id office uilc cca_2010030510361337 ---------- number release date from ------------------- sent friday march am to --------------- cc --------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------- subject re ----------------------- i agree that the inconsistently reported cod income should be assessed we would need to issue an affected_item notice to make this assessment to determine whether the partner may be subject_to any insolvency_exception under sec_108 this would be an affected_item subject_to section a a i sec_6222 removes the requirement that we issue an fpaa under sec_6225 but does not remove the requirement that we issue affected_item notices of deficiency -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- gross_proceeds from the sale of the partnership_interest is not a partnership_item unless the partner sold his interest to the partnership itself or the partnership makes a sec_754 election with respect to the new partner based on the purchase_price the date that the partner's interest transferred to a new partner will also be determined by the partnership return absent a tefra proceeding to change this determinations sec_751 appears to be relevant under your facts only to determine what portion of the proceeds will be treated as the sale of ordinary assets these sec_751 amounts can be determined from the partnership books_and_records if not reflected on the partnership return itself see 94_tc_853 if these amounts are reflected on the partnership books_and_records rather than its return this would not be a sec_6222 issue


department of the treasury internal_revenue_service washington d c of f i c e of c h i e f c ou n s e l date number release date cc ita b06 tl-n-7803-98 uilc 263a internal_revenue_service national_office field_service_advice memorandum for michael j cooper acting associate area_counsel lmsb attention virginia l hamilton cc lm nr den from heather c maloy associate chief_counsel income_tax and accounting cc ita subject allocation of costs between long-term construction contracts and taxpayer-owned self-constructed assets this chief_counsel_advice responds to your memorandum dated date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent disclosure statement field_service_advice is chief_counsel_advice and is open to public inspection pursuant to the provisions of sec_6110 the provisions of sec_6110 require the service to remove taxpayer identifying information and provide the taxpayer with notice of intention to disclose before it is made available for public inspection sec_6110 and i sec_6110 also authorizes the service to delete information from field_service_advice that is protected from disclosure under u s c sec_552 b and c before the document is provided to the taxpayer with notice of intention to disclose only the national_office function issuing the field_service_advice is authorized to make such deletions and to make the redacted document available for public inspection accordingly the examination appeals or counsel recipient of this document may not provide a copy of this unredacted document to the taxpayer or their representative the recipient of this document may share this unredacted document only with those persons whose official tax_administration duties with respect to the case and the issues discussed in the document require inspection or disclosure of the field_service_advice legend tl-n-7803-98 taxpayer product location a capability consideration year year year date y dollar_figurez b c issue sec_1 whether under the facts summarized below taxpayer’s incremental_cost method of cost allocation for income_tax purposes is a reasonable allocation method that clearly reflects taxpayer’s income for the taxable years at issue if taxpayer’s cost allocation method is not a reasonable allocation method what is a reasonable allocation method under the facts described below conclusion sec_1 taxpayer’s incremental_cost method of allocating costs between its long- term contracts and its self-constructed assets does not clearly reflect income because the total costs actually capitalized pursuant to the method differs significantly from the aggregate costs that would be properly capitalized using another permissible method described in sec_1_263a-1 sec_1 263a- or 263a-3 where substantially_similar products are installed in the same location sec_1_263a-1 requires a pro_rata allocation of the costs referred to in this field_service_advice as common costs whether such costs are direct labor or indirect production_costs tl-n-7803-98 fact sec_1 taxpayer business of contract installations of product for its customers from the very beginning of taxpayer’s operation its business strategy was as follows in the course of installing product under contract with its customers taxpayer installed simultaneously in the contract locations with its customers’ permission one or more additional units of product than the contract required and retained ownership of the additional product for example if taxpayer contracted to install three products for its customers it actually installed four in the location retaining the additional product for itself according to certain evidence that you submitted with your request taxpayer’s apparent goal was to create and own an a capability of its own taxpayer’s capability initially would consist of leased assets but would evolve into products and capabilities that it owned during the years at issue taxpayer used a calendar_year for financial reporting purposes and a fiscal_year for income_tax reporting purposes until the end of calendar_year for financial reporting purpose sec_2 and year for tax reporting purposes taxpayer used what it calls an incremental_cost method_of_accounting for both the product installed for customers pursuant to construction contracts and its own product installed in the same locations as the customers’ product specifically taxpayer allocated to the construction contracts and classified as cost_of_goods_sold for income_tax purposes the direct materials associated with the product installed for customers plus virtually all of the labor and overhead required to install both the customers’ product and the product belonging to taxpayer thus taxpayer essentially allocated to its self-constructed assets only 1you submitted with your request a significant amount of factual material much of which is either unique to taxpayer or descriptive of such a small population of businesses as to raise the possibility of disclosing taxpayer’s identity by its publication for that reason we shall limit the exposition of facts to a brief summary in order to protect taxpayer’s identity 2at the end of calendar_year taxpayer changed its cost allocation method to the average_cost_method for financial reporting purposes but continued using the incremental_cost method for tax reporting purposes tl-n-7803-98 the materials and virtually none of the direct labor and overhead incurred to install its own product your request included an example of taxpayer’s cost allocation method taken from one of its actual contracts involving the simultaneous installation of three products assumed herein to be product sec_1 through under a customer contract plus one taxpayer-owned product product taxpayer allocated product material_costs ratably to all four products installed however taxpayer allocated other material to product sec_1 and only and none to either product or product thus taxpayer allocated no other material cost to its self-constructed asset also taxpayer allocated all construction labor direct_labor_costs of the installation to product ie to the customer contract and apparently none to the product the self-constructed asset additionally taxpayer allocated other material labor to product sec_1 and again all to the customer contract and none to its self- constructed asset the analysis accompanying this example suggests that only c per cent of the total installation cost was allocated to product sec_2 and combined this suggests in turn that taxpayer allocated to its self-constructed asset and subsequently capitalized only b per cent of the cost of the entire installation after examining the audit cycle covering taxpayer’s taxable_year year and year the service determined that taxpayer’s method_of_accounting for its product installations overstates the cost_of_goods_sold on its installation contracts thus understating taxpayer’s taxable_income for the years in question additionally taxpayer’s cost allocation method understates the amount to be capitalized regarding taxpayer’s self-constructed assets thus causing misstatements of income in future taxable years therefore the examiners concluded that taxpayer’s method_of_accounting does not clearly reflect income the examiners proposed adjustments totaling dollar_figurez relating to the cost allocation issue law and analysis law in general a taxpayer must compute taxable_income according to the method_of_accounting by which the taxpayer computes income in the course of keeping its books sec_446 notwithstanding this general requirement if a taxpayer’s method_of_accounting does not clearly reflect income the secretary may change the taxpayer’s method_of_accounting to a method that in the secretary’s opinion does clearly reflect income sec_446 as the secretary’s delegate the commissioner has broad discretionary powers under sec_446 and its regulations in determining whether a taxpayer’s tl-n-7803-98 accounting methods clearly reflect income 439_us_522 because the commissioner has so much latitude for discretion his interpretation of the statute’s clear-reflection standard ‘should not be interfered with unless clearly unlawful ’ id quoting 280_us_445 thus a taxpayer ordinarily has a heavy burden in overcoming the commissioner’s determination 42_tc_926 aff’d 357_f2d_656 9th cir acq 1965_2_cb_6 a taxpayer that produces real_property or tangible_personal_property for use in its trade_or_business or for sale to customers must capitalize all the direct costs of producing the property and the property’s properly allocable share of indirect_costs sec_1_263a-1 a taxpayer produces property if it constructs builds installs manufactures develops improves creates raises or grows that property sec_263a sec_1_263a-2 direct costs for producers of property include direct materials and direct_labor_costs sec_1_263a-1 direct_labor_costs include basic compensation of the employees producing the asset plus their overtime premium pay vacation pay sick leave subject_to certain exclusions not at issue herein shift differential pay payroll_taxes and payments to a supplemental unemployment benefit plan sec_1_263a-1 indirect_costs for producers of property are all costs other than direct material and direct_labor_costs sec_1_263a-1 indirect_costs are properly allocable to property produced when the costs directly benefit or are incurred by reason of the performance of production activities indirect_costs may be allocable to production and resale activities as well as other activities that are not subject_to sec_263a id taxpayers subject_to sec_263a must make a reasonable allocation of indirect_costs between production resale and other activities id sec_1_263a-1 sets forth various detailed or specific facts-and-circumstances methods - specific_identification_method burden rate method and standard_cost_method - that taxpayers may use to allocate direct and indirect_costs to property produced a specific_identification_method traces costs to a cost objective such as an activity or product on the basis of a cause and effect or other reasonable relationship between the cost and the cost objective sec_1_263a-1 a burden rate method allocates an appropriate amount of indirect_costs to property produced during a taxable_year using predetermined rates that approximate the actual amount of indirect_costs incurred by the taxpayer during the taxable_year sec_1_263a-1 a standard_cost_method allocates an appropriate amount of direct and indirect_costs to property produced_by_the_taxpayer through the use of preestablished standard allowances without reference to costs actually incurred during the taxable_year sec_1_263a-1 the proper use of a standard_cost_method however requires that a taxpayer reallocate to the property produced a pro_rata portion or any net positive or net negative variances tl-n-7803-98 between actual and standard indirect_costs and apportion such variance to or among the units of property produced id sec_1_263a-1 provides that a taxpayer may allocate direct and indirect_costs to property produced using a facts-and-circumstances allocation method if the method used is a reasonable allocation method in addition a taxpayer may use any other reasonable method to allocate direct and indirect_costs among units of property produced or acquired for resale during the taxable_year an allocation method is reasonable if i the total costs actually capitalized during the taxable_year do not differ significantly from the aggregate costs that would be properly capitalized using another permissible method described in sec_1_263a-1 sec_1_263a-2 or sec_1_263a-3 with appropriate consideration given to the volume and value of the taxpayer’s production or resale activities the availability of costing information and the time and cost of using various allocation_methods and the accuracy of the allocation method chosen as compared with other allocation_methods ii the allocation method is applied consistently by the taxpayer and iii the allocation method is not used to circumvent the requirements of the simplified methods provided in sec_1_263a-1 sec_1_263a-2 or sec_1_263a-3 or the principles of sec_263a analysis taxpayer is engaged in two production activities that occur concurrently - installation of products under long-term_contract sec_3 and installation of products for use in taxpayer’s own trade_or_business or for sale to customers for the years at issue tax_accounting for the former activity is governed by sec_460 and the regulations under former sec_1 to the extent that they do not conflict with sec_460 see notice_89_15 1989_1_cb_634 tax_accounting for the latter activity is governed by sec_263a and the regulations thereunder this field_service_advice concerns the interplay of these two tax_accounting regimes in this novel situation which involves a taxpayer whose production activities are subject_to both sets of rules 3for purposes of this field_service_advice we have assumed that taxpayer’s installation contracts are long-term_contracts however nothing in this field_service_advice should be construed as a determination that those contracts are in fact long- term contracts within the meaning of sec_460 tl-n-7803-98 taxpayer asserts that its allocation of direct costs is required by sec_1 and therefore is unassailable taxpayer further asserts that the applicable regulations sec_1 d merely require that indirect_costs be allocated based on a reasonable basis based on these premises taxpayer concludes that the revenue agent’s inquiry must be limited to the issue of whether taxpayer’s method of allocating indirect_costs is reasonable as that term is defined by webster’s dictionary we disagree at the outset we note that the legislative_history of sec_263a and sec_460 indicates congressional intent to establish uniform capitalization and allocation rules for costs incurred in the production of real and tangible_personal_property sec_263a provides uniform_capitalization_rules applicable to the production of real and tangible_personal_property not produced under a long-term_contract sec_460 provides similar rules applicable to the production of real and tangible_personal_property under a long-term_contract although sec_263a and sec_460 cover separate spheres of production activity the legislative_history indicates that the two provisions are intended to work in harmony see h_r conf_rep no 99th congr 2d sess reprinted pincite c b vol pincite generally all long-term_contracts are subject_to rules similar to the uniform_capitalization_rules the regulations under sec_263a require a taxpayer to allocate all direct costs to the property produced_by_the_taxpayer ordinarily direct_labor_costs and direct materials costs are traced to a specific item eg a taxpayer’s inventory of widgets or long-term_contract to manufacture widget s for a customer when multiple units are produced for the taxpayer’s own inventory each unit bears a portion of these direct costs the regulations also require a taxpayer to allocate certain indirect_costs to the property produced_by_the_taxpayer because indirect_costs eg plant manager’s salary generally cannot be traced to a particular item the regulations require the taxpayer to allocate these costs using a reasonable method sec_1_263a-1 in addition the regulations under sec_263a require a taxpayer to allocate service_costs which are indirect_costs among production activities resale activities and activities not subject_to sec_263a using a reasonable allocation method sec_1_263a-1 the service_costs that are allocated to the taxpayer’s production activities must be allocated to the property produced_by_the_taxpayer using a reasonable allocation method sec_1_263a-1 in this case direct_labor_costs is closely analogous to indirect labor costs because the taxpayer incurred them while installing products both for customers pursuant to contracts and for its own use in the same location the issue in this case is how to apply the regulations under sec_1_263a-1 and sec_1 when a taxpayer incurs production_costs that apply to two distinct activities and that would not have been less if the taxpayer had been engaged in only one of these activities for example the cost of building and launching a rocket into space is virtually the same if the rocket carries two satellites one for a customer tl-n-7803-98 and one for the taxpayer or just one satellite for a customer the types of costs at issue in this case must be incurred for the taxpayer to install a single product and the amount of the costs does not materially change whether taxpayer installs one product pursuant to a contract or for its own use or multiple products pursuant to one or more contracts or for its own use or a combination of products pursuant to contract s or for its own use we will refer to these costs as common costs in this field_service_advice though we recognize that the term does not adequately describe the costs the common costs at issue in this case include both direct labor and indirect_costs the common costs that are direct_labor_costs are similar to indirect_costs that are incurred irrespective of the whether the taxpayer is engaged exclusively in an activity subject_to sec_263a or simultaneously engaged in an activity subject_to sec_263a and another activity for example if a taxpayer operates in a state that requires businesses to annually purchase a business license the taxpayer will have to purchase the business license whether it manufactures goods and holds them for sale to customers a sec_263a production activity or it manufactures unique items pursuant to contracts with customers a sec_460 long-term_contract activity or whether it does both sec_1 does not specify parameters for evaluating whether a taxpayer’s method of allocating direct and indirect_costs allocates such costs on a reasonable basis sec_1_263a-1 on the other hand requires that a taxpayer allocate direct and indirect_costs among units of property produced and permits the use of any allocation method that is a reasonable allocation method within the meaning of sec_1_263a-1 an allocation method is reasonable under sec_1_263a-1 if it meets three separate requirements the first requirement is that the total costs actually capitalized pursuant to the method do not differ significantly from the aggregate costs that would be properly capitalized using another permissible method described in sec_1_263a-1 sec_1_263a-2 or sec_1_263a-3 the permissible methods described in sec_1_263a-1 include the specific tracing method the burden rate method and the standard_cost_method under a burden rate or standard_cost_method similar units of property produced will be allocated a similar amount of direct and indirect_costs this is true for both fixed and variable costs taxpayer’s method does not allocate a similar amount of common costs to similar units of property consequently the amount of costs actually capitalized is significantly less than the amount that would be capitalized using another permissible method described in sec_1_263a-1 therefore taxpayer’s method does not qualify as a reasonable allocation method we believe that where substantially_similar products are installed in the same location sec_1_263a-1 requires a pro_rata allocation of common costs whether such costs are direct labor or indirect production_costs thus if taxpayer installed tl-n-7803-98 substantially_similar products in a single location for use in its business the common costs must be allocated equally to each product we further believe that sec_1_263a-1 requires a pro_rata allocation of common costs that are incurred both in the production of an asset subject_to sec_263a and pursuant to a long-term_contract thus if taxpayer installed substantially_similar products in a single location - for use in taxpayer’s business and pursuant to a contract - and incurred dollar_figure of common costs dollar_figure of the total common costs must be allocated equally among the products installed for use in taxpayer’s business as stated previously sec_1 does not provide guidelines for determining whether a taxpayer’s method of allocating costs among separate long-term_contracts is reasonable the dictionary definition of reasonableness approach advocated by taxpayer is entirely unhelpful in the evaluation of cost allocation_methods given the nexus between sec_460 and sec_263a however we believe that it is appropriate to apply the standard in sec_1_263a-1 to determine whether an allocation method is a reasonable method as stated above we believe that where substantially_similar products are installed in the same location sec_1_263a-1 requires a pro_rata allocation of common costs whether such costs are direct labor or indirect production_costs taxpayer cites 49_tc_275 as authority for its incremental_cost method_of_accounting we believe fort howard paper is questionable for two reasons first the tax_court decided fort howard paper before congress enacted sec_263a and before the supreme court decided 418_us_1 both of which require a different result second the tax_court itself has limited fort howard paper to its facts on the ground that there would have been no major difference between fort howard’s incremental_cost method and the full cost absorption method william k 60_tc_368 aff’d sub nom 519_f2d_1280 10th cir therefore we do not believe that fort howard paper is controlling authority here case development hazards and other considerations although we believe that taxpayer’s allocation method is impermissible under sec_263a and sec_460 in lychuck an s corporation’s sole business activity was acquiring and servicing installment contracts from automobile dealers selling vehicles to high credit risk purchasers the service required capitalization of certain indirect_costs tl-n-7803-98 relating to acquiring but not to servicing installment contracts in the ordinary course of acc’s business the tax_court agreed with the service in part but found that certain overhead costs were generally fixed charges which had no meaningful relation to the number of credit applications analyzed id pincite accordingly the court held that these costs were currently deductible sec_263a did not apply in lychuck because the loans were not acquired for resale however we anticipate that taxpayers in other situations might argue that lychuk applies to a broad range of indirect_costs and activities if taxpayer in the instant case advances such an argument please contact us this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views please call if you have any further questions heather c maloy associate chief_counsel income_tax and accounting by gerald m horan senior technician reviewer branch income_tax and accounting


office_of_chief_counsel internal_revenue_service memorandum number release date cc ita b04 kaaqui cc ita b07 manixon postf-103576-14 uilc date date third party communication none date of communication not applicable to associate area_counsel large business international area cc lb_i attn joshua nachman cc lb_i f li from branch office of associate chief_counsel income_tax and accounting cc ita b07 subject ---------------------------------------------- this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent legend taxpayer b c d e ---------------------------------------------- ------------------------------------------ --------------------------------------------------------------- --------- ----------------------- f -------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------- postf-103576-14 issues whether taxpayer may treat as an adjustment to cost_of_goods_sold the costs of b it provides to customers in a bargained-for exchange if taxpayer may not treat the costs of b as an adjustment to cost_of_goods_sold are deductions for the costs of b subject_to the disallowance provisions of sec_274 of the internal_revenue_code code conclusion yes taxpayer may treat the costs of b as an adjustment to cost_of_goods_sold because taxpayer may treat the costs of b as an adjustment to cost_of_goods_sold issue is moot facts taxpayer a c company is engaged in the d publication and distribution of e media for f taxpayer’s customers are generally advertisers that pay to include their products in the print media and other advertising taxpayer established an added value merchandising program under which it purchased b and paid related companies to provide suite accommodations and catering services to the ultimate b holders taxpayer also provided customers with merchandising allowances or points to acquire b at a later date the cost of these items generally constituted no more than twenty-five percent of the order placed taxpayer treated these expenditures as an adjustment to its cost_of_goods_sold the revenue_agent determined that taxpayer should have deducted the expenditures from its gross_income under sec_162 subject_to the limitations of sec_274 law and analysis generally except as otherwise provided in the code gross_income means all income from whatever source derived sec_61 the supreme court has long recognized that the definition of gross_income sweeps broadly and reflects congress’ intent to exert the full measure of its taxing power and to bring within the definition of gross_income all accessions to wealth 515_us_323 purchase_price adjustments and rebates are not within the definition of income generally when a seller refunds or rebates part of the purchase_price of goods or services to a customer as an inducement to purchase the payment does not constitute an expense to the seller or income to the purchaser it is an adjustment to the price of the service or property sold postf-103576-14 there is a fundamental difference between expenditures that constitute refunds and rebates also known as returns and allowances and expenditures that are treated as business deductions under sec_162 630_f2d_670 9th cir affg 69_tc_477 the cost of goods purchased for resale in a taxpayer’s trade_or_business is subtracted from gross_receipts to compute gross_income sec_1_61-3 of the income_tax regulations these offsets do not constitute deductions and are not subject_to the various limitations on deductions pertaining to sec_162 88_tc_654 since we conclude that the expenditures at issue constitute purchase_price adjustments the provisions of sec_162 are inapplicable and need not be addressed see metra chem corp the seminal case in this area is 26_tc_707 nonacq c b nonacq withdrawn and acq c b acq withdrawn and nonacq c b and nonacq withdrawn in part and acq in part 1982_2_cb_2 where a dairy wholesaler paid cash rebates to customers under an informal arrangement to avoid state minimum milk pricing regulations the court concluded that allowances the milk producer paid to buyers lowered the selling_price of the milk for income_tax purposes and held that only the net price was includable in the seller’s gross_income the court stated it does not follow of course that all allowances discounts and rebates made by a seller of property constitute adjustments to the selling prices terminology alone is not controlling and each type of transaction must be analyzed with respect to its own facts and surrounding circumstances such examination may reveal that a particular allowance has been given for a separate consideration - as in the case of rebates made in consideration of additional purchases of specified quantity over a specified subsequent period or as in the case of allowances made in consideration of prepayment of an account receivable so as to be in effect a payment of interest the test to be applied as in the interpretation of most business transactions is what did the parties really intend and for what purpose or consideration was the allowance actually made where as here the intention and purpose of the allowance was to provide a formula for adjusting a specified gross price to an agreed net price and where the making of such adjustment was not contingent upon any subsequent performance or consideration from the purchaser then regardless of the time or manner of the adjustment the net selling_price agreed upon must be given recognition for income_tax purposes pittsburgh milk pincite in revrul_2005_28 2005_1_cb_997 the service held that medicaid rebates incurred by a pharmaceutical company are purchase_price adjustments that are subtracted from gross_receipts in determining gross_income in so holding the service relied on pittsburgh milk noting the following postf-103576-14 the court focused on the facts and circumstances of the transaction what the parties intended and the purpose or consideration for which the allowance was made the court found that the allowances were part of the sales transaction and concluded that gross_income must be computed with respect to the agreed net prices for which the milk was actually sold thus under pittsburgh milk where a payment is made from a seller to a purchaser and the purpose and intent of the parties is to reach an agreed upon net selling_price the payment is properly viewed as an adjustment to the purchase_price that reduces gross_sales the facts in this case fall squarely within the parameters of revrul_2005_281 it is undisputed that taxpayer agreed to provide and the purchasers agreed to accept both printed advertisements and b or points for a single price the fact that taxpayer may incur the expense to acquire the b after it executes the contract with the purchaser is not legally significant under pittsburgh milk similarly whether a rebate is payable in merchandise or in cash doesn’t matter the result is the same max sobel wholesale liquors t c pincite the determinant facts are that the purchaser and taxpayer negotiated over the amount of b or merchandising allowances or points that would be an integral part of the sale and the adjustment was not contingent on any subsequent performance or consideration from the purchaser since the costs of b which taxpayer provides to customers are to be treated as cost of goods rather than business_expenses deductible under sec_162 the costs also are not subject_to the limitations of sec_274 metra chem corp t c pincite case development hazards and other considerations this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions s willie armstrong by _____________________________ willie e armstrong jr senior technician reviewer branch office of associate chief_counsel income_tax accounting the commissioner must follow his own relevant revenue rulings in tax_court proceedings rauenhorst v commissioner 119_tc_151 postf-103576-14


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division sep uniform issue list legend taxpayer a taxpayer b custodian c ira d- account e amount amount amount amount amount amount dear this is in response to your request dated date as supplemented by correspondence dated april december and january march april april may july july and date in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a asserts that her failure to accomplish a rollover within the 60-day period prescribed by sec_408 was due to a miscommunication or misunderstanding with custodian c which led to amount being placed into a non-ira account _ was taxpayer b’s spouse until taxpayer b’s death in june taxpayer a age taxpayer b maintained ira d with custodian c and taxpayer a was the sole at the time of taxpayer b’s death amount was being spousal beneficiary of ira d distributed monthly to taxpayer b shortly after taxpayer b’s death taxpayer a approached custodian c concerning a method to take larger distributions taxpayer a represents custodian c recommended she transfer the funds toa bridge account upon which checks could be written as needed on date taxpayer a completed custodian c’s annuity claimant statement requesting a lump sum payment the lump sum payment option indicated that for amounts of dollar_figure or more a bridge account would be established intending the bridge account to be an ira taxpayer a also completed a beneficiary designation form naming her children as beneficiaries the top of this form indicated that the form should be completed for spousal continuation claims only taxpayer a went to a local bank and had the forms notarized on date amount amount less amount federal_income_tax withholding was transferred from ira d to a non-ira bridge account account e after the transfer of the assets of ira d to account e taxpayer a requested a distribution of amount from account e taxpayer a represents that she did not realize account e was a non-ira account or that the transfer of ira d assets to account e was a total_distribution of ira d the mistake was discovered when taxpayer a received a form_1099 for the distribution except for the amount distribution taxpayer a represents that amount has not been used for any other purpose the mistake was discovered when taxpayer a received a form_1099 for the distribution based on the above facts and representations you request a ruling that the internal_revenue_service service waive the day rollover requirement contained in sec_408 of the code with respect to the distribution of amount amount - amount sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is ' includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers - sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred -4- the information presented and documentation submitted by taxpayer a is consistent with her assertion that her failure to accomplish a timely rollover was due to a miscommunication or misunderstanding with custodian c leading to amount being placed into a non-ira account therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount amount - amount from ira d taxpayer a is granted a period of days from the into a rollover ira provided all issuance of this ruling letter to contribute amount other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount will be considered a rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be distributed under the rules of sec_401 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations that may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent copies of this letter and related documents have been sent to your authorized representative in accordance with a power_of_attorney on file in this office to inquire about this ruling please if you wish address all correspondence to se t ep ra t1 sincerely carlton a watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice notice of intention to disclose


t c memo united_states tax_court teresa g butner petitioner v commissioner of internal revenue respondent docket no filed date teresa g butner pro_se edwina l jones for respondent memorandum findings_of_fact and opinion chiechi judge pursuant to sec_7443a1 and rule sec_180 and sec_183 this case was assigned to and heard by special_trial_judge stanley j goldberg his recommended findings_of_fact and 1unless otherwise indicated all section references are to the internal_revenue_code code in effect for the years at issue all rule references are to the tax_court rules of prac- tice and procedure conclusions of law were filed and served upon the parties petitioner filed objections petitioner’s objections to the special trial judge’s recommended findings_of_fact and conclu- sions of law respondent did not in petitioner’s objections petitioner advances many of the same contentions and arguments that she advanced at trial and or in her posttrial briefs we conclude that the special_trial_judge gave appropriate consideration to those contentions and arguments in making his recommended findings_of_fact and conclu- sions of law in petitioner’s objections petitioner also advances the following three contentions there is a legal means by which the petitioner’s husband william e butner would not have to pay f i c a federal_insurance_contributions_act taxes it was to his advantage to do so however he was prohibited from doing so by the confiscations and exorbitant expenses arising out of the actions of the bankruptcy trustee over a period of many years the petitioner has never acquired assets jointly with her husband there is a distinct difference in income taxes and f i c a taxes the only reason f i c a taxes are reported on the income_tax return is because 2income earned by a self-employed_individual as william e butner mr butner was during the years at issue is not subject_to tax under sec_3101 ie tax under the federal_insurance_contributions_act fica tax rather such income is subject_to tax under sec_1401 ie tax under the self-employment contri- butions act of self-employment_tax self-employment_tax is imposed by the code in subtitle a relating to income taxes see sec_1401 such taxes are calculated and based on the earnings_of the person responsible for such income reproduced literally with respect to the first contention quoted above we conclude that that contention is not pertinent to resolving the issue in this case and does not require any change to the special trial judge’s recommended findings_of_fact and conclusions of law with respect to the second contention quoted above we note initially that the record does not establish that petitioner never acquired assets jointly with her husband assuming arguendo that the record had established the second contention quoted above we conclude that that contention would not require any change to the special trial judge’s recommended findings_of_fact and conclusions of law with respect to the third contention quoted above we note initially that as discussed supra note income earned by a self-employed_individual is subject_to self-employment_tax and not fica tax moreover an individual having net_earnings_from_self-employment of dollar_figure or more for a taxable_year is required to make a return with respect to the self-employment_tax imposed on such earnings sec_6017 a husband and wife may make a single return jointly sec_6013 and are jointly and severally liable for the entire liability shown due in such a return sec_6013 including the liability with respect to net_earnings_from_self-employment sec_1_6017-1 income_tax regs we conclude that the third contention quoted above does not require any change to the special trial judge’s recommended findings_of_fact and conclusions of law in petitioner’s objections petitioner also contends that nothing in the record substantiates the findings of the special_trial_judge we disagree based upon our examination of the entire record in this case we conclude that that record amply supports the special trial judge’s recommended findings_of_fact and conclusions of law in so concluding we have given appro- priate deference to the special trial judge’s recommended find- ings of fact as required by rule d we have made changes to the grounds upon which the special_trial_judge held that the court has jurisdiction over the instant case where no deficiency has been asserted to review the denial of equitable relief under sec_6015 that is because after the special trial judge’s recommended findings_of_fact and conclusions of law were filed and served there were judicial and 3as discussed below in certain circumstances a spouse may obtain relief from joint_and_several_liability for self-employ- ment tax on net_earnings_from_self-employment reported in a joint_return if the requirements of sec_6015 are satisfied 4rule d requires that due regard be given to the circumstance that the special_trial_judge had the opportunity to evaluate the credibility of witnesses and that the findings_of_fact recommended by the special_trial_judge be presumed to be correct legislative developments relating to our jurisdiction under sec_6015 to review such a denial we have also made editorial stylistic clarifying and organizational changes to the special trial judge’s recommended findings_of_fact and conclusions of law we conclude that the recommended findings_of_fact and conclusions of law of special_trial_judge stanley j goldberg as modified and set forth below should be adopted as a report of the court this case arose from petitioner’s request for relief under sec_6015 for each of the taxable years and we hold that we have jurisdiction to review respondent’s denial of relief under sec_6015 for each of those years we further hold that respondent did not abuse respondent’s discretion in denying petitioner relief under that section for each of the taxable years and findings_of_fact some of the facts have been stipulated and are so found except as stated herein petitioner resided in hickory north carolina on the date she filed the petition in this case petitioner and her spouse mr butner were married in and were still married at the time of the trial during and petitioner lived on a 10-acre estate and drove a sports utility vehicle real_property acquired by petitioner and mr butner including their residence and two vacant lots is titled in petitioner's name only vehicles acquired by petitioner and mr butner are titled in petitioner's name only during and mr butner an attorney who practiced law as a sole practitioner employed petitioner as a secretary even though she had no secretarial training during and petitioner received from mr butner secretarial wages of dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure respectively from which no income_tax was withheld on date a_trust fund recovery penalty of dollar_figure was assessed against mr butner in connection with unpaid payroll_taxes of amtruc inc for the last two quarters of and the first two quarters of on date a notice_of_federal_tax_lien was filed against mr butner with respect to that liability in the u s bankruptcy court for the western district 5during and mr butner who employed four or five people who were not lawyers in his law practice did not make any estimated_tax payments with respect to those respec- tive years even though he was self-employed 6during petitioner also received from keyport life_insurance co a gross distribution of dollar_figure from which income_tax of dollar_figure was withheld of north carolina bankruptcy court entered judgments bank- ruptcy judgments in excess of dollar_figure million against petitioner and mr butner as of the time of the trial in this case those judgments had not been satisfied in date mr butner was incarcerated in connection with bankruptcy fraud charges and on date he was released from prison as described in detail below petitioner and mr butner filed jointly a federal_income_tax income_tax return for each of the taxable years and in each of those returns they showed petitioner’s occupation as home- maker on date petitioner and mr butner signed form_1040 u s individual_income_tax_return for the taxable_year form_1040 at the time petitioner signed that form she was aware that the bankruptcy judgments had been entered against mr butner and herself and had not been satisfied on date petitioner and mr butner filed late their form_1040 in that form petitioner and mr butner reported self-employment_tax owed of dollar_figure income_tax withheld of dollar_figure and a total amount owed of dollar_figure which included an estimated_tax penalty owed of dollar_figure on date an assessment of self-employment_tax of dollar_figure was made for the taxable_year against which was applied income_tax_withholding of dollar_figure on the same date inter- est of dollar_figure and penalties of dollar_figure were also assessed for that year as of date the total unpaid assessed liability for the taxable_year was dollar_figure at the time in date respondent’s appeals officer appeals officer considered petitioner’s request for relief under sec_6015 the total unpaid assessed liability for that year was the same amount excluding any addition_to_tax and interest accrued after date on date petitioner and mr butner filed form 1040x amended u s individual_income_tax_return for the taxable_year form 1040x in that form petitioner and mr butner reported no self-employment_tax due no tax_liability and they claimed an overpayment and a refund of dollar_figure respondent did not accept as correct the form 1040x of petitioner and mr butner and did not allow that claim_for_refund on date petitioner and mr butner signed form 7the parties stipulated that at the time in date the appeals officer considered petitioner’s request for relief under sec_6015 the total unpaid assessed liability for the taxable_year was dollar_figure excluding any addition_to_tax and interest accrued after date we presume that that stipulation was based upon a mathematical error that is because the record establishes that at the time in question the total unpaid assessed liability for the taxable_year was dollar_figure excluding any addition_to_tax and interest accrued after date the parties’ stipulation is clearly contrary to the facts that we have found are established by the record and we shall disregard it see 93_tc_181 for the taxable_year form_1040 at the time petitioner signed that form she was aware that the bankruptcy judgments had been entered against mr butner and herself and had not been satisfied on date petitioner and mr butner filed late their form_1040 in that form petitioner and mr butner reported self-employment_tax owed of dollar_figure and a total amount owed of dollar_figure on date an assessment of self-employment_tax of dollar_figure was made for the taxable_year on the same date interest of dollar_figure and penalties of dollar_figure were also assessed for that year as of date the total unpaid assessed liability for the taxable_year was dollar_figure at the time in date the appeals officer considered petitioner’s request for relief under sec_6015 the total unpaid assessed liability for that year was the same amount excluding any addition_to_tax and interest accrued after date on date petitioner and mr butner filed form 1040x for the taxable_year form 1040x in that form petitioner and mr butner reported no self-employment_tax due and no tax_liability respondent did not accept as correct the form 1040x of petitioner and mr butner on date notices of federal_tax_lien were filed against petitioner and mr butner with respect to their respec- tive liabilities for the taxable years and on date petitioner and mr butner signed form_1040 for the taxable_year form_1040 at the time petitioner signed that form she was aware that the bank- ruptcy judgments had been entered against mr butner and herself and had not been satisfied and that respondent had issued notices of federal_tax_lien with respect to the respective liabilities of petitioner and mr butner for the taxable years and on date petitioner and mr butner filed late their form_1040 in that form petitioner and mr butner reported self-employment_tax owed of dollar_figure and a total amount owed of dollar_figure on date an assessment of self-employment_tax of dollar_figure was made for the taxable_year on the same date interest of dollar_figure and penalties of dollar_figure were also assessed for that year as of date the total unpaid assessed liability for the taxable_year was dollar_figure at the time in date the appeals officer considered peti- tioner’s request for relief under sec_6015 the total unpaid assessed liability for that year was the same amount excluding any addition_to_tax and interest accrued after date 8the parties stipulated that at the time in date the appeals officer considered petitioner’s request for relief under sec_6015 the total unpaid assessed liability for the taxable_year was dollar_figure excluding any addition_to_tax and interest continued on date petitioner and mr butner signed form_1040 for the taxable_year form_1040 at the time petitioner signed that form she was aware that the bank- ruptcy judgments had been entered against mr butner and herself and had not been satisfied and that respondent had issued notices of federal_tax_lien with respect to the respective liabilities of petitioner and mr butner for the taxable years and on date having obtained extensions of time within which to file petitioner and mr butner timely filed their form_1040 in that form petitioner and mr butner reported self-employment_tax owed of dollar_figure and a total amount owed of dollar_figure which included an estimated_tax penalty of dollar_figure on date an assessment of self-employment_tax of dollar_figure was made for the taxable_year on the same date interest of dollar_figure and penalties of dollar_figure were also assessed for that year as of date the total unpaid as- sessed liability for that year was dollar_figure at the time in date the appeals officer considered petitioner’s request for continued accrued after date we presume that that stipulation was based upon a mathematical error that is because the record establishes that at the time in question the total unpaid assessed liability for the taxable_year was dollar_figure exclud- ing any addition_to_tax and interest accrued after date the parties’ stipulation is clearly contrary to the facts that we have found are established by the record and we shall disregard it see cal-maine foods inc v commissioner t c pincite relief under sec_6015 the total unpaid assessed liability for that year was the same amount excluding any addition_to_tax and interest accrued after date as a result of net_operating_loss carryovers from prior taxable years there is no income_tax_liability due for any of the taxable years and however there are self-employment_tax liabilities for those years of dollar_figure dollar_figure dollar_figure and dollar_figure respectively all of which are attributable to mr butner on date petitioner and mr butner filed late form_1040 for the taxable_year that showed a tax_liability of dollar_figure that was unpaid on date petitioner filed late form_1040 for the taxable_year that showed a tax_liability of dollar_figure which she paid at that time on date petitioner timely filed form_8857 request for innocent spouse relief form with respect to each of the taxable years and petitioner and mr butner resided together during the months preceding petitioner’s filing her respective forms with respect to those years in form_8857 that petitioner filed for each of the years at issue she requested relief under sec_6015 from joint_and_several_liability for each of those years in each of those forms the only reason given by petitioner for seeking relief was that the liabilities in question arose out of payroll_taxes for my husband in his business by letter dated date respondent's tax_auditor requested that petitioner complete a questionnaire and explain why petitioner believed that she is entitled to relief under sec_6015 around date petitioner returned that questionnaire in which she stated that relief should be granted because the taxes due on the returns were payroll_taxes arising out of my husbands sic law practice in responding to the questionnaire petitioner failed to answer the question relating to whether she was aware of the liability reported in form_1040 that she and mr butner filed for each of the taxable years and and whether she thought that such liability would be paid at the time of each such filing petitioner admitted in the questionnaire that there was no plan for paying the liability reported in form_1040 that she and mr butner filed 9on date petitioner also filed form_8857 with respect to each of the taxable years and in which she requested relief under sec_6015 from joint_and_several_liability for each of those years there were no unpaid liabilities reflected in the respective income_tax returns that petitioner and mr butner filed for the taxable years and and respondent determined no deficiency in tax for either of those years petitioner did not place the taxable years and at issue in the instant case our discussion hereinafter is limited to the taxable years and for each of the years at issue which was not paid at the time of each such filing on date respondent issued a preliminary determina- tion in which respondent denied petitioner's request for relief under sec_6015 for each of the taxable years at issue in so doing that preliminary determination stated in pertinent part you did not qualify for relief under tier i section dollar_figure of revproc_2000_15 c b because you and your spouse did not live apart the months prior to claim you did not show that you had a reasonable belief that the tax was paid or would be paid when you signed the returns and you failed to show that you would suffer an economic hardship if relief was denied you did not qualify for relief under tier ii section dollar_figure of revenue_procedure because the majority of factors used to make the determination were against granting relief you did not review the returns prior to signing them you knew when you signed them that you were not in a financial position to pay the liabil- ities timely although you and your spouse were ad- vised to pay estimated_taxes in subsequent years by a federal agent you have not done so therefore you are not in compliance with tax laws you will not suffer a hardship if relief is denied you can afford a monthly payment agreement based on the information available reproduced literally around date petitioner filed form statement of disagreement in which she protested respondent’s preliminary determination in that form petitioner stated i teresa b butner disagree with the internal_revenue_service determination because i have elected under code sec_6015 to request spousal relief from the irs's proposed assessment of self-employment taxes for the tax years and i believe i should be relieved from this tax_liability because this liability is attributed to income which i had no owner- ship in or control_over these unpaid tax_liabilities are attributable to my non-requesting spouse i wish to present the following factors which i ask that you consider a had i filed a separate_return the tax liabil- ity would not have been included in my return b the tax_liability reported i did not know and had no reason to know that the liability would not be paid c the tax_liability is solely attributable to my spouse’s income i respectfully request that you consider the above and grant me equitable relief from the tax_liabilities reproduced literally around date petitioner's respective forms with respect to the taxable years and were transmitted to the appeals_office for further consideration by letter dated date the appeals_office acknowl- edged receipt of petitioner's respective forms for the taxable years at issue by letter dated date an appeals officer scheduled a telephonic conference for date at the time in date the appeals officer considered petitioner’s forms petitioner owned a chevrolet pickup truck and a chevrolet tahoe sports utility vehicle by letter dated date date letter the appeals officer advised petitioner's representative william j lawing c p a that although the appeals officer had originally indicated that petitioner might be entitled to full relief under sec_6015 the facts of this case do not merit such a determination the appeals officer noted in that letter that most of the factors set forth in revproc_2000_15 2000_ 1_cb_447 revenue_procedure weigh against relief in the date letter the appeals officer informed petitioner that in order to change that conclusion petitioner must provide certain additional information a response deadline of date was given on or after date petitioner's representative provided additional information to the appeals officer on or about date the appeals officer prepared an appeals case memorandum that set forth all the facts and law that she considered in determining to uphold respondent’s prelim- inary determination to deny relief under sec_6015 and her application of that law to those facts by letter dated date and entitled subject notice_of_determination concerning your request for relief from joint_and_several_liability under sec_6015 the appeals_office informed petitioner that she was not eligible for relief under sec_6015 c or f at no time was petitioner abused by mr butner nor has petitioner verified at any time that she would suffer an economic hardship if relief under sec_6015 for the taxable years and were not granted on date petitioner filed a petition with the court for review of respondent's determination denying her request for relief under sec_6015 with respect to each of the taxable years and opinion in general each of the spouses who file jointly an income_tax return is responsible for the accuracy of and is jointly and severally liable for the entire liability shown due in such return sec_6013 114_tc_276 in certain circumstances a spouse may obtain relief from such joint_and_several_liability if the requirements of sec_6015 are satisfied sec_6015 applies to any liability for tax arising after date and to tax_liabilities arising on or before date that remain unpaid as of such date internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_740 in the present case the respective liabilities of petitioner and mr butner arose with respect to the taxable years and the respective liabilities of petitioner and mr butner for the taxable years and arose before date but remained unpaid as of that date the respective liabilities of petitioner and mr butner for the taxable years and arose after date sec_6015 is applicable to the respective liabilities of petitioner and mr butner for the taxable years and sec_6015 provides that a spouse who made a joint_return may elect to seek relief from joint_and_several_liability under sec_6015 dealing with relief from liability for an understatement_of_tax with respect to a joint_return sec_6015 provides that a spouse who is eligible to do so may elect to limit that spouse's liability for any deficiency with respect to a joint_return under sec_6015 relief from joint_and_several_liability under sec_6015 or c is available only with respect to a deficiency for the year for which relief is sought sec_6015 and c see h conf rept pincite 1998_3_cb_747 if relief is not available under either sec_6015 or c an individual may seek equitable relief under sec_6015 which may be granted by the commissioner of internal revenue commissioner in the commissioner’s discre- tion sec_6015 sec_6015 provides a spouse relief for an understate- ment as defined in sec_6662 of tax in a joint income_tax return that is attributable to erroneous items of the sec_6662 defines the term understatement as the excess of the amount of tax required to be shown in the tax_return over the amount of tax shown in such return other spouse in the present case petitioner does not seek relief from an understatement in any of the income_tax returns that she and mr butner jointly filed for the taxable years and respectively rather she seeks relief from the respective self-employment taxes that were shown due in such returns and that were not paid when she and mr butner filed those returns because there is no understatement_of_tax for any of the taxable years and relief is not available to petitioner under sec_6015 see 120_tc_137 see also 121_tc_73 sec_6015 a taxpayer may elect to seek relief under sec_6015 if at the time of making the election the taxpayer was no longer married to or was legally_separated from the person with whom the joint_return was filed or for the 12-month_period preceding the time of making the election the taxpayer did not live with such person if a taxpayer elects relief under sec_6015 such taxpayer’s liability for any deficiency which is assessed with respect to the return shall not exceed the portion of such deficiency properly allocable to the individual under sec_6015 relief is not available under sec_6015 with respect to an unpaid liability reported in a return in the present case petitioner is seeking relief from the respective self-employment taxes that were shown due in the income_tax returns that she and mr butner jointly filed for the taxable years and respectively and that were not paid when they filed those returns because there is no deficiency for any of the taxable years and relief is not available to petitioner under sec_6015 for any of those years see washington v commissioner supra pincite see also hopkins v commissioner supra sec_6015 the only remaining opportunity for relief to petitioner is sec_6015 we consider first whether we have jurisdiction to review respondent’s denial of relief under sec_6015 to petitioner where no deficiency has been asserted before we issued our opinion in 127_tc_7 we held that we have jurisdiction under sec_6015 to review a denial of relief under sec_6015 including sec_6015 114_tc_324 after congress amended sec_6015 we held that the amendment of sec_6015 does not preclude our jurisdiction to review the denial of equitable 11congress amended sec_6015 effective date by adding the language against whom a deficiency has been as- serted consolidated appropriations act publaw_106_554 app g sec 114_stat_2763 2763a-641 relief under sec_6015 where a deficiency has not been asserted 118_tc_494 the united_states court_of_appeals for the ninth circuit reversed the court’s holding in ewing v commissioner supra 439_f3d_1009 9th cir revg 118_tc_494 vacating 122_tc_32 the united_states court_of_appeals for the eighth circuit vacated and remanded sjodin v commissioner tcmemo_2004_205 in which we held that we have jurisdiction under sec_6015 to review the denial of relief under sec_6015 where a deficiency has not been asserted 174_fedappx_359 8th cir vacating and remanding per curiam tcmemo_2004_ thereafter in billings v commissioner supra we reconsid- ered our holding in 118_tc_494 we held in billings that we do not have jurisdiction under sec_6015 to review the denial of relief under sec_6015 where no deficiency has been asserted after we issued our opinion in billings congress passed the tax relief and health care act of act publaw_109_432 120_stat_2922 the act amended sec_6015 to provide that this court may review the commissioner’s denial of relief under sec_6015 in any case where an individual requested relief under sec_6015 id div c sec_408 120_stat_3061 the amendment applies with respect to liability for taxes arising or remaining unpaid on or after the date of the enactment of this act id sec_408 120_stat_3062 the date of enactment of the act was date after the act amended sec_6015 we issued an order in the instant case in which we directed each party to file a response to that order addressing the jurisdiction of the court over this case in light of the amendment that the act made to sec_6015 petitioner filed no such response respon- dent filed a response in which respondent stated that the court has jurisdiction to review respondent’s denial of relief under sec_6015 with respect to each of the taxable years and that is because according to respondent the liability due for each of those years remained unpaid as of date the date of enactment of the act we hold that we have jurisdiction over the instant case to review respondent’s denial of relief under sec_6015 with respect to each of the taxable years and we consider now respondent’s denial of relief under sec_6015 to petitioner sec_6015 provides sec_6015 relief from joint_and_several_liability on joint_return f equitable relief --under procedures pre- scribed by the secretary if-- taking into account all the facts and circumstances it is inequitable to hold the indi- vidual liable for any unpaid tax or any deficiency or any portion of either and relief is not available to such indi- vidual under subsection b or c the secretary may relieve such individual of such liability to prevail under sec_6015 petitioner must show that respondent's denial of equitable relief under that section was an abuse_of_discretion see washington v commissioner t c pincite 118_tc_106 citing butler v commissioner t c pincite affd 353_f3d_1181 10th cir respondent’s denial of such relief will constitute an abuse_of_discretion where it was arbitrary capri- cious or without sound basis in fact or law 112_tc_19 the question whether respon- dent's denial of relief under sec_6015 was arbitrary capricious or without sound basis in fact is a question of fact 115_tc_183 affd 282_f3d_326 5th cir in deciding whether respondent's denial of relief under sec_6015 was an abuse of discre- tion we consider evidence relating to all the facts and circum- stances as directed by sec_6015 the commissioner has pre- scribed guidelines in revproc_2000_15 to be considered in determining whether an individual qualifies for relief under sec_6015dollar_figure section dollar_figure of that revenue_procedure lists seven conditions threshold conditions which must be satisfied before respondent will consider a request for relief under sec_6015 revproc_2000_15 sec_4 c b pincite respondent concedes that petitioner meets the threshold conditions where as here the requesting spouse satisfies the thresh- old conditions section dollar_figure of revproc_2000_15 pro- vides that a requesting spouse may be relieved under sec_6015 of all or part of the liability in question if taking into account all the facts and circumstances respondent deter- mines that it would be inequitable to hold the requesting spouse liable for such liability where as here the requesting spouse satisfies the thresh- old conditions section dollar_figure of revproc_2000_15 sets forth the circumstances under which respondent ordinarily will grant relief to that spouse under sec_6015 in a case like the instant case where a liability is reported in a joint_return 12revenue procedure was superseded by revenue proce- dure 2003_2_cb_296 revenue_procedure revproc_2003_61 is effective for requests for relief filed on or after date and for requests for relief with respect to which no preliminary determination was issued as of date in the present case petitioner filed her respec- tive forms for the taxable years and on date and respondent’s preliminary determination_letter was issued on date therefore revproc_2000_15 is applicable in the present case but not paid as pertinent here those circumstances which section dollar_figure of revproc_2000_15 and we refer to as elements are a at the time relief is requested the request- ing spouse is no longer married to the nonrequesting spouse b at the time the return was signed the re- questing spouse had no knowledge or reason to know that the tax would not be paid the requesting spouse must establish that it was reasonable for the requesting spouse to believe that the nonrequesting spouse would pay the reported liability and c the requesting spouse will suffer economic hardship if relief is not granted for purposes of this section the determination of whether a requesting spouse will suffer economic hardship will be made by the commissioner or the commissioner’s delegate and will be based on rules similar to those provided in sec_301_6343-1 of the regulations on procedure and administration rev_proc sec_4 c b pincite we shall hereinafter refer to the elements set forth in sec_4 a b and c of revproc_2000_15 as the marital status element the knowledge or reason to know element and the economic hardship element respectively sec_4 of revproc_2000_15 provides that relief granted under sec_4 of that revenue_procedure is subject_to the following limitations a if the return is or has been adjusted to reflect an understatement_of_tax relief will be avail- able only to the extent of the liability shown on the return prior to any such adjustment and b relief will only be available to the extent that the unpaid liability is allocable to the nonrequesting spouse turning to the three elements set forth in sec_4 of revproc_2000_15 the presence of which will ordi- narily result in a grant of relief under sec_6015 in the instant case petitioner concedes that the marital status element is not present the parties dispute whether the knowledge or reason to know element is present and the parties dispute whether the economic hardship element is present in light of petitioner’s concession that the marital status element is not present petitioner does not qualify for relief under sec_4 of revproc_2000_15 respondent may nonetheless grant relief to petitioner under section dollar_figure of revproc_2000_15 that section provides a partial list of positive and negative factors which respondent is to take into account in considering whether to grant an individual relief under sec_6015 no single factor is to be determinative in any particular case all factors are to be considered and weighed appropriately and the list of factors is not intended to be exhaustive revproc_2000_15 sec_4 c b pincite as pertinent here sec_4 of revproc_2000_15 sets forth the following positive factors which weigh in favor of granting relief under sec_6015 a marital status the requesting spouse is separated whether legally_separated or living apart or divorced from the nonrequesting spouse b economic hardship the requesting spouse would suffer economic hardship within the meaning of sec_4 c of this revenue_procedure if relief from the liability is not granted c abuse the requesting spouse was abused by the nonrequesting spouse but such abuse did not amount to duress d no knowledge or reason to know in the case of a liability that was properly reported but not paid the requesting spouse did not know and had no reason to know that the liability would not be paid e nonrequesting spouse’s legal_obligation the nonrequesting spouse has a legal_obligation pursuant to a divorce decree or agreement to pay the outstanding liability this will not be a factor weighing in favor of relief if the requesting spouse knew or had reason to know at the time the divorce decree or agreement was entered into that the nonrequesting spouse would not pay the liability f attributable to nonrequesting spouse the liability for which relief is sought is solely attrib- utable to the nonrequesting spouse as pertinent here sec_4 of revproc_2000_15 sets forth the following negative factors which weigh against granting relief under sec_6015 a attributable to the requesting spouse the unpaid liability is attributable to the request- ing spouse b knowledge or reason to know a requesting spouse knew or had reason to know that the re- ported liability would be unpaid at the time the return was signed this is an extremely strong factor weigh- ing against relief nonetheless when the factors in favor of equitable relief are unusually strong it may be appropriate to grant relief under sec_6015 in limited situations where a requesting spouse knew or had reason to know that the liability would not be paid c significant benefit the requesting spouse has significantly benefitted beyond normal support from the unpaid liability d lack of economic hardship the requesting spouse will not experience economic hardship within the meaning of sec_4 c of this revenue_procedure if relief from the liability is not granted e noncompliance with federal_income_tax laws the requesting spouse has not made a good_faith effort to comply with federal_income_tax laws in the tax years following the tax_year or years to which the request for relief relates f requesting spouse’s legal_obligation the requesting spouse has a legal_obligation pursuant to a divorce decree or agreement to pay the liability respondent contends petitioner signed the respective joint income_tax returns that she and mr butner filed for the taxable years and and that reported total_amounts due of dollar_figure dollar_figure dollar_figure and dollar_figure respec- tively petitioner received a significant benefit by filing such joint returns with mr butner in that she would have had separate respective income_tax liabilities on her income for the 13in their form_1040 petitioner and mr butner re- ported self-employment_tax owed of dollar_figure income_tax withheld of dollar_figure and a total amount owed of dollar_figure which included an estimated_tax penalty owed of dollar_figure in their form_1040 petitioner and mr butner reported self-employment_tax owed of dollar_figure and a total amount owed of dollar_figure in their form_1040 petitioner and mr butner reported self-employment_tax owed of dollar_figure and a total amount owed of dollar_figure in their form_1040 petitioner and mr butner reported self-employment_tax owed of dollar_figure and a total amount owed of dollar_figure which included an estimated_tax penalty of dollar_figure taxable years and of dollar_figure dollar_figure dollar_figure and dollar_figure if she had not filed such joint returns and availed herself of the net_operating_loss carryovers associated with mr butner's business enterprises petitioner also received a significant benefit beyond normal support from the tax liabili- ties that went unpaid in that money which her husband could have used to pay estimated_taxes to reduce or satisfy his self-employment_tax liability was paid to petitioner as secre- tarial wages petitioner would not suffer economic hardship if the court were not to grant relief from the liability for each of the taxable years at issue petitioner knew or had reason to know when she signed and filed each of the joint income_tax returns in question that the liability reported in each such return would not be paid due to her knowledge of previous judg- ments and assessments against mr butner and herself and petitioner failed to comply with the income_tax laws for the taxable years following the taxable years for which relief is sought according to respondent the foregoing factors weigh against granting relief under sec_6015 to petitioner we now address the application of each of the factors set forth in revproc_2000_15 that weigh in favor of or against granting petitioner relief under sec_6015 marital status respondent contends that this factor is neutral we agree petitioner and mr butner were married in and remained married as of the time of trial in addition petitioner and mr butner resided together during the months preceding peti- tioner's filing forms with respect to the respective taxable years at issue in which she requested relief under sec_6015 for those years economic hardship respondent contends that petitioner will not suffer economic hardship if relief were denied in determining whether a re- questing spouse will suffer economic hardship sec_4 c of revproc_2000_15 requires reliance on rules similar to those provided in sec_301_6343-1 proced admin regs under sec_301_6343-1 proced admin regs economic hardship exists if collection of the tax lia- sec_301_6343-1 proced admin regs provides in pertinent part ii information from taxpayer --in determining a reasonable amount for basic living_expenses the director will consider any information provided by the taxpayer including-- a the taxpayer's age employment status and history ability to earn number of dependents and status as a dependent of someone else b the amount reasonably necessary for food clothing housing including utilities home-owner insurance home-owner dues and the like medical_expenses including health insurance transportation current tax_payments including federal state and local alimony child_support or other court-ordered continued bility will cause a taxpayer to be unable to pay such taxpayer’s reasonable basic living_expenses the parties stipulated that petitioner has not verified that she would suffer an economic hardship if relief from joint_and_several_liability for each of the taxable years and were not granted furthermore it appears from the record that petitioner has assets such that she would not experi- ence economic hardship if required to pay some or all of the liabilities at issue petitioner has not entered into evidence any documentary or testimonial evidence to contradict respon- dent’s contention that she will not suffer economic hardship if relief were denied we find that petitioner will not suffer economic hardship if relief under sec_6015 were not granted this factor weighs against granting relief continued payments and expenses necessary to the taxpayer's production_of_income such as dues for a trade_union or professional organization or child care payments which allow the taxpayer to be gainfully_employed c the cost of living in the geographic area in which the taxpayer resides d the amount of property_exempt_from_levy which is available to pay the taxpayer's expenses e any extraordinary circumstances such as special education expenses a medical catastrophe or natural disaster and f any other factor that the taxpayer claims bears on economic hardship and brings to the attention of the director abuse respondent contends that this factor is neutral we agree at no time was petitioner abused by mr butner knowledge or reason to know petitioner contends that she did not know and had no reason to know when she signed the respective joint income_tax returns for the taxable years and that the respec- tive liabilities reported in those returns would not be paid the record does not establish and petitioner does not contend that she signed those returns under duress and not voluntarily petitioner testified on cross-examination that she believed that the joint income_tax return that she and mr butner filed for each of the taxable years at issue was correct when she signed each such returndollar_figure moreover petitioner did not answer the questionnaire that respondent’s representative asked her to complete as it pertained to whether she was aware of the liability reported in the joint income_tax return that she and mr butner filed for each of the years at issue and whether she thought that the liability shown 15even if petitioner signed each of the returns in question without reviewing it petitioner is charged with constructive knowledge of the tax shown due in each such return 25_f3d_1289 5th cir affg tcmemo_1993_252 see also castle v commissioner tcmemo_2002_142 cohen v commissioner tcmemo_1987_537 the provi- sions providing relief from joint_and_several_liability are designed to protect the innocent not the intentionally igno- rant due in each such return would be paid at the time of such filing nonetheless in response to the very next question in that questionnaire which sought a description of any plan that she and mr butner had for paying any liability that was shown due in the joint income_tax return for each of the years at issue and that was not paid at the time of filing each such return petitioner admitted that there was no plan for paying any such liability furthermore in before petitioner and mr butner filed a joint income_tax return for any of the taxable years and the bankruptcy court entered judgments in excess of dollar_figure million against them at the time of the trial in this case those judgments had not been satisfied petitioner was aware that those judgments had been entered against mr butner and herself and had not been satisfied when she signed on date the respective joint income_tax returns for the taxable years and and on date the respective joint income_tax returns for the taxable years and in addition although petitioner testified that she had no reason to believe at the time she signed the joint income_tax return for each of the years at issue that the tax shown due in each such return would not be paid and that she thought her husband was going to take care of that on date a_trust fund recovery penalty of dollar_figure was assessed against mr butner moreover on date a notice_of_federal_tax_lien was filed against mr butner with respect to that liability on the same date notices of federal_tax_lien were filed against petitioner and mr butner for their respective liabilities for the taxable years and petitioner was aware of those notices on date when she signed the respective joint income_tax returns for the taxable years and based on that knowledge petitioner had reason to know that the tax_liability shown in each of those returns would not be paiddollar_figure we find that petitioner had reason to know on date when she signed the respective joint income_tax returns for the taxable years and and on date when she signed the respective joint income_tax returns for the taxable years and that the respective liabilities shown in those returns would not be paid this factor weighs against granting relief nonrequesting spouse's legal_obligation respondent contends that this factor is neutral we agree petitioner and mr butner were still married at the time of trial the record contains no evidence of any relevant agreement with respect to the liabilities at issue 16see collier v commissioner tcmemo_2002_144 attributable to nonrequesting spouse the respective liabilities for the taxable years and are self-employment_tax liabilities that are solely attributable to mr butner this factor favors granting relief significant benefit respondent contends that petitioner received a significant benefit beyond normal support from the tax_liabilities that went unpaid in that money which her husband could have used to pay estimated_taxes to reduce or satisfy his self-employment_tax liability was paid to petitioner as secretarial wages however petitioner had no secre- tarial training and reported her occupation as home- maker on the joint returns which she and her husband filed for these years respondent further contends that petitioner received a significant benefit by filing joint income_tax returns with mr butner for the respective taxable years at issue because she availed herself of the net_operating_loss carryovers arising from his business enterprises and thereby eliminated the income_tax liabilities that would have been due from her had she filed separately during the years at issue mr butner paid wages to peti- tioner for performing secretarial services he paid her dollar_figure in dollar_figure in dollar_figure in and dollar_figure in during cross-examination petitioner admitted that she had no secretarial training during the years and mr butner who was a sole practitioner employed four or five people who were not lawyers in his law practice further- more mr butner did not withhold any income_tax from the wages that he paid to petitioner during the taxable years at issue respondent contends that those circumstances establish the inference that petitioner’s wages were nothing more than her spend- ing allowance rather than compensation_for secretarial services the income_tax returns for and show petitioner’s occupation as homemaker no income taxes were withheld from petitioner’s wages this gave petitioner money to spend petitioner's spending allowance in the form of tax-free secretarial wages constitutes a significant benefit beyond normal support this money could have been used by mr butner to make estimated_tax payments which would have decreased the amount of self-employment taxes owed while the factual circumstances surrounding mr butner’s payment of wages to petitioner during the years at issue are suspicious we are not persuaded that petitioner received a significant benefit from filing joint income_tax returns with mr butner for the taxable years and respec- tively under revproc_2000_15 this factor is neutral however based on cases decided under former sec_6013 we consider the lack of significant benefit by the taxpayer seeking relief from joint_and_several_liability as a factor that favors granting relief under sec_6015dollar_figure 17ferrarese v commissioner tcmemo_2002_249 compliance with federal tax laws on date petitioner and mr butner filed late a joint income_tax return for the taxable_year that showed a tax_liability of dollar_figure that was unpaid in addition during petitioner received wages of dollar_figure from mr butner for secretarial work from which no income_tax was withheld fur- thermore on date petitioner filed late an income_tax return for the taxable_year that showed a tax_liability of dollar_figure which she paid at that time petitioner failed to comply with the income_tax laws for certain taxable years following the taxable years to which her request for relief relates this factor weighs against granting relief in addition petitioner has not established any other factors not set forth in revproc_2000_15 that favor granting relief to her in conclusion under the facts and circumstances in the instant case we hold that respondent did not abuse respondent’s discretion in denying equitable relief under sec_6015 to petitioner we have considered all of the contentions and arguments of the parties that are not discussed herein and we find them to be without merit irrelevant and or moot to reflect the foregoing decision will be entered for respondent


department of the treasury internal_revenue_service washington d c date number release date cc el gl br2 uilc memorandum for associate district_counsel cc wr from joseph w clark senior technical reviewer general litigation subject this refers to the transmittal from your office forwarding for pre-review a memorandum to person a with regard to the issue of whether the refund for year should be characterized as an erroneous refund because the service did not treat it as part of a joint_committee case prior to making the refund this document is not to be cited as precedent legend taxpayer x person a year year year year facts the facts as presented indicates that taxpayer x filed its income_tax return for year reporting a net_operating_loss nol of taxpayer x claimed that the nol was a specified_liability_loss pursuant to sec_172 and that it is entitled to the 10-year carryback provided under sec_1_172-13 as a result taxpayer x filed amended income_tax returns for year sec_1 and with refund claims for each of those years the service_center allowed the refunds for year sec_1 and in the amounts of the year refund claim was in the amount of that refund did not go out because under sec_6405 a joint_committee report was required prior to issuing a refund in excess of dollar_figure million the examination_division reviewed the refund claimed for year and subsequently determined that it was not allowable the district director’s office requested your advice with regard to whether the year refund claim should have been aggregated with the year refund claim for purposes of the report required by sec_6405 and if so whether the failure to treat the year claim as a joint_committee case prior to issuing the refund would provide the basis of an erroneous refund_suit under sec_7405 conclusion your advisory memorandum to person a correctly concludes that although a refund of over dollar_figure million should not be made without a report to the joint_committee the failure to make the required report does not provide a basis for an erroneous refund_suit by the government further you are correct in noting that sec_6405 does not provide that a refund made without the report is erroneous per se with regard to the issue of whether the year refund clam should have been aggregated with the year refund claim for purposes of the joint_committee report it is our understanding from discussions with that their office will or has addressed this issue