed to consistently receive forms 1120s your situation is outside the scope of revproc_2003_43 because the window period for relief has passed generally to request relief for a late s_corporation_election you must request a private_letter_ruling plr from the national_office the procedures for requesting a plr are set forth in revproc_2006_1 a copy which can be found at www irs gov the user_fee for a plr is based on gross_income for the last-filed tax_return the fee of dollar_figure must be paid_by taxpayers with gross_income over dollar_figure million however if your gross_income was over dollar_figure but less than dollar_figure million the fee is dollar_figure and if gross was less than dollar_figure the fee is dollar_figure if you qualify to submit either reduced fee a statement certifying your eligibility must be included with your plr request when you prepare a plr request please follow the sample format provided in appendix b of revproc_2006_1 your request should include all required statements a user_fee check and documents that substantiate your intent to be an s_corporation please refer your request to our office by using the following address attn cc pa t p o box ben franklin station washington dc direct to cc psi room genin-162136-05 incidentally the irs has developed two compact discs to help educate small_business owners on their tax responsibilities publication introduction to federal taxes for small_business self-employed and publication small_business workshop these free items can be ordered by calling in addition o nline learning products can be found online at www irs gov businesses small this letter is intended for informational purposes only and does not constitute a ruling please keep this letter with your tax records and provide a copy of it to your authorized representative we hope that the above information proves helpful if you have any additional questions please contact our office at ----- ------------- sincerely dianna k miosi chief branch office_of_chief_counsel passthroughs special industries