t c memo united_states tax_court clair and judith worthington petitioners v commissioner of internal revenue respondent docket no filed date clair and judith worthington pro sese brian bernhardt for respondent memorandum opinion wolfe special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 all section references are to the internal_revenue_code in effect for the tax years in issue unless otherwise indicated - all rule references are to the tax_court rules_of_practice and procedure respondent determined deficiencies in petitioners' and federal income taxes in the amounts of dollar_figure and dollar_figure respectively and accuracy-related_penalties under sec_6662 for the years and in the amounts of dollar_figure and dollar_figure respectively after concession by both parties ’ the issues for decision are whether petitioners are entitled to claimed bad_debt deductions under sec_166 for and whether petitioners failed to include interest_income in their federal_income_tax return and whether petitioners are liable for the accuracy-related_penalties under sec_6662 some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioners resided in baldwin michigan when the petition in this case was filed all references to petitioner are to clair worthington respondent conceded petitioners are entitled to a legal and professional expense deduction for the year in the amount of dollar_figure petitioners did not receive taxable refund income in the year in the amount of dollar_figure petitioners are entitled to a tax preparation expense deduction for the year in the amount of dollar_figure with dollar_figure being allocated to schedule a and dollar_figure being allocated to schedule c petitioners conceded that they are not entitled to the entire claimed legal and professional expense deduction of dollar_figure for the year but are only entitled to such a deduction for that year in the amount of dollar_figure during the years in issue petitioner operated a heating and plumbing service on their and federal_income_tax returns petitioners claimed business_bad_debt deductions in the amounts of dollar_figure and dollar_figure respectively in the notice_of_deficiency respondent determined that petitioners are not entitled to the bad_debt deductions because the revenue corresponding to such claimed deductions never was included in petitioners' income petitioners received interest_income from first union national bank of florida in in the amount of dollar_figure in the notice_of_deficiency respondent determined that petitioners had not included this income on their federal_income_tax return petitioners contend that both the interest_income and the income that the bad_debt deductions represent were included in the amount set forth on the gross_receipts line of the schedules c attached to their and federal_income_tax returns petitioners' and federal_income_tax returns were prepared by a tax preparation firm that used worksheets to prepare those tax returns petitioners destroyed these worksheets after their and federal_income_tax returns were filed sec_166 provides that there shall be allowed as a deduction any debt which becomes worthless within the taxable_year however worthless debts arising from unpaid wages salaries fees rents and similar items of taxable_income are q4e- not allowed as a deduction unless the income such items represent has been included in the return of income for the year for which the deduction as a bad_debt is claimed or for a prior taxable_year see 64_tc_598 garrison v commissioner tcmemo_1994_200 affd without published opinion 67_f3d_299 6th cir sec_1_166-1l e income_tax regs at trial petitioners submitted various stopped checks and work orders and claimed that these items substantiate their claimed bad_debt deductions contrary to petitioners' assertions these documents do not demonstrate that the income which gave rise to these items was in fact included in their gross_income although petitioner was a well-spoken witness he has not furnished any documentation that would corroborate his position in the present case we cannot rely upon petitioner's self-serving uncorroborated testimony see 99_tc_202 87_tc_74 the tax law requires taxpayers to substantiate amounts claimed as deductions by maintaining the records necessary to establish such entitlement see 65_tc_87 affd per curiam 540_f2d_821 5th cir sec_1_6001-1 income_tax regs during the trial petitioner admitted that he destroyed the worksheets that he claims might have substantiated his position moreover petitioners have not submitted evidence that - - indicates that they tried to reconstruct the information contained in these worksheets accordingly we find that petitioners are not entitled to the bad_debt deductions claimed on their and federal_income_tax returns petitioners also have not furnished any documentation that substantiates their claim that they included the interest_income from first union national bank of florida on their federal_income_tax return accordingly we find for respondent on this issue sec_6662 imposes a penalty of percent of the portion of the underpayment which is attributable to negligence or disregard of rules or regulations see sec_6662 negligence is the lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the circumstances see 85_tc_934 the term disregard includes any careless reckless or intentional disregard sec_6662 in general taxpayers are required to keep such permanent books of account or records including inventories as are sufficient to establish the amount of gross_income deductions credits or other matters required to be shown by such person in any return of such tax or information sec_1_6001-1 income_tax regs -- - taxpayers are required to keep such books_or_records at all times available for inspection by authorized internal revenue officers or employees and these records shall be retained so long as the contents thereof may become material in the administration of any internal revenue law sec_1 6001-l1 e income_tax regs when they destroyed the worksheets used in the preparation of their income_tax returns and failed otherwise to maintain adequate books_and_records petitioners did not exercise due care and failed to do what a reasonable and ordinarily prudent person would do accordingly we hold that petitioners were negligent with respect to the entire underpayment for each of the years and and therefore are liable for the accuracy-related_penalties under sec_6662 to reflect the foregoing concessions decision will be entered under rule


t c memo united_states tax_court gary blore petitioner v commissioner of internal revenue respondent docket nos filed date frederick j o’ laughlin for petitioner brian a smith for respondent memorandum opinion dinan special_trial_judge respondent determined deficiencies in petitioner’s federal income taxes in the amounts of dollar_figure dollar_figure and dollar_figure for the taxable years and unless otherwise indicated section references are to the internal_revenue_code in effect for the years in issue and - - all rule references are to the tax_court rules_of_practice and procedure the issues for decision are whether there are deficiencies at issue in these cases within the meaning of sec_6211 and whether petitioner had earned_income during the years in issue entitling him to a sec_32 earned_income_credit for each year some of the facts have been stipulated and are so found the stipulations of fact and the attached exhibits are incorporated herein by this reference petitioner resided in oklahoma city oklahoma on the dates the petitions were filed in these cases petitioner reported the following amounts of income and claimed the following amounts of withholding and earned_income credits in the respective taxable years wages dollar_figure dollar_figure dollar_figure interest_income -o- -o- standard_deduction big_number big_number big_number personal exemptions big_number big_number big_number taxable_income -o- -o- -o- tax -0- -0- -o- federal tax withholding big_number big_number big_number rarned income credit big_number big_number big_number overpayment big_number big_number big_number in the statutory notices of deficiency respondent disallowed the amounts of wages reported by petitioner for each of the taxable years and the notices reflected the following basis for the disallowance the income on the w2s on your and returns was never reported to the internal_revenue_service by any of the employers listed you failed to produce any documentation to support the w2 income claimed we are disallowing the income claimed attached to the w2s filed with your and tax returns based upon the disallowance of the income respondent also disallowed the earned_income credits claimed by petitioner in each year the first pages of the notices of deficiency reflected the following total deficiency amounts calculated using the respective credit adjustments barned income credit adjustment dollar_figure dollar_figure dollar_figure withholding credit adjustment big_number big_number big_number deficiency big_number big_number big_number pursuant to orders of this court these cases were dismissed for lack of jurisdiction insofar as they related to the withholding_tax credits see generally sec_6211 and b 12_tc_806 these dismissals reduced the amounts of the deficiencies at issue in these cases to dollar_figure dollar_figure and dollar_figure for each respective year the first issue for decision is whether there are deficiencies at issue in these cases petitioner argues that there are no deficiencies in these cases within the meaning of such under sec_6211 et seq q4e- as is relevant here a deficiency is defined in sec_6211 to be the amount by which the tax imposed by subtitle a relating to income taxes exceeds the amount shown as the tax by the taxpayer upon his return the treatment of sec_32 earned_income credits with respect to this definition is as follows sec_6211 rules for application of subsection a --for purposes of this section-- for purposes of subsection a -- a any excess of the sum of the credits allowable under sec_32 and sec_34 over the tax imposed by subtitle a determined without regard to such credits and b any excess of the sum of such credits as shown by the taxpayer on his return over the amount shown as the tax by the taxpayer on such return determined without regard to such credits shall be taken into account as negative amounts of tax sec_6211 was enacted by sec_1015 of the technical_and_miscellaneous_revenue_act_of_1988 publaw_100_647 102_stat_3572 which relates to certain refundable credits to be assessed under deficiency procedures house report contains the following explanation of sec_6211 b present law under present law the deficiency procedures allowing taxpayers to litigate issues in the tax_court relating to the earned_income_credit sec_32 and the --- - credit for the certain payments of the gasoline and special fuels tax sec_34 may not apply explanation of provision the bill provides that the tax_court deficiency procedures apply to the credits allowable under sec_32 and sec_34 notwithstanding that the credits reduce the net tax to less than zero the provision applies to notices of deficiencies mailed after the date of enactment of this bill h rept pincite although respondent determined petitioner was liable for a zero tax_liability in each taxable_year these amounts nevertheless exceed the negative tax_liability amounts shown by petitioner on his return for each such year respondent has therefore determined deficiencies within the meaning of sec_6211 and the redetermination of such deficiencies is within the jurisdiction of this court see sec_6213 the second issue for decision is whether petitioner had earned_income during the years in issue entitling him to a sec_32 earned_income_credit for each year an earned_income_credit is allowed to eligible taxpayers under sec_32 in an amount based upon a percentage of the taxpayer’s earned_income earned_income is defined under sec_32 to include wages and other employee compensation petitioner argues that he earned compensation in the amounts indicated on the forms w-2 wage and tax statement filed with -- - his tax returns for the years in issue thereby entitling him to an earned_income_credit for each such year petitioner bears the burden of proving the determinations set forth by respondent in the statutory notices of deficiency to be in error see rule a 290_us_111 petitioner’s testimony concerning his purported income can be summarized as follows during the years in issue petitioner performed services for jerry tomlin who at some point in time changed his name to jerry wilson hereinafter referred to only as mr tomlin mr tomlin in turn worked for a business or businesses known as johnson inc and quantum consultants inc it was from these corporations that petitioner received the forms w-2 which he attached to his income_tax returns for the years in issue the form_w-2 listed the employer as johnson inc while the and forms w-2 listed the employer as quantum consultants inc petitioner was initially contacted by mr tomlin after petitioner had been recommended by a friend mr tomlin would meet petitioner at petitioner’s home provide him with architectural plans and explain the work which needed to be completed petitioner served as a draftsman drawing cabinet plans for houses which were under construction in oklahoma texas arizona colorado and california petitioner never knew the exact locations of the houses for which he was making the - drawings petitioner was paid dollar_figure an hour for his work less amounts mr tomlin would withhold for taxes petitioner was typically paid in cash because he refused mr tomlin’s checks after having several returned for insufficient funds petitioner produced copies of several receipts written by him purportedly evidencing a portion of the cash payments made to him by mr tomlin the receipts each named mr tomlin and or johnson inc or quantum consultants inc the receipts dated were in the amounts of dollar_figure dollar_figure and dollar_figure the receipts dated were in the amounts of dollar_figure dollar_figure dollar_figure and dollar_figure the receipts dated were in the amounts of dollar_figure dollar_figure dollar_figure and dollar_figure these amounts do not correspond to the amounts which were reflected on the forms w-2 and which petitioner reported as income although petitioner testified that he did not attempt to match these receipts to the forms w-2 there is a notation on a statement presented as evidence which states jerry you still owe me dollar_figure on my last pay you also included this on the w-2 but you did not pay two witnesses testified on petitioner’s behalf the first witness michael blore is petitioner’s son petitioner testified that michael was present almost every time the man mr tomlin came by especially whenever he would pay me michael on the other hand testified concerning only one meeting between mr tomlin and petitioner at which he was present hdhe --- - testified that he did remember the meeting i was only there for a brief moment he also stated that the only thing i observed of him mr tomlin that he was a tall man and that’s about all i caught the second witness james ryan was petitioner’s neighbor petitioner testified that mr ryan met mr tomlin on several occasions and that mr ryan accompanied petitioner to a bank at which petitioner cashed a check from mr tomlin mr ryan testified that while at the bank several years prior to his testimony he waited in the truck while petitioner cashed a check he did not know any details regarding the check or the purpose of petitioner’s visit to the bank he also testified that he did not recall meeting mr tomlin at any time although petitioner produced some evidence tending to show that he received wages for services rendered in through viewing the record as a whole we find that this evidence is outweighed both by the inconsistencies in the testimony of the witnesses noted above and by the dearth of evidence in several key areas petitioner failed to produce mr tomlin as a witness or adequately explain his whereabouts and failed to produce any corroborating evidence which would establish that mr tomlin in fact existed and that he paid petitioner for services rendered petitioner failed to establish the existence or location of either of the two corporations named on the forms w-2 and failed --- - to adequately explain why he either did not visit them in the years he was allegedly receiving income from them through mr tomlin or why he was unconcerned that he was unable to locate these corporations finally petitioner did not present evidence of any services which he had performed such as the architectural drawings involved because petitioner has failed to establish he had earned_income in any of the years in issue we uphold respondent’s determination that petitioner is not entitled to the earned_income_credit for each year to reflect the foregoing decisions will be entered for respondent in the amounts of the reduced deficiencies


tcmemo_2010_84 united_states tax_court franklin m and erlinda l sykes petitioners v commissioner of internal revenue respondent docket no filed date r determined a deficiency and an accuracy-related_penalty pursuant to sec_6662 i r c for the tax_year after r’s concessions the issues for decision are whether ps are entitled to a casualty_loss deduction pursuant to sec_165 i r c and whether ps are liable for the accuracy-related_penalty pursuant to sec_6662 i r c held ps are liable for the deficiency and the accuracy-related_penalty franklin m sykes pro_se donna f herbert for respondent memorandum findings_of_fact and opinion wherry judge this case is before the court on a petition for redetermination of an alleged income_tax deficiency that respondent determined for petitioners’ tax_year after concessions by respondent the issues for decision are whether petitioners are entitled to a dollar_figure casualty_loss claimed on schedule a itemized_deductions pursuant to sec_165 for water damage sustained to their home and whether petitioners are liable for a sec_6662 accuracy-related_penalty findings_of_fact some of the facts have been stipulated and the stipulated facts and accompanying exhibits are hereby incorporated by reference into our findings at the time they filed their petition petitioners resided in california on or about date petitioners’ home sustained water damage due to the bursting of a bathroom sink water pipe petitioners submitted a claim to their insurance_company and 1respondent conceded expense adjustments of dollar_figure relating to auto and travel dollar_figure relating to depreciation for petitioners’ home and dollar_figure relating to mortgage interest for petitioners’ home 2unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended and in effect for the tax_year at issue and all rule references are to the tax_court rules_of_practice and procedure received a settlement check on or about date in the amount of dollar_figure the insurance company’s evaluation of the damage was based on a building repair estimate of dollar_figure from which the company subtracted a dollar_figure deductible and dollar_figure for depreciation petitioners allege that the loss relating to the water damage was greater than that allowed by their insurance claim they claim that the value of their home was reduced by approximately dollar_figure as a result of the water damage creating an additional casualty_loss for the tax_year of dollar_figure petitioners base the estimate of their loss on an appraisal of their home conducted by mr albert l romero mr romero’s appraisal estimates the value of petitioners’ property as of date it assumes that the property was in average overall condition during the effective date of the appraisal and states that adjustments were made for room count at dollar_figurem per room dollar_figurem per bath and gross living area at dollar_figure per sf rounded petitioners use the adjustment values in mr romero’ sec_3with adjustments the total casualty_loss claimed on petitioners’ form 1040x amended u s individual_income_tax_return for was dollar_figure 4the parties dispute the admissibility of mr romero’s appraisal under rule g formerly rule f because of respondent’s objection and petitioners’ failure to call the appraiser as a witness to identify his expert report and to be available for cross-examination about the report it is inadmissible in any event the outcome of the case does not turn on the admissibility of the appraisal appraisal to estimate the amount of the damage caused by the burst pipe additionally petitioners base their estimate on the loss of use of the portion of their home that suffered water damage during the period they conducted the repairs i burden_of_proof opinion the commissioner’s determination of a taxpayer’s liability is generally presumed correct and the taxpayer bears the burden of proving that the determination is improper see rule a 290_us_111 however pursuant to sec_7491 the burden_of_proof on factual issues that affect the taxpayer’s tax_liability may be shifted to the commissioner petitioners have not established that they meet the requirements under sec_7491 and for such a shift consequently the burden_of_proof remains on them moreover deductions are a matter of legislative grace and petitioners bear the burden of proving that they are entitled to any of the deductions claimed 503_us_79 a taxpayer must keep sufficient records to substantiate any deductions claimed sec_6001 ii casualty_loss expenses sec_165 allows as a deduction any loss sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise sec_165 limits the allowance of losses in the case of individuals sec_165 allows as a deduction to an individual certain losses commonly referred to as casualty losses a casualty_loss is allowable to a taxpayer for a loss of property not connected with a trade_or_business or a transaction entered into for profit if the loss results from fire storm shipwreck or other_casualty see id pursuant to sec_165 a net_casualty_loss is only allowed to the extent it exceeds percent of adjusted_gross_income the amount of the casualty_loss allowed under sec_165 is the lesser_of the fair_market_value of the property immediately before the casualty reduced by the fair_market_value of the property immediately after the casualty or the amount of the adjusted_basis prescribed in sec_1_1011-1 income_tax regs for determining the loss from the sale_or_other_disposition of the property involved sec_1_165-7 income_tax regs the method of valuation to be used in determining a casualty_loss is prescribed in sec_1_165-7 income_tax regs which provides as follows i in determining the amount of loss deductible under sec_165 the fair_market_value of the property immediately before and immediately after the casualty shall generally be ascertained by competent appraisal this appraisal must recognize the effects of any general market decline affecting undamaged as well as damaged property which may occur simultaneously with the casualty in order that any deduction under sec_165 shall be limited to the actual loss resulting from damage to the property ii the cost of repairs to the property damaged is acceptable as evidence of the loss of value if the taxpayer shows that a the repairs are necessary to restore the property to its condition immediately before the casualty b the amount spent for such repairs is not excessive c the repairs do not care for more than the damage suffered and d the value of the property after the repairs does not as a result of the repairs exceed the value of the property immediately before the casualty only the amount of the loss resulting from physical damage to property is deductible under sec_165 51_tc_543 affd 423_f2d_710 9th cir in petitioners retained albert l romero an allegedly certified appraiser to assess the value of their home after sustaining the water damage in his appraisal mr romero determined that the fair_market_value of petitioners’ home as of date was dollar_figure not taking into account the water damage however petitioners claim that the value of their home in date before the pipe burst was dollar_figure petitioners allege that the appraisal conducted by mr romero was overstated due to the rapidly increasing appreciation of property in southern california during the period in question and hence the comparable_property values he used were not reliable however mr romero used six comparable properties in his appraisal showing values of dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure to support their position that mr romero’s appraisal was overstated petitioners cite zillow com an online appraisal service to estimate that the fair_market_value of their home in not taking into account the water damage was approximately dollar_figure to determine the value of their home after the water damage petitioners use mr romero’s valuations of dollar_figure per bedroom dollar_figure per bathroom and dollar_figure square foot calculating a loss of approximately dollar_figure this calculation assumes the complete removal of two bedrooms a bathroom and various common areas from their home in summary petitioners claim the value of their home after the water damage was dollar_figure resulting approximately in a dollar_figure casualty_loss a review of the evidence compels us to conclude that both petitioners’ estimates of the before and after values of their home do not constitute competent appraisals nor are they otherwise adequate to satisfy the requirements of the statute and regulations petitioners provide no probative evidence as to why mr romero’s before appraisal of dollar_figure is overstated or why their estimate of dollar_figure is more reliable further petitioners provide no probative evidence that their calculation of the casualty_loss based on mr romero’s per-room and square- foot valuations is an accurate portrayal of the amount of the damage petitioners are not experts in the area of home valuation and yet they have provided no evidence to the court that their dollar_figure estimate for the water damage is properly calculated petitioners did not call any witnesses or even themselves to substantiate the valuation of their casualty_loss nor did they submit any supplemental materials to establish that their estimation is reliable additionally petitioners have provided no evidence to sustain their assertion that the casualty_loss was not only the cost of tearing out replacing the walls and remediating the mold but the substantial loss of use of space which was not a part of the insurance_company assessment with regard to the costs of the repair work petitioners have not provided the court with any documentation that shows the actual cost or extent of the repairs either in the form of receipts or work reports further petitioners have submitted no evidence concerning any loss of use of the residence or any costs associated with such alleged loss of use other than cryptic notes of the appraiser mr romero stating that adjustments were made for dollar_figure per room dollar_figure per bathroom and dollar_figure per square foot mr romero’s notes do not explain why these estimates were computed or how the amounts were determined regardless of whether petitioners could quantify the loss of use of their property only loss for actual physical damage is deductible under sec_165 the burden of proving the amount of the casualty_loss is on petitioners and they have not established that they are entitled to more than has been allowed iii sec_6662 penalties under sec_7491 respondent bears the burden of production with respect to petitioners’ liability for the sec_6662 penalty this means that respondent must come forward with sufficient evidence indicating that it is appropriate to impose the relevant penalty 116_tc_438 sec_6662 and b and imposes an accuracy-related_penalty equal to percent of any portion of an underpayment attributable to a taxpayer’s negligence or disregard of rules or regulations a substantial_understatement of tax or a substantial_valuation_misstatement respondent alleges that petitioners’ actions constitute either negligence or disregard of the rules or regulations therefore the court will not address whether petitioners’ actions constitute a substantial_understatement of tax or a substantial_valuation_misstatement sec_6662 defines negligence as any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code ‘negligence’ also includes any failure by the taxpayer to keep adequate books_and_records or to substantiate items properly sec_1_6662-3 income_tax regs d isregard of rules and regulations means any careless reckless or intentional_disregard_of_rules_and_regulations sec_6662 a disregard of rules or regulations is ‘careless’ if the taxpayer does not exercise reasonable diligence to determine the correctness of a return position that is contrary to the rule_or_regulation sec_1_6662-3 income_tax regs the accuracy-related_penalty is not imposed with respect to any portion of the underpayment as to which the taxpayer acted with reasonable_cause and in good_faith sec_6664 the determination of whether the taxpayer acted with reasonable_cause and in good_faith depends upon all the pertinent facts and circumstances sec_1_6664-4 income_tax regs relevant factors include the taxpayer’s efforts to assess his proper tax_liability including the taxpayer’s reasonable and good_faith reliance on the advice of a professional such as an accountant id further an honest misunderstanding of fact or law that is reasonable in the light of the experience knowledge and education of the taxpayer may indicate reasonable_cause and good_faith id petitioners submitted no evidence with respect to the sec_6662 penalty in their petition for redetermination petitioners claim that their accountant at the time didn’t know what he was doing however petitioners did not call their accountant as a witness at trial nor did they testify themselves as to his alleged incompetence see 115_tc_43 affd 299_f3d_221 3d cir petitioners also failed to keep adequate books_and_records and or to substantiate properly the items in question such a failure is evidence of negligence see sec_1_6662-3 income_tax regs consequently we conclude that respondent has met his burden of production for his determination of the accuracy-related_penalty based on negligence or disregard of rules or regulations additionally with regard to that determination petitioners have failed to meet their burden of proving that they acted with reasonable_cause and in good_faith we therefore sustain respondent’s determination that petitioners are liable for the accuracy-related_penalty on the underpayment associated with the disallowed itemized_deductions of petitioners we have considered all of the other arguments made by the parties and to the extent that we have not specifically addressed them we conclude they are without merit decision will be entered under rule


internal_revenue_service number release date index number ---------------------------------------------------- -------------------------------- ------------------------------------ ---------------------------- ---------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ----------------- ----------------------------------------------------- telephone number ---------------------- refer reply to cc corp b03 plr-154384-12 date date legend substitute agent ----------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- parent --------------------------------------------------------------------------------------- --------------------------------------- subsidiary --------------------------------------------------------------------------------------- ------------------------------------ company official tax professional -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- ----------------------- date a ---------------------------- dear ------------------ this letter responds to a letter dated date submitted on behalf of substitute agent requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file a statement under sec_1_337_d_-2 and sec_1 c of the income_tax regulations as in effect for the taxable_year ended date a the elections the material information submitted for consideration is summarized below for the taxable_year ended date a parent was the common parent of a consolidated_group the parent consolidated_group subsidiary was a member of the plr-154384-12 parent consolidated_group during the taxable_year ended date a the subsidiary stock became worthless however parent failed to claim a worthless securities deduction on the group’s consolidated_income_tax_return for such year elections under sec_1_337_d_-2 and sec_1_1502-35 to recognize the loss with respect to the disposition of the stock of subsidiary were required to be filed with or as part of parent’s timely filed return for its taxable_year ended date a however for various reasons the elections were not filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the elections substitute agent has represented that it is not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time of the request for relief sec_1_337_d_-2 as in effect for the year at issue provided that no deduction is allowed for any loss recognized by a member of a consolidated_group with respect to the disposition of stock of a subsidiary sec_1_337_d_-2 provides that sec_1_337_d_-2 applies with respect to stock of a subsidiary only if a separate statement entitled sec_1_337_d_-2 statement is included with the return in accordance with sec_1_337_d_-2 sec_1_337_d_-2 provides that loss is not disallowed under sec_1 d - a to the extent the taxpayer establishes that the loss is not attributable to the recognition of built-in_gain on the disposition of an asset including stock and securities sec_1_337_d_-2 provides that the statement required under sec_1 d - c must be included with or as part of the taxpayer's return for the year of the disposition in general sec_1_337_d_-2 applies with respect to dispositions and deconsolidations on or after date and before date sec_1_1502-35 provides that any loss recognized by a member of a consolidated_group with respect to the disposition of a share of subsidiary stock shall be suspended to the extent of the duplicated_loss with respect to such share of stock if immediately after the disposition the subsidiary is a member of the consolidated_group of which it was a member immediately prior to the disposition or any successor group sec_1_1502-35 as in effect for the year at issue provided in part that any loss suspended under sec_1_1502-35 or c shall be allowed to the extent otherwise allowable on a return filed by the group of which the subsidiary was a member on the date of the disposition of subsidiary stock that gave rise to the suspended_loss for the taxable_year that includes the day before the first date on which the subsidiary and any successor is not a member of such group or the date the group plr-154384-12 is allowed a worthless_stock deduction under sec_165 taking into account the provisions of sec_1_1502-80 with respect to all of the subsidiary stock owned by members sec_1_1502-35 provides that the suspended_loss will be allowed only if a separate statement entitled allowed loss under sec_1_1502-35 is filed with or as part of the taxpayer's return for the year in which the loss is allowable under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government in this case the time for filing the elections is fixed by the regulations ie sec_1_337_d_-2 and sec_1_1502-35 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time to file the elections provided parent and substitute agent acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by substitute agent and company official tax professional explain the circumstances that resulted in the failure to timely file valid elections the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the elections and that the request for relief was filed before the failure to make the elections was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the representations that have been made we conclude that parent and substitute agent acted reasonably and in good_faith the requirements sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly we grant an extension of time under sec_301_9100-3 until days from the date on this letter for substitute agent to file the elections plr-154384-12 the above extension of time is conditioned on the parent consolidated group's tax_liability if any not being lower in the aggregate for all years to which the elections apply than it would have been if the elections had been made timely taking into account the time_value_of_money no opinion is expressed as to the parent consolidated group's tax_liability for the years involved a determination thereof will be made upon audit of the federal_income_tax returns involved we express no opinion with respect to whether parent qualifies substantively to make the elections specifically no opinion is expressed regarding whether or when the stock in subsidiary became worthless in addition no opinion is expressed as to the tax effects or consequences of filing the elections late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the elections late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by the taxpayer and its representatives however all of the essential facts must be verified in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the elections penalties and interest that would otherwise be applicable if any continue to apply this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely ______________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate


number release date internal_revenue_service index number --------------------------------- -------------------------- ---------------- ----------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ------------- telephone number -------------------- refer reply to cc corp b05 plr-124189-06 date date ------------------ ----------- ------------------------ -------------------------- legend parent -------------------------------------------------------------------- sub1 -------------------------------------------------------------------- state a date1 date2 date3 year1 year2 company official ------------------------------------------------------------------------------------------- tax professional --------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- -------------------------------------------------------- -------------------------- -------------------------- ------------------ ------- ------- this letter responds to a letter dated date submitted on behalf of parent plr-124189-06 dear -------------- requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election the extension is being requested in order to allow parent to file a sec_1_337_d_-2t c statement under sec_1_337_d_-2t c of the income_tax regulations the election to recognize some or all of a loss upon the disposition of stock of a subsidiary the election was required to be filed with parent’s consolidated federal_income_tax return for year2 which was filed on date3 the material information submitted for consideration is summarized below parent a state a corporation is the common parent of an affiliated_group which files a consolidated federal_income_tax return on a calendar_year basis from year until year these returns included sub1 which was percent owned by parent on date1 which is in year1 parent acquired all the stock in sub1 on date2 which is in year2 parent’s investment in sub1 became entirely worthless an election under sec_1_337_d_-2t c to recognize some or all of a loss upon the disposition of the stock of a subsidiary sub1 was required to be filed with or as part of parent’s income_tax return for the year of its disposition however for various reasons the election was not filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file a valid election the period of limitations on assessments under sec_6501 of the internal_revenue_code has not expired for the taxable_year for which the election should have been filed or for any subsequent taxable_year recognized by a member of a consolidated_group with respect to the disposition of stock of a subsidiary sec_1_337_d_-2t a provides that no deduction is allowed for any loss sec_1_337_d_-2t a provides that a disposition means any event in which gain_or_loss is recognized in whole or in part sec_1_337_d_-2t c provides that sec_1_337_d_-2t c applies with respect to stock of a subsidiary only if a separate statement entitled sec_1_337_d_-2t c statement is included with the return in accordance with sec_1_337_d_-2t c 2t a to the extent the taxpayer establishes that the loss is not attributable to the recognition of built-in_gain on the disposition of an asset including stock and securities sec_1_337_d_-2t c provides that loss is not disallowed under sec_1 d - sec_1_337_d_-2t c provides that the statement required under sec_1 d - plr-124189-06 2t c must be included with or as part of the taxpayer’s return for the year of the disposition deconsolidations on or after date and before date if loss is recognized because stock of a subsidiary becomes worthless the disposition with respect to the stock is treated as occurring on the date the stock became worthless sec_1_337_d_-2t g in general sec_1_337_d_-2t applies with respect to dispositions and under sec_301_9100-1 the commissioner has discretion to grant a reasonable sec_301_9100-1 defines the term regulatory election as including an extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when it is established that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the government’s interests sec_301_9100-3 sec_1_337_d_-2t c therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent to file the election provided parent establishes that it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government_official and tax professional explain the circumstances that resulted in the failure to timely file the election the information establishes that parent reasonably relied on qualified_tax professionals who failed to make or advise parent to make the election and that the interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 based on the facts and information submitted including the affidavits submitted and the representations that have been made we conclude that parent has shown that it acted reasonably and in good_faith in failing to timely file the election the in this case the time for filing the election is fixed by the regulations ie information affidavits and representations submitted by parent company the election is to be filed with the director who has jurisdiction over parent’s the election statement should be entitled sec_1_337_d_-2t c statement and the above extension of time is conditioned on parent’s consolidated group’s tax plr-124189-06 requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly we grant an extension of time under sec_301_9100-3 until days from the date on this letter for parent to file the election must include all the material specified by sec_1_337_d_-2t c return within the time period specified above liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been made timely taking into account the time_value_of_money no opinion is expressed as to the parent’s consolidated group’s tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that taxpayers’ tax_liability is lower sec_301_9100-3 concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular we express no opinion as to whether or when sub1’s stock did become worthless in addition we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the code or regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the return or the election late that are not specifically set forth in the above ruling statements and representations made by parent company official and tax professional under penalties of perjury however the director should verify all essential facts moreover notwithstanding that an extension is granted under sec_301_9100-3 to file the election any otherwise applicable penalties and interest continue to apply k provides that that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching to their return a statement that provides the date and control number plr-124189-06 of this letter_ruling except as expressly provided herein no opinion is expressed or implied for purposes of granting relief under sec_301_9100-3 we relied on certain this letter is directed only to the taxpayer s who requested it section pursuant to a power_of_attorney on file with this office a copy of this letter is plr-124189-06 being sent to your authorized representative sincerely _ken cohen___________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate -


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh release number release date date date legend b scholarship c name d organization f organization x dollars amount y dollars amount dear you asked for advance approval of your scholarship grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scholarship program to fund the education of certain qualifying students also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provide in code sec_117 our determination we approved your procedures for awarding scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable description of your request your letter indicates you will operate a scholarship program called the b that was established as a memorial to c in recognition of his valuable contributions to the field of electrical engineering the b is awarded annually and carries a stipend of up to x dollars it is awarded for one year of full-time graduate work in electrical engineering at an engineering school of recognized standing located in the u s it is not renewable letter catalog number 58263t to be eligible for the b the student must be a permanent resident of the u s have majored in the field of electrical engineering and have received a bachelor's degree from an engineering college of recognized standing the b is only awarded to a full-time first year graduate student in the event the college is conducting a combined b s and m s degree program the student in the penultimate year would be eligible for the award which would apply in the final year of the program the b is advertised on the d website and flyers are distributed at conferences when applicable in addition email and social media announcements are made through d student activities f d women in engineering and d educational activities to apply for the b interested students must submit an application and certified transcripts from all colleges and universities they have attended along with three letters of recommendation from college university professors who are familiar with their work the letters of recommendation should reference the applicant's ability to perform graduate level work originality and creativity character diligence and social responsibility ability to lead ability to communicate and where the professor would rank the candidate among other students in the field from recent years the b committee is designated by d to solicit nominations from eligible universities review the applications and select a qualified recipient committee members are volunteers appointed by the administering awards body from d membership with terms up to three years the committee reviews each applicant’s academic performance work history and personal statements to select recipients each applicant’s aptitude for engineering personal statement about his her future plans for a career in electrical engineering and potential impact on advancing technology for the benefit of humanity as part of d’s mission are also considered once the selection committee has selected the recipient the final_decision is forwarded to the d educational activities board for final approval this provides a secondary overview of the proposed recipients to ensure quality recipients individuals serving on any board or committee involved at any stage of the recipient selection or approval process for an award shall be ineligible to receive or act as a nominator or reference for that award this conflict of interest limitation shall apply to all awards given by the d or any of its organizational units scholarship funds are paid as a one-time payout to the university and are designated for the student's educational expenses the recipient may also accept other tuition assistance or scholarships to support his her graduate work the recipient may attend an awards presentation to accept the honor which would provide additional professional development and networking opportunities if he or she is able a travel stipend up to y dollars may be reimbursed to the student with applicable receipts the travel stipend will reduce the amount of the scholarship accordingly if the recipient does not attend the school or changes his or her program of study then the scholarship may be given to an letter catalog number 58263t alternate if he she is in good standing if the recipient and the alternate are both unable to use the scholarship funds then no scholarship is given that year you represent that you will arrange to receive and review grantee reports annually and upon completion of the purpose for which the grant was awarded investigate diversions of funds from their intended purposes and take all reasonable and appropriate steps to recover diverted funds ensure other grant funds held by a grantee are used for their intended purposes and withhold further payments to grantees until you obtain grantees’ assurances that future diversions will not occur and that grantees will take extraordinary precautions to prevent future diversions from occurring you represent that you will maintain all records relating to individual grants including information obtained to evaluate grantees identify whether a grantee is a disqualified_person establish the amount and purpose of each grant and establish that you undertook the supervision and investigation of grants basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure e e e e the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to the provisions of code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 other conditions that apply to this determination e e e this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don't differ significantly from those described in your original request the effective date of our approval is date which is the date your request was submitted this determination applies only to you it may not be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box letter catalog number 58263t cincinnati oh e e e you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely jeffrey cooper director exempt_organizations rulings and agreements letter catalog number 58263t


department of the treasury internal_revenue_service washington d c employer_identification_number contact person id number op eleo-t oy telephone number date sep i999 significant index numbers legend m n o facts this is in reply to your request for a ruling dated date regarding the proposed transaction described below m is a charitable_remainder_unitrust within the meaning of sec_4 of revproc_90_31 1990_1_cb_539 and internal_revenue_code sec_664 and be a foreign_corporation wholly owned by m to create and fund n m proposes to create and provide funds for n which will m will not incur debt in order n will be governed by the law of o it will be treated as a corporation for u s income_tax purposes all corporate formalities with respect to n will be followed the status of n and its assets as separate from m and its assets will be observed and n will not act as the agent for m or m’s trustee m’s trustee anticipates that n will purchase an interest in a u s partnership the fund the fund has acquired and will acquire and actively manage a diverse portfolio of primarily below investment-grade securities with the objective of providing its investors with high yield annual returns the fund anticipates use of debt financing to partially fund its acquisition of investment_assets the anticipated use of debt financing will result in income that is considered to be unrelated_business_taxable_income ubti to holders of interests in the fund for purposes of sec_511 and sec_664 45y2 the debt-financed_income will be distributed to n and which n may then distribute to m m states that it has four business purposes for establishing n flexibility in disposing of interests in the fund additional limited_liability protection avoiding unrelated_business_taxable_income and management of additional investments to be made by m based on these representations m has requested the following rulings n’s distributive_share of the fund’s income and gains under sec_704 of the code will not constitute unrelated_business_taxable_income to m the amounts distributed by the fund to n will not constitute unrelated_business_taxable_income to m the amounts distributed by n to m will not constitute unrelated_business_taxable_income to m law sec_511 a of the code imposes a tax upon the ubti of organizations exempt from tax under sec_501 of the code sec_512 of the code defines ubti as the gross_income derived from an unrelated_trade_or_business regularly carried on less allowable deductions and subject_to certain modifications sec_512 of the code provides that dividends received or accrued shall be excluded from ubti sec_512 of the code provides that notwithstanding the general exclusion of dividends from ubti dividends and other passive_investment_income derived from certain debt-financed_property and corresponding deductions are included as an item_of_gross_income derived from an unrelated_trade_or_business in an amount ascertained under sec_514 of the code sec_512 b of the code as amended by the taxpayer_relief_act_of_1997 provides that certain items of income received from a controlled_entity will be considered to be derived from an unrelated_trade_or_business dividends are not included among the items of income covered by sec_512 of the code sec_512 b of the code added by the small_business job protection act of provides that any amount included in gross_income under sec_951 a a shall be included as an item_of_gross_income derived from an unrelated_trade_or_business to the extent that the amount so included is attributable to insurance_income as defined in sec_953 of the code sec_512 of the code provides that if a trade_or_business regularly carried on by a partnership of which an organization is an unrelated_trade_or_business with respect to such organization such organization in computing its unrelated_business_taxable_income shail subject_to the exceptions additions and limitations contained in subsection b include its share whether or not distributed of the gross_income of the partnership from such unrelated_trade_or_business and its share of the partnership deductions directly connected with such gross_income a member is sec_513 of the code defines unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related to the performance of exempt purposes or functions sec_514 of the code provides that the term unrelated_business_income includes unrelated_debt-financed_income from investment_property the investment_income included is proportionate to the debt on the property sec_514 of the code provides that the term debt-financed_property means any property which is held to produce income and with respect to which there is acquisition_indebtedness at any time during the taxable_year sec_664 of the code provides that a_trust is exempt from income taxes for any taxable_year unless the trust has ubti for such year the trust has ubti for any taxable_year then the trust is not exempt from taxes and is subject_to taxation under the normal rules of subchapter the code of if the house ways_and_means_committee report on the smail business job protection act of in describing sec_512 states that income inductions under subpart_f have been characterized as dividends for unrelated_business_income_tax purposes sec_951 through comprise subpart_f - controlled foreign sec_951 a provides that a united_states_shareholder corporations of a controlled_foreign_corporation must include in gross_income his pro_rata share of the controlled foreign corporation’s subpart_f_income for the year 6uu even if not distributed f income includes investment_income sec_954 of the code provides that subpart analysis and conclusion prior to the enactment of sec_512 of the code in it was unclear whether exempt_organizations that conducted insurance activities through a foreign_corporation were subject_to u s tax with respect to such activities the internal_revenue_service issued a series of private letter rulings stating that amounts distributed by the controlled foreign its shareholders’ income under subpart_f corporation and thus includible in were characterized as dividends for unrelated_business_income_tax purposes and thus were not taxed but a private_letter_ruling to the contrary was also issued plr sec_512 b of the code was enacted to provide that where a controlled_foreign_corporation is insuring third-party risks providing insurance to entities other than the exempt_organization which controls the controlled_foreign_corporation and certain related parties the income from that activity will be taxable as unrelated_business_income the house ways_and_means_committee report on the new provision discusses favorably the rulings issued by the service which characterized subpart_f inclusions as dividends and thus not taxable as unrelated_business_income the committee report also refers unfavorably to a ruling plr which used a look- through rule to characterize subpart_f_income in the case at hand the income derived by n from the fund will not be insurance_income as defined in sec_953 of the code it appears clear that congress intended such noninsurance income to be treated as dividend income when paid to shareholders of controlled_foreign_corporations under sec_512 sec_512 and sec_514 income from the fund would be ubit to m if received directly by m because it is debt-financed_income however here the income will arrive at m indirectly through_n which will pay dividends to m b of the code interest in n and thus such dividend income is not debt-financed_income described in sec_514 dividend income is not taxable under section further m has not itself incurred debt in financing its based upon the information submitted we rule as follows n’s distributive_share of the fund’s income and gains under sec_704 of the code will not constitute unrelated_business_taxable_income to m sys the amounts distributed by the fund to n will not constitute unrelated_business_taxable_income to m the amounts distributed by n to m will not constitute unrelated_business_taxable_income to m these rulings are based on the understanding that there will be no material changes in the facts upon which they are based any changes that may have bearing upon your tax status should be reported to the service a copy of this ruling is being sent to your key district_director because it could resolve questions concerning your federal_income_tax status this ruling should be kept with your permanent records this ruling is directed only to the organization that requested it sec_6110 j of the code provides that it may not be used or cited as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter for other matters including questions concerning reporting requirements please contact your key district_director sincerely ganald seow gerald v sack chief exempt_organizations technical branch su


department of the treasury internal_revenue_service washington d c date wta-n-102811-99 uilc number release date internal_revenue_service national_office field_service_advice memorandum for w edward williams senior technical reviewer branch cc intl br1 from subject claim of exclusion under sec_931 for compensation earned in johnston island this field_service_advice responds to your memorandum dated date concerning the above matter field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be used or cited as precedent legend taxpayer year year year year issue whether income derived from rendering personal services by taxpayer taxpayer as an employee of a civilian contractor on johnston island during year may be excluded by the taxpayer from his gross_income under sec_931 of the internal_revenue_code_of_1986 i r c wta-n-102811-99 conclusion based on the facts presented we conclude that the taxpayer is not entitled to claim the sec_931 exclusion because johnston island is not a specified_possession as defined in sec_931 taxpayer is an individual u s citizen who was employed during year by a civilian contractor performing u s government contracts on johnston island there is no information provided regarding the amount of income earned by the taxpayer during year sec_1 through or the location of his employment during year sec_1 through the taxpayer states that on his income_tax return form_1040 for year he claimed the sec_931 exclusion for compensation earned in johnston island he also states that some irs representatives have informed him that he is not entitled to claim the sec_931 exclusion johnston island is a acre island and it is the largest of several islands constituting the island group known as the johnston atoll located approximately nautical miles southwest of hawaii johnston island is an unincorporated territory of the united_states it was designated as a naval defensive sea area and airspace reservation on date by executive_order it is currently operated and maintained by field command defense special weapons agency dawa kirkland air force base new mexico in the early 1970s the military began moving chemical weapons from okinawa to johnston island and the island became a major storage_facility for u s chemical weapons in the late 1980s the u s defense department began construction of an incinerator facility to destroy the chemical weapons on the island testing of the facility began in with full-scale operations beginning in with the participation of private sector contractors such as taxpayer’s employer during year year sec_1 through are all calendar years subsequent to law and analysis sec_931 provides in pertinent part as follows a general_rule -in the case of an individual who is a bona_fide_resident of a specified_possession during the entire taxable_year gross_income shall not include - income derived from sources within any specified_possession and wta-n-102811-99 income effectively connected with the conduct_of_a_trade_or_business by such individual within any specified_possession c specified_possession -for purposes of this section the term specified_possession means guam american samoa and the northern mariana islands sec_931 states that the exclusion under that subsection is available only to an individual who is a bona_fide_resident of a specified_possession emphasis added a specified_possession is defined by sec_931 as guam american samoa and the northern mariana islands thus the sec_931 exclusion may not be claimed by the taxpayer because johnston island is not a specified_possession within the meaning of the statute prior to the tax_reform_act_of_1986 pub l which enacted the internal_revenue_code_of_1986 hereinafter 1986_code sec_931 of the internal_revenue_code of hereinafter code provided an exclusion from u s gross_income for certain income of u s citizens engaged in a trade_or_business in a u s possession if such income was derived from sources within a possession_of_the_united_states the exclusion for possession source income that was available under sec_931 of the code was limited to individuals who could show that percent or more of their gross_income was derived from a u s possession for the three-year period immediately preceding the taxable_year and that percent or more of their gross_income was derived from a trade_or_business in such u s possession the taxpayer has not provided information regarding the amount of income he earned or the location of his employment during the three-year period immediately preceding year this omission is somewhat academic because it is clear that the code provisions do not apply to year sec_931 of the code did not define the term u s possession sec_1_931-1 promulgated under the code lists various possessions of the united_states including johnston island that were considered to be possessions of the united_states for purposes of sec_931 of the code the tax_reform_act_of_1986 generally amended the provisions of prior sec_931 including the addition of a definition of the term specified_possession in subsection c since it is not included in this definition of specified_possession johnston island is no longer a possession for purposes of sec_931 regardless of the regulation issued under the code thus neither the regulation nor the prior code section are applicable to the time period when the taxpayer worked on johnston island the effective date provisions of the tax_reform_act_of_1986 sec_1277 of publaw_99_514 clearly indicate that the amended sec_931 under the 1986_code is to apply to wta-n-102811-99 taxable years beginning after date thus taxpayer is not entitled to claim the sec_931 exclusion for year w edward williams senior technical reviewer branch office of associate chief_counsel international


internal_revenue_service number release date index number --------------------------------------- ------------------------------------------------- --------------------------------- --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ------------------ telephone number ---------------------- refer reply to cc psi b01 plr-124417-14 date november legend x ---------------------------------------------------- ---------------------------------------------- y ----------------------------------------------------- ----------------------------- trust a ----------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --- -------------------------- ----------------------------------------------------------------------------------------- trust b --------------------------------------------------------------------------------------------------------------------- -- -------------------------- date date date year state -------------------------- --------------------------- ------------------------ ------- ----------- plr-124417-14 dear --------------- this responds to a letter dated date submitted on behalf of x by x’s authorized representative requesting relief under sec_1362 of the internal_revenue_code the code facts according to the information submitted and representations made within x was incorporated on date under the laws of state and made a valid s election effective date the shareholders of x in year formed two revocable inter_vivos trusts trust a and trust b and transferred their shares in x to the trusts on date a number of shares of x were transferred from trust a and trust b to y an ineligible shareholder thus causing a termination of x’s s election after the discovery of the terminating event x and its shareholders took corrective action by having y transfer all its x shares back to trust a and trust b x represents that if its s_corporation_election terminated it was inadvertent and was not motivated by tax_avoidance or retroactive tax planning x also represents that x and its shareholders agree to make any adjustments required as a condition of obtaining relief under the inadvertent_termination_rule as provided under sec_1362 of the code that may be required by the secretary x further represents that x and its shareholders have filed consistently with x continuing to be a valid s_corporation law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for the year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in subsection c or an organization described in subsection c who is not an individual c have a nonresident_alien as a shareholder and d have more than class of stock sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides in part that if an election under sec_1362 by any corporation was terminated under sec_1362 the secretary determines that the plr-124417-14 circumstances resulting in the termination were inadvertent no later than a reasonable period of time after the discovery of the circumstances resulting in the termination steps were taken so that the corporation for which the termination occurred is a small_business_corporation and the corporation for which the termination occurred and each person who was a shareholder in such corporation at any time during the period of inadvertent termination of the s election agrees to makes such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the termination the corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and the representations made we conclude that x’s s_corporation_election terminated on date because x had an ineligible shareholder however we conclude that the termination was inadvertent within the meaning of sec_1362 therefore x will be treated as an s_corporation effective date and thereafter provided x’s s_corporation_election is not otherwise terminated under sec_1362 except as specifically ruled upon above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code specifically we express or imply no opinion regarding x’s eligibility to be an s_corporation this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely laura c fields laura c fields senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes


department of the treasury internal_revenue_service washington d c commissioner tax_exempt_and_government_entities_division jan itorm issue list legend taxpayer a trustee b company n court t county u state w date date date date date date date month i trust t amount u page ira x dear this is in response to the date request for letter_ruling submitted by your authorized representative on your behalf as supplemented by correspondence dated date date and date in which your authorized representative requests a waiver of the day rollover requirement contained in sec_408 of the internal_revenue_code ‘code the following facts and representations support your ruling_request taxpayer a was born on date and thus i sec_47 years of age taxpayer a formerly held ira x with company n taxpayer a has been diagnosed as having muscular dystrophy and has been determined to be disabled by the social_security administration his mother trustee b is his attorney in fact pursuant to a general durable_power_of_attorney dated date taxpayer a is eligible to receive medicaid and other public benefits a state w court court t county u a court of competent jurisdiction acting on a petition by taxpayer a dated date issued an order dated date authorizing the creation of a_trust for the taxpayer’s benefit intended to qualify as a special needs trust trust t’ under state and federal_law the amount required to be placed into trust t pursuant to the terms of the above- referenced date court t order as amended on date was amount u the balance of ira x on or about date taxpayer a and trustee b signed paperwork with company n authorizing the amounts then held in ira x to be transferred from ira x to an account set up in the name of trust t taxpayer a and trustee b signed said paperwork believing that the transferred amounts would continue to be held in an individual_retirement_account ira on or about date company n denied the request to set up an ira in the name of trust t on or about date pursuant to a request by the financial advisor of taxpayer a company n transferred the amounts then held in ira x amount u into an account set up in the name of trust t the financial advisor transfer request provided in part as ordered by the county u court on or about date company n complied with that request during month company n issued a form_1099 to taxpayer a reflecting the date distribution from ira x to an account set up in the name of trust t because an ira cannot be set up and maintained in the name of a_trust this request for letter_ruling was filed with the internal_revenue_service ‘service shortly thereafter page based on the above facts and representations you through your authorized representative request the following letter rulings that pursuant to sec_408 of the internal_revenue_code the day rollover period found at sec_408 of the code applicable to the distribution made on or about date from ira x is waived and that taxpayer a is granted a period not to exceed days as measured from the date of this ruling letter to roll over an amount not to exceed amount u into an ira 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 60th 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 60th 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 l-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 code sec_408 provides in summary that this paragraph does not apply to any amount required to be distributed in accordance with subsection a or b code sec_401 required distributions page sec_408 of the code provides that the secretary may waive the 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 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 d 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 the facts submitted in support of this ruling_request indicate that during calendar_year amount u was transferred from ira x into an account set up and maintained in the name of trust t company n the financial_institution which accomplished the transfer correctly noted that an individual_retirement_account cannot be set up and maintained in the name of a_trust and appropriately issued a federal form_1099 treating the date transfer as a taxable_distribution the facts submitted in support of this ruling_request indicate that taxpayer a’s financial advisor acting on behalf of taxpayer a and on behalf of trustee b the trustee of trust t requested the ira x distribution the service notes that although the financial advisor’s instruction to company n was based on a court t order a taxable_event did occur as a result of the transfer and as a result of the actions of taxpayer a's financial advisor thus under the facts outlined above the service pursuant to code sec_408 waives the 60-day rollover period applicable to the date distribution from ira x therefore with respect to your ruling requests the service concludes as follows that pursuant to sec_408 of the internal_revenue_code the day rollover period found at sec_408 of the code applicable to the distribution made on or about date from ira x is waived and that taxpayer a is granted a period not to exceed days as measured from the date of this ruling letter to roll over an amount not to exceed amount u into an ira page this ruling letter is based on the assumption that ira x either has met is meeting or will meet the requirements of code sec_408 at all times relevant thereto no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this 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 the original of this letter has been sent to your authorized representatives in accordance with a power_of_attorney on file in this office if you wish to inquire about this ruling please contact me xxxxxx sincerely yours fo frances v sloan manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose