internal_revenue_service number release date cc fs ita uilc date internal_revenue_service national_office field_service_advice memorandum for area_counsel san jose california attn laura b belote cc lm sj from associate chief_counsel cc ita subject constructive receipt disclosure statement 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 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 legend industry a industry b crop a date date date date date entity a entity b entity c b c d e f g h issue did entity a constructively receive income upon the receipt of a promissory note from entity b upon the due_date of the promissory note or upon receipt of a secured promissory note from entity b conclusion the present facts do not establish that constructive receipt has occurred much more factual development is necessary in order to evaluate whether there is any possibility of successfully establishing constructive receipt facts entity a has been involved in industry a since date the sole shareholder of the corporation is b the facts are unclear as to which three persons serve on entity a’s board_of directors the board is composed of either b c and d or b c and e during the years at issue for entity a the officers were b president and chief financial officer and c secretary entity a has always used the cash_method_of_accounting and adopted a fiscal period ending february 28th or 29th entity b was incorporated less than a year after entity a and uses the accrual_method of accounting and a calendar_year during the years at issue the stock of entity b was held entity a f g d the board_of directors and officers are b g and h there is some dispute though whether b was either a director or an officer entity b is engaged in industry b during the years in issue entity b sold all of crop a produced by entity a petitioners though prefer to characterize the transaction as crop a is sold through entity b which sells crop a for the account of entity a and other entities entity b generally pays all growers within two to four weeks of receipt of crop a with the exception of crop a delivered by entity a with respect to entity a entity b records each purchase and sets up an account payable when it receives the crop since the beginning of their business relationship over years ago entity b has never paid on its account payable to entity a except that it did pay for crops received during two of the years at issue entities a and b have never executed a deferral contract with respect to money owed to entity a by entity b nor is there a due_date for the amounts owed entity a as a cash_method taxpayer does not record its sales of crop a to entity b thus it has not reported any income from such sales upon delivery of crop a it does deduct its cost_of_goods_sold expenses except for entity a entity b does have a policy of advancing funds to other entities with whom it transacts business at the end of one of the years at issue entity b had advanced funds and the majority of it was advanced to entities in which b had a ownership_interest on date g a minority shareholder of entity b filed a lawsuit against among others b and entity a entity a made of demand for the balance due to it by entity b entity b subsequently on date issued a promissory note to entity a which represented the full amount that entity b owed to entity a at that time including interest the note also provided that the entire principal and interest was due on date at the same time the parties executed a secured advance agreement securing the promissory note by the assets of entity b the agreement also provided that entity a will loan and advance to entity b or permit entity b to retain in entity a’s sole discretion an amount not to exceed dollar_figure million at any time the agreement is characterized as a credit arrangement between the parties entity a also agreed to advance funds and restrain from collecting its receivables to insure that entity b could maintain its customary advances entity a could without notice take possession of the collateral on default of the promissory note according to entity b’s board minutes the parties agreed to postpone any attempts to collect the balance due by entity b to entity a for two years to date during audit an internal_revenue_service economist concluded that the fair_market_value of the promissory note equaled its face value which was the full amount owed entity a by entity b several years later the parties to the lawsuit entered into a settlement agreement which acknowledged that the promissory note and secured advance agreement were canceled released and rescinded the parties acknowledged that the note had no ascertainable value as it was not negotiable and could not be collected and entity b did and does not have the financial ability to pay the note pursuant to the settlement g sold hi sec_15 of entity b stock to entity c a corporation owned equally by c and e directors and officers were b and c entity c purchased the stock with loans from entity a at the same time entity a sold it sec_50 interest in entity b to entity c and d again these shares were purchased with loans from entity a contrary to the petitions filed in this consolidated case petitioners stated in their response to respondent’s first requests for admission that technically entity b does not purchase crops from entity a or the other growers rather the growers sell their crops through entity b which sells the crops for the growers’ accounts in a previous audit of entity a a constructive receipt issue was conceded by appeals due to a determination that entity b did not have the financial ability to pay entity a law under the cash_method_of_accounting an item_of_gross_income is to be recognized in the year in which it is actually or constructively received sec_1_451-1 two major issues which may arise are was the item_of_income in such a form that it should be recognized for tax purposes the doctrine_of cash equivalency and whether the item_of_income has in fact been received the doctrine_of constructive receipt cash equivalency questions of cash equivalency arise primarily with intangible_property such as contract rights accounts_receivable and promissory notes courts have generally interpreted the applicable code sections and regulations to exclude from income the receipt of certain intangible_property which is deemed not the equivalent of cash see generally s gertzman federal tax_accounting dollar_figure 2d ed an important and often cited case on this issue is 289_f2d_20 5th cir the issue was the proper time for recognizing income evidenced by contractual rights to receive payments of cash in the future a promissory note negotiable in form is not necessarily the equivalent of cash such an instrument may have been issued by a maker of doubtful solvency or for other reasons such paper might be denied a ready acceptance in the marketplace we think the con- verse of this principle ought to be applicable we are convinced that if a promise to pay of a solvent obligor is unconditional and assignable not subject_to set-offs and is of a kind that is frequently transferred to lenders or investors at a discount not substantially greater than the generally prevailing premium for use of money such promise is the equivalent of cash and taxable in like manner as cash would have been taxable had it been received by the taxpayer rather than the obligation id pincite thus to the cowden court if any of the noted conditions is not present income should not be recognized the fact that an item has a fair_market_value does not mean that it is the equivalent of cash gertzman supra pincite see also 21_fsupp_964 a note may be received as security or evidence_of_indebtedness not as a payment in the absence of agreement or consent to receive it as such a promissory note though accepted by the creditor does not in itself constitute payment but when a negotiable promissory note is received as payment for services rendered the fmv of the note is income upon receipt revrul_76_135 1976_1_cb_114 see also 31_tc_1260 negotiable promissory note of solvent debtor is cash_equivalent and includible in income to extent of fmv constructive receipt income although not actually reduced to a taxpayer’s possession is constructively received by him in the taxable_year during which it is credited to his account set apart for him or otherwise made available so that he may draw upon it at any time or so that he could have drawn upon it during the taxable_year if notice of intention to withdraw had been given however income is not constructively received if the taxpayer’s control of its receipt is subject_to substantial limitations or restrictions sec_1_451-2 thus taxable_income of a cash_basis taxpayer is money or other_property that is subject_to taxpayer’s unfettered will and control that the taxpayer is free to enjoy at his own option that exists and is available to taxpayer and that except for taxpayer’s own volition can immediately be reduced to his possession the doctrine prevents a taxpayer from deferring income when earlier receipt is prevented solely by taxpayer’s own will gertzman supra pincite on the other hand where attorneys entered into a structured_settlement which called for deferred payments of their fee and the settlement was entered into prior to obtaining an unconditional right to compensation_for their legal services the court held that they had not constructively received income upon the purchase of the annuity_contracts meant to provide payment for the legal services fee 103_tc_634 see also 723_f2d_138 1st cir sale proceeds deposited into escrow account seller did not constructively receive income where the account set up by agreement between parties entered into before seller had any right to the funds and seller was not entitled to any economic benefits prior to scheduled disbursement these cases demonstrate that if the income is not unqualifiedly subject_to the taxpayer’s demand it has not been constructively received furthermore with respect to the issue of restrictions or limitations precluding taxpayer from obtaining income through his own free will any restriction or limitation must exist prior to the time the right to receive the income occurs courts have identified numerous factors that must be evaluated to determine whether any restrictions or limitations preclude application of the constructive_receipt_doctrine such factors include consistent policies of the obligor 56_tc_464 oral or informal understandings among the parties concerning under what circumstances amounts due a taxpayer may be withdrawn or received evans v commissioner 55_tcm_902 and the fact that the consent of another is required before a taxpayer may obtain funds 493_f2d_608 2d cir cert_denied 419_us_828 where a countersignature is required to obtain funds the courts do not find constructive receipt even where the taxpayer is the majority stockholder and could have exercised such power to obtain the funds evans supra gertzman supra pincite to lastly constructive receipt is never appropriate where the obligor does not have the financial ability to pay what is owed for example unsecured promissory notes received as compensation_for_personal_services from a corporation in a bad financial condition were found to have no fair_market_value 18_bta_650 constructive receipt always requires the obligor to have the financial ability to pay the amounts in question 36_tc_111 acq 1962_1_cb_3 also a controversy between the principals of a company or the particular history and nature of their relationship may preclude authorized amounts from being paid or constructively received 281_f2d_461 ct_cl cert_denied 365_us_815 analysis the facts indicate that the settlement agreement entered into by the parties states that the promissory note had no ascertainable value as it was not negotiable in addition the settlement agreement states that entity b does not have the financial ability to pay the note assuming these facts are true entity a cannot be charged with constructive receipt of the promissory note cowden supra barnsley supra basila supra furthermore the parties characterized the secured advance agreement as a credit arrangement this characterization would be of no import if the promissory note was in fact negotiable and entity b was solvent but in light of the circumstances surrounding the issuance of the promissory note and the execution of the secured advanced agreement the characterization by the parties of the secured advance agreement as a credit arrangement seems credible if entity b required the assurances provided to it by entity a in the secured advance agreement in order to maintain grower advances it is doubtful that it would have been in a financial position to satisfy the promissory note and hence the note is worthless for purposes of constructive receipt with respect to entity a’s ability through its own will and control to access any money or property of entity b’s to cover the amount owed to it by entity b the facts do not show any such ability on entity a’s part owning of entity b as entity a did for a period of time is insufficient evidence of an ability to access funds evans supra furthermore courts have specifically identified two factors in existence here as specifically precluding constructive receipt consistent policies of the obligor lacy supra years of nonpayment of entity a by entity b and oral or informal understandings among the parties concerning under what circumstances amounts due a taxpayer may be withdrawn or received evans supra again the year history of the business practices between entities a and b heather maloy by gerald m horan senior technician reviewer income_tax accounting branch


number release date id office uilc cca_2009020615524437 -------------- from ------------------- sent friday february pm to ---------------------------- cc ---------------------------------------------------- subject re new sec_6103 the amendment to sec_6103 should not affect any disclosures in tefra proceedings under sec_6103 sec_6103 provides that taxpayer information may be disclosed to all parties in a federal judicial or administrative_proceeding all direct and indirect partners in a tefra partnership are parties to the administrative_proceeding ie the audit and the subsequent litigation the 9th circuit so held in 323_f3d_1210 a f t r 2d ustc p big_number so while we will have to be more careful for disclosures outside of tefra under the amendment to sec_6103 the new legislation should not affect our disclosures made as part of a tefra_audit and litigation thus we may continue to issue the form 886-z under sec_6103 since this provides an exception to e that said we should nevertheless respect partner privacy to the extent their personal information is not directly relevant to the tefra proceeding ---------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------


id office uilc cca-831184-09 ---------- number release date from ----------- sent monday pm to ------------------------- cc ---------------------------- subject re foia question re discount rate project no we have certain record keeping requirements under the federal records act of i'll provide you with further information shortly -- the rules are quite detailed the bottom line however is that federal agencies are legally obligated to retain records that reflect the evolution of a process that does not mean that we have to keep everything but we do need to retain the important or substantive stuff for instance drafts e-mails or meeting notes reflecting substantive ideas or thought process require retention on the other hand drafts reflecting typo corrections or mere logistics such as setting up a meeting date can be disposed of however we are still entitled to claim exemptions under foia for the records that we are required to retain in particular we can usually protect this material under the deliberative_process privilege that privilege protects material reflecting our thought process leading up to the final product more later


department of the treasury tax exempt and government entities pinston washington d c feb - uniform issue list dollar_figure ep et legend taxpayer a taxpayer b individual c state c ira trust e date f company g amount h dear this is in response to the correspondence dated submitted by your authorized representative on your behalf in which you request a private_letter_ruling under sec_401 and sec_408 of the internal_revenue_code the following facts and representations support your ruling_request letter as supplemented by taxpayer a died on date a resident of state c taxpayer a had reached his required_beginning_date on date f taxpayer a was survived by his wife taxpayer b page at the time of his death taxpayer a was the owner of ira which he maintained with company g ira met the requirements of internal_revenue_code sec_408 trust e was the beneficiary of taxpayer a’s ira upon the death of taxpayer a taxpayer b and individual c became the co-trustees of trust e individual c is the son of taxpayer a and taxpayer b_trust e provides that taxpayer b should receive during her lifetime amounts of net_income necessary for her health support welfare and necessary maintenance upon taxpayer b’s death the remaining principal and any accumulated income of the trust e is to be distributed to taxpayer a’s children and grandchildren free of trust after taxpayer a’s death taxpayer b and individual c employed an attorney to close out the estate prepare the necessary filings and provide professional advice on the administration of the estate the co-trustees were advised the total balance in ira had to be withdrawn and placed in a non-ira account under trust e’s name and identification_number individual c relying on the attorney’s advice filled out the paperwork in his capacity of co-trustee of trust e the amount in the ira account on date the date of distribution was amount h trust e received a 1099-r for the year indicating amount h as a taxable_amount taxpayer b died on january based on the above facts and representations you through your authorized representative request the following letter_ruling individual c as executor of the estate of taxpayer b requests the waiver of the day rollover requirement and asks the service to permit a period of time not to exceed days as measured from the date of this letter_ruling to contribute the amounts distributed from ira on or about date into another individual_retirement_arrangement ira described in sec_408 of the internal_revenue_code with respect to your ruling requests code sec_408 provides that except as otherwise provided in this subsection any amount_paid or distributed out of an individual_retirement_plan shall be included in gross_income by the payee or distributee as the case may be in the manner provided under code sec_72 code sec_408 provides that sec_408 does not apply to a rollover_contribution if such contribution satisfies the requirements of sec_408 and d b code sec_408 provides that sec_408 does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the account is maintained if the entire amount received including money and any other_property is paid page a into an ira other than an endowment_contract for the benefit of such individual not later than the 60th day after the day on which he receives the payment or distribution code sec_408 provides in pertinent part that in the case of an inherited ira sec_408 shall not apply to any amount received by an individual from such account and no amount transferred from such account to another ira shall be excluded from income by reason of such transfer and such inherited account shall not be treated as an ira for purposes of determining whether any other amount is a rollover_contribution code sec_408 provides that an ira shall be treated as inherited if the individual for whose benefit the account is maintained acquired such account by reason of the death of another individual and such individual was not the surviving_spouse of such other individual thus pursuant to code sec_408 c ii a surviving_spouse who acquires ira proceeds from and by reason of the death of her husband may elect to treat those ira proceeds as her own and roll them over into her own ira a surviving_spouse may also elect to roll over ira proceeds into another ira set up and maintained in the name of the deceased for the benefit of the surviving_spouse pursuant to code sec_408 a surviving_spouse may roll over a distribution from an ira into another ira either set up and maintained in the name of the surviving_spouse or set up and maintained in the name of the deceased for the benefit of the surviving_spouse as long as the surviving_spouse is the sole payee or distributee of the distributing ira or a defined portion thereof in this case ira was allocated to trust e taxpayer b was the decedent’s widow trust e provided said widow taxpayer b was only entitled to receive the portion of net_income deemed necessary for her health support welfare and necessary maintenance as a result taxpayer b cannot be treated as the sole payee or distributee of said ira thus with respect to your ruling requests based on the specific set of facts presented in this case since taxpayer b was not the sole individual entitled to receive amounts from ira at the death of taxpayer a she was not eligible to roll over the ira distribution she received on or about date into another ira thus the 60-day rollover period found in code sec_408 did not apply to said distribution as a result the service cannot grant an extension thereto pursuant to the power_of_attorney on file in this office a copy of this letter_ruling is being sent to your authorized representative page sincerely yours manager employee_plans technical group enclosures deleted copy of letter_ruling form_437


internal_revenue_service department of the treasury number info release date uil washington dc person to contact refer reply to cc psi 1-genin-110770-02 date june we are responding to your correspondence dated date requesting relief in order to establish date as the effective date for s_corporation_election although we are unable to respond to your request as submitted this letter provides useful information relating to your request based on the information you have provided a limited_liability_company was incorporated on date it intended to be treated as an s_corporation from the date of incorporation in it filed a late form_8832 to be classified as a corporation for federal taxation purposes the internal_revenue_service accepted the late form_8832 and gave an effective date of date in april taxpayer filed an subchapter_s_corporation tax_return form_1120s for tax_year within the authorized extension of time to file in september it also filed a form_2553 to elect to be treated as an s_corporation in a letter dated date the service accepted the s election effective date to be treated as an s_corporation a limited_liability_company must first be classified as a corporation for federal taxation purposes in the instant case taxpayer was classified as a corporation effective date to obtain an s election effective date however taxpayer may first seek to be classified as a corporation effective date to do this taxpayer may seek relief by way of a private_letter_ruling request under sec_301_9100-1 through of the procedure and administration regulations for an extension of time to make an election and in this case to file form_8832 the procedures for requesting a private_letter_ruling are set out in revproc_2002_1 copy enclosed in addition revproc_2002_1 requires taxpayers to submit a user_fee along with their ruling_request the standard user_fee for a private_letter_ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million on their last-filed tax_return qualify for a reduced user_fee in the amount of dollar_figure if you are eligible to use the reduced fee provision you must include the statement described in b b of appendix a with your request please review appendix b for a sample format for requesting a private_letter_ruling if you decide to submit a formal request for a private_letter_ruling please include the proper user_fee if applying under the reduced fee provisions send a statement certifying gross_income and refer your request to our office by adding the following to the address attn cc pa t p o box ben franklin station washington dc direct to cc psi room by way of introduction the irs has a small_business website which provides information and various useful links visit this special site at www irs gov smallbiz additionally you can order a single free copy of the small_business resource guide cd-rom by calling the cd-rom provides critical tax information including forms instructions and publications as well as valuable information from a variety of government agencies non-profit organizations and educational institutions we hope that the above information proves helpful sincerely yours s dianna k miosi dianna k miosi chief branch associate chief_counsel passthroughs and special industries enclosures revproc_2002_1


t c memo united_states tax_court john m merritt and carolyn merritt petitioners v commissioner of internal revenue respondent j m a associates p c petitioner v commissioner of internal revenue respondent docket nos filed date donald k groom for petitioners denise g dengler for respondent memorandum findings_of_fact and opinion swift judge in these consolidated cases respondent determined deficiencies in federal_income_tax additions to tax and penalties against petitioners as follows john m and carolyn merritt1 accuracy- year dollar_figure dollar_figure dollar_figure big_number big_number big_number addition_to_tax related penalty sec_6651 sec_6662 deficiency j m a associates p c dollar_figure dollar_figure dollar_figure big_number big_number big_number unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure after settlement of some issues the primary issues for decision are as follows whether petitioner should include in his income dollar_figure in compensation that he received from his law firm petitioner j m a associates p c the law firm or the firm but which dollar_figure petitioner returned to the firm later in and whether for its taxable years ending date and date the law firm is entitled to ordinary and necessary business_expense deductions for litigation costs it advanced on behalf of its contingent_fee clients hereinafter references to petitioner in the singular are to petitioner john m merritt findings_of_fact some of the facts have been stipulated and are so found at the time the petitions were filed petitioners john m and carolyn merritt resided in and the principal_place_of_business of the law firm was located in oklahoma city oklahoma during the years in issue petitioner was a licensed practicing lawyer who was the founder president and sole owner of the law firm a personal service law corporation which specialized in representing victims in personal injury and product_liability cases on a contingent_fee basis under the terms of the firm’s contingent_fee contracts with its clients the clients agreed to repay the firm litigation costs advanced by the firm in the event a recovery was eventually obtained on behalf of the clients if no recovery was obtained the clients were under no obligation to reimburse the law firm litigation costs it had advanced more specifically the firm generally entered into the following two types of contingent_fee contracts with its clients under which the clients agreed to repay the firm litigation costs advanced by the firm in the event a recovery was obtained from a gross recovery the clients would reimburse the firm for litigation costs advanced by the firm and then the clients would pay the firm an attorney’s fee equal to percent of the net funds remaining or the clients would pay the firm an attorney’s fee equal to percent of the gross recovery and the firm would then be reimbursed litigation costs it had advanced out of the clients’ remaining percent share of the gross recovery in and petitioner received compensation from the firm in the total_amounts of dollar_figure and dollar_figure respectively denominated by the firm as wages and independent_contractor fees as follows petitioner’s compensation year wages fee income total dollar_figure dollar_figure dollar_figure big_number big_number big_number in december of petitioner transferred back to the firm dollar_figure which petitioner in had received from the firm as independent_contractor fees initially the firm’s bookkeeper classified the returned dollar_figure as a reduction of the firm’s independent_contractor fee expense account however in february of the law firm’s bookkeeper for reasons unclear reclassified the transfer from petitioner to the law firm of the dollar_figure as a reduction in the firm’s accounts_receivable due from petitioner for the law firm’s taxable years ending date and litigation costs were advanced by the firm relating to contingent_fee contracts with its clients in the total_amounts of dollar_figure and dollar_figure respectively during the years in issue certain office management tasks and all bookkeeping tasks of the firm were performed by a third party bookkeeper hired by petitioner petitioners’ federal_income_tax returns were prepared by a certified_public_accountant c p a who was also licensed to practice law with whom petitioner had a business relationship for more than years on july and date respectively mr and mrs merritt filed late their joint federal individual income_tax returns for and on their return mr and mrs merritt did not include the dollar_figure independent_contractor fee income that petitioner returned to the law firm in december of on date respondent determined a deficiency in mr and mrs merritt’s joint federal_income_tax liability for based on among other things respondent’s inclusion in income of the dollar_figure that petitioner received as fee income in but which petitioner returned to the firm also for and respondent determined against mr and mrs merritt additions to tax under sec_6651 in the amounts of dollar_figure and dollar_figure respectively for failure to timely file their federal_income_tax returns and accuracy-related_penalties under sec_6662 in the amounts of dollar_figure and dollar_figure respectively on date and on date respectively the law firm filed late its corporate federal_income_tax returns for its taxable years ending date and on those returns the firm claimed ordinary and necessary business_expense deductions for the litigation costs that the firm during those taxable years advanced on behalf of its contingent_fee clients in the respective amounts of dollar_figure and dollar_figure that related to contingent_fee client matters not resolved by yearend on audit respondent among other things disallowed these claimed business_expense deductions and determined deficiencies in the firm’s income taxes for those years also for the years ending date and respondent determined against the law firm additions to tax under sec_6651 in the amounts of dollar_figure and dollar_figure respectively based on the firm’s failure to timely file its tax returns and accuracy-related_penalties under sec_6662 in the amounts of dollar_figure and dollar_figure respectively based on substantial understatements of tax due or alternatively negligence or disregard of the rules or regulations returned compensation opinion sec_61 provides that gross_income includes all income from whatever source derived including compensation_for services and fees the supreme court has held that gross_income includes all accessions to wealth clearly realized and over which the taxpayers have complete dominion 348_us_426 without an obligation to repay and without restriction as to their disposition 366_us_213 see also n am oil consol co v burnet 286_us_417 in crary v commissioner tcmemo_1970_40 after receiving a paycheck from his employer the taxpayer on the same day wrote a check to his employer for the same amount and did not include the paycheck in his income we held that the taxpayer was not permitted to exclude the paycheck from his income id in 82_tc_586 a taxpayer relinquished his rights to a profit-sharing_plan and withdrew funds from the plan but then gave the funds back to his employer we held that the unconditional receipt of the funds resulted in taxable_income in the year of receipt id pincite- respondent argues primarily that because petitioner was not obligated by any agreement to return to the firm the dollar_figure in independent_contractor fees the dollar_figure constituted income to petitioner when received and no justification exists for excluding the dollar_figure from petitioner’s income petitioners citing 293_us_465 argue that taxpayers are entitled to structure transactions to pay the least federal_income_tax namely to reduce their federal_income_tax by returning the fees to the firm no evidence indicates that when petitioner received the dollar_figure he had any restrictions on his use of the dollar_figure or that he had any obligation to return the dollar_figure to the firm petitioner does not qualify for an exclusion from income of the dollar_figure that he received from and later returned to his firm in late see commissioner v glenshaw glass co supra pincite jones v commissioner supra pincite crary v commissioner supra litigation costs generally litigation costs advanced or paid_by lawyers on behalf of their clients based on contingent_fee contracts under which the clients are obligated to repay the litigation costs to the lawyers if the client matters are resolved successfully are to be treated in the year paid as loans to their client not as ordinary and necessary business_expenses 53_tc_217 affd per curiam 447_f2d_484 9th cir 36_tc_672 affd 309_f2d_431 9th cir upon resolution of the contingent_fee matters at that time if the lawyers do not receive repayment of the litigation costs advanced on behalf of their clients the lawyers are entitled to deduct the unpaid litigation costs as bad_debts canelo v commissioner supra pincite petitioners note that the lawyers involved in canelo carefully screened their contingent_fee clients and had good hopes of recovery id pincite and petitioners argue that the facts of that and similar cases are distinguishable namely petitioners claim that the law firm’s contingent_fee clients were not screened based on the probability of recovery and that often any recovery was doubtful even if as petitioners claim the law firm’s contingent_fee contracts were not screened with regard to the probability of obtaining a recovery and even if the probability of a recovery was often doubtful we conclude that the litigation costs in dispute are to be treated in the year advanced by the firm as loans not as ordinary and necessary business_expenses of the firm sec_6651 additions to tax for a taxpayer’s failure to timely file federal_income_tax returns sec_6651 imposes an addition_to_tax generally equal to percent of the tax required to be shown as due on the return for every month the return is late up to a maximum of percent unless such failure is due to reasonable_cause and not to willful neglect petitioners claim that they provided complete and timely information to their c p a and that it was the c p a who did not timely file the income_tax returns petitioner a practicing lawyer was fully capable of making sure that the income_tax returns for himself his wife and his firm were completed and filed on time petitioner’s alleged reliance on the c p a is not credible petitioners are liable for the additions to tax under sec_6651 for the failure to timely file their income_tax returns for the years in issue sec_6662 accuracy-related_penalties sec_6662 imposes an accuracy-related_penalty of percent on underpayments of tax attributable to negligence or to disregard of the rules or the regulations and substantial understatements of income_tax sec_6662 defines substantial understatements as the greater of more than percent of the tax required to be shown on the tax_return or dollar_figure in the case of an individual and dollar_figure in the case of a corporation the sec_6662 accuracy-related_penalty is not imposed with respect to portions of underpayments of tax for which taxpayers acted with reasonable_cause and in good_faith see sec_6664 the decision as to whether taxpayers 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 a tax professional such as an accountant id on the facts and testimony before us and in light of the tax adjustments involved herein we believe that petitioners reasonably relied on the advice of their c p a in the preparation of the tax returns in issue petitioners had reasonable_cause for the deficiencies in issue and petitioners acted in good_faith petitioners are not liable for the accuracy-related_penalties determined by respondent under sec_6662 with respect to the deficiencies in issue herein to reflect the foregoing decisions will be entered under rule


internal_revenue_service department of the treasury index numbers washington dc person to contact number telephone number release date refer reply to cc dom p si plr-114513-99 date date legend x y hlp a d1 state a correspondence dated date and date submitted on behalf of x and hlp requesting rulings under sec_708 and sec_42 of the internal_revenue_code this responds to the letter dated date and subsequent facts x is a limited_partner in numerous operating limited_partnerships olps that own and operate qualified projects that provide low-income rental housing and receive low-income_housing tax_credits lihtcs under sec_42 sec_42 does not apply to the olps except for five of the olps x has more than a percent interest in the capital and profits of each of the olps x is also a partner in a holding limited_partnership hlp formed in d1 x is the general_partner and a an officer of x is the limited_partner for what has been represented to be valid business reasons including cc dom p si plr-114513-99 consolidating and improving the administration of the olps x and hlp plan to implement a holding_company structure under this structure x will contribute its limited_partnership interests in the olps to hlp x’s general_partnership interest in hlp will be converted into a limited_partnership_interest and a will terminate his interest in hlp further y who has significant expertise in the management of investments in real_estate will contribute property and services to hlp in exchange for a general_partnership interest in hlp x and hlp represent that hlp will be classified as a partnership for federal tax purposes x’s interest in hlp will exceed a throughout the compliance_period as defined in sec_42 of each olp and with respect to hlp sec_1_47-1 will not apply to any sec_38 property that is subject_to recapture due to its being held by a partnership terminated under sec_708 because hlp will satisfy the mere_change_in_form_exception under sec_1_47-3 rulings requested in connection with the proposed restructuring described above x and hlp request the following rulings the contribution of x’s interests in the olps to hlp will not terminate the olps under sec_708 and the contribution of x’s interests in the olps to hlp will not cause x to recapture lihtcs under sec_42 law and analysis ruling_request sec_708 provides that a partnership continues to exist for federal_income_tax purposes until it is terminated a partnership is terminated if within a 12-month_period there is a sale_or_exchange of percent or more of the total interest in partnership capital and profits sec_708 sec_1_708-1 provides that if a partnership is terminated by a sale_or_exchange of an interest the following is deemed to occur the partnership contributes all of its assets and liabilities to a new partnership in exchange for an interest in the new partnership and immediately thereafter the terminated partnership distributes its interests in the new partnership to the purchasing partner and the other remaining cc dom p si plr-114513-99 partners in proportion to their respective interests in the terminated partnership in liquidation of the terminated partnership either for continuation of the business by the new partnership or for its dissolution and winding up here the contribution to hlp of x’s interest in an olp will be treated as a sale_or_exchange for purposes of sec_708 accordingly the contribution to hlp of x’s interests in those olps in which x holds an interest equal to or in excess of percent of the olp’s total interests in partnership capital and profits will terminate such olps under sec_708 ruling_request sec_38 provides for a general_business_credit against tax that includes the amount of the current_year_business_credit sec_38 provides that the amount of the current_year_business_credit includes the low-income_housing_credit determined under sec_42 sec_42 provides that for purposes of sec_38 the amount of the low-income_housing_credit determined under sec_42 for any taxable_year in a 10-year credit_period shall be an amount equal to the applicable_percentage of the qualified_basis of each qualified_low-income_building in the case of any qualified_low-income_building placed_in_service by a taxpayer after sec_42 provides in part that the term applicable_percentage means the appropriate percentage prescribed by the secretary for the month applicable under sec_42 or ii sec_42 provides that the percentages prescribed by the secretary for any month shall be percentages that will yield over a 10-year period amounts of credit that have a present_value equal to i percent of the qualified_basis of new buildings that are not federally_subsidized for the taxable_year and ii percent of the qualified_basis of existing buildings and of new buildings that are federally_subsidized for the taxable_year sec_42 provides that the qualified_basis of any qualified_low-income_building for any taxable_year is an amount equal to the applicable_fraction defined in sec_42 of the eligible_basis of such building in general under sec_42 the eligible_basis of a new_building is its adjusted_basis as of the close of the first taxable_year of the credit_period sec_42 provides that if at the close of any taxable_year in the compliance_period the amount of the qualified_basis of any building with respect to the taxpayer is less than the amount of such basis as of the close of the preceding_taxable_year the taxpayer's tax for the taxable_year will be increased by the credit recapture_amount the credit recapture_amount is determined under sec_42 and sec_42 the legislative_history to sec_42 provides that generally any change in ownership of a low-income building during the compliance_period is a recapture_event and that all cc dom p si plr-114513-99 dispositions of ownership interests in buildings are treated as transfers for purposes of recapture see h_r conf_rep no 99th cong 2d sess ii-96 and ii-102 vol c b under sec_42 however no recapture will be imposed on a disposition of a low-income building or an interest therein if the taxpayer furnishes to the secretary a bond and it is reasonably expected that the building will continue to be operated as a qualified_low-income_building through the end of the compliance_period a taxpayer may satisfy the bond posting requirement of sec_42 by completing a portion of form_8693 low-income_housing_credit disposition bond and having it approved by the internal_revenue_service or following the procedures outlined in revproc_99_11 i r b establishing a treasury direct account analogous provisions concerning recapture of investment_tax_credit itc property provide relevant guidance for determining recapture under sec_42 under sec_50 if during any taxable_year itc property is disposed of or otherwise ceases to be itc property with respect to the taxpayer before the close of the recapture_period the tax for such taxable_year shall be increased currently there are no regulations under sec_50 however for property placed_in_service before date former sec_47 and the regulations thereunder contained a similar itc recapture rule the regulations under former sec_47 which are still effective mirror the general recapture rule_of former sec_47 that a disposition or cessation of itc property before the close of the estimated_useful_life of the property that was taken into account in computing the taxpayer's qualified_investment will result in itc recapture one exception to the general_rule concerning the recapture of itc property sec_1_47-3 reflected now in part in sec_50 provides that no itc recapture will occur in the case of a mere change in form of conducting a trade_or_business to qualify for the sec_1_47-3 exception the following requirements must be met the itc property must be retained as itc property in the same trade_or_business the transferor or in the case where the transferor is a partnership the partner of the itc property must retain a substantial interest in the trade_or_business substantially_all the assets whether or not itc property necessary to operate the trade_or_business must be transferred to the transferee to whom the itc property is transferred and the basis of the itc property in the hands of the transferee is determined in whole or in part by reference to the basis of the itc property in the hands of the transferor sec_1_47-3 provides that a transferor is considered as having retained a substantial interest in a trade_or_business only if after the change in form the transferor’s retained_interest in the trade_or_business is substantial in relation to the total interest of all persons or is equal to or greater than the transferor’s interest prior to the change in form another exception to the general_rule concerning the recapture of itc property sec_1_47-6 provides a de_minimis_rule whereby a partner may dispose up to 33d percent of its proportionate interests in the general profits of a partnership or in a particular item of sec_38 property before itc recapture applies in determining the partner’s proportionate interest in the general profits of a partnership for purposes of cc dom p si plr-114513-99 applying this de_minimis_rule sec_1_47-6 provides an ‘identity of interest’ rule whereby the partner is considered to own any interest in the partnership that it owns directly or indirectly through ownership in other entities provided the other entities’ bases in the interest are determined in whole or in part by reference to the basis of the interest in the hands of the partner for example if a whose proportionate interest in the general profits of partnership x is percent transfers all of this interest to corporation y in exchange for all of the stock of y in a sec_351 transaction then a shall be considered to own a percent interest in partnership x revrul_90_60 1990_2_cb_6 adopts a similar de_minimis_rule for purposes of sec_42 whereby no bond is required to avoid or defer recapture for a disposition by a partner of its interest in a low income building held through a partnership other than a partnership described in sec_42 until the partner has disposed of more than 33d percent of its greatest total interest in the building held through the partnership here x intends to transfer its entire_interest in each of the olps to hlp this will result in a transfer of x’s entire_interest in the assets including any sec_42 buildings owned by the olps to hlp all dispositions of ownership interests in sec_42 buildings are treated as transfers or a change in ownership for purposes of recapture and any change in ownership is a recapture_event thus x’s proposed transfer of its olp interests would absent an exception be a disposition and therefore a recapture_event sec_42 does not apply to the olps for these partnerships a sec_42 recapture_event can occur at the partnership level and at the partner level applying the two levels of recapture potential for these partnerships to the proposed transaction the following results occur - a partnership level recapture_event where x’s contribution of its interest in each of the olps to hlp results in a sec_708 technical_termination of the olp then each olp will be deemed to have contributed all their assets including all their sec_42 building s to a new olp in return for an interest in the new olp each old olp’s contribution will be a disposition and a sec_42 recapture_event x will be a partner in hlp and hlp will be a partner in each of the old olps when they terminate accordingly x will be subject_to any recapture liability allocated by hlp to its partners as a result of the old olps’ disposition of their sec_42 buildings to the new olps unless an exception to sec_42 recapture applies x and hlp represent that with respect to hlp sec_1_47-1 will not apply to any sec_38 property that is subject_to recapture due to its being held by a partnership terminated under sec_708 because hlp will satisfy the mere_change_in_form_exception of sec_1_47-3 provided the requirements of sec_1_47-3 are met no recapture liability will result from the disposition of sec_38 property by the old olps and hlp as a partner in the old olps and x as a partner in the hlp at the time of the dispositions likewise will not be subject_to itc recapture it is appropriate to analogize the sec_1 f exception for itc recapture to determining recapture under sec_42 therefore based on the analogous application of sec_1_47-3 the deemed contribution of the sec_42 cc dom p si plr-114513-99 buildings to the new olps under sec_708 will not be treated as a disposition of sec_42 property resulting in the recapture of sec_42 credits by x b partner level recapture_event generally x as a partner in partnerships to which sec_42 does not apply is subject_to recapture for any disposition of its interest in sec_42 property held through these partnerships however x may if applicable avail itself of the 33d percent de_minimis exception of revrul_90_60 by assigning its entire_interest in each of the olps to hlp x will appear to have disposed of more than 33d percent of its greatest total interest in the sec_42 buildings held through the olps however because the 33d percent de_minimis_rule of revrul_90_60 is intended to reflect the 33d percent de_minimis_rule of sec_1_47-6 any rule s clarifying how the 33d percent de_minimis_rule of sec_1_47-6 is determined should also apply for purposes of sec_42 this includes the identity of interest rule_of sec_1_47-6 which provides that in determining a partner’s proportionate interest in the general profits of a partnership the partner shall be considered to own any interest in the partnership that it owns directly or indirectly through ownership in other entities provided the other entities’ bases in the interest are determined in whole or in part by reference to the basis of the interest in the hands of the partner here x’s proportionate interest in the sec_42 buildings will not after applying the rule_of sec_1_47-6 have decreased by more than 33d percent accordingly under the above facts x may rely on the 33d percent de_minimis exception provided in revrul_90_60 to avoid the recapture liability that would otherwise result from the contribution disposition to hlp of it’s interest in the sec_42 buildings held through the olps conclusions based solely on the facts submitted and representations made we conclude as follows the contribution to hlp of x’s interests in those olps in which x holds an interest equal to or in excess of percent of the olp’s total interests in partnership capital and profits will terminate such olps under sec_708 the contribution to hlp of x’s interests in those olps in which x holds an interest that is less than percent of the olp’s total interests in capital and profits will not terminate such olps under sec_708 unless the contribution taken together with all other transfers of interests in the olp during consecutive months results in percent or more of the total interest in capital and profits of the olp being transferred within a 12-month_period and the contribution of x’s total interest in each of the olps to hlp results in potential partnership level recapture liability to x because x will be a partner in hlp who in turn will be a partner in the olps when the olps technically terminate however x is not subject_to sec_42 recapture because it is represented that hlp may avail itself of the sec_1_47-3 exception to itc recapture and by analogy sec_42 recapture to the extent that there is not a technical_termination of an olp under cc dom p si plr-114513-99 sec_708 there will not be a partnership level recapture_event further the contribution of x’s total interest in each of the olps to hlp will result in no partner level recapture because applying the identity of interest rule_of sec_1_47-6 to dispositions of sec_42 property x will not dispose_of more than 33d percent of its greatest total interest in the sec_42 buildings held by the olps therefore x may rely on the de_minimis exception provided in revrul_90_60 to avoid recapture liability except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed or implied as to whether hlp is a partnership for federal tax purposes this ruling is directed only to the taxpayer who requested 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 a copy of this ruling is being sent to your authorized representatives sincerely signed david r haglund senior technician reviewer branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c date number release date cc pa cbs b01 gl-801188-00 uilc memorandum for pacific northwest district_counsel from gary d gray assistant chief_counsel collection bankruptcy and summonses cc pa cbs subject application of surplus levy proceeds to unlevied periods this advice pertains to your memorandum concerning the above subject we have reconsidered our position taken in our date memorandum cca and are now of the view that the surplus proceeds can be offset since a collection_due_process_notice is not required under sec_6330 legend city n a taxpayer n a ssn n a years n a assessment amount n a issue whether the internal_revenue_service service may apply surplus levy proceeds to a tax period not included on the levy where such tax period is a period in which the taxpayer has not received a collection_due_process_hearing notice cdp_notice or whether the service must refund the surplus proceeds to the taxpayer conclusion the service may apply surplus levy proceeds to a tax period not included on the levy where such tax period is a period in which the taxpayer has not received a cdp_notice gl-801188-00 facts -2- in a hypothetical factual situation a levy served on intangibles lists a specific amount of tax_liability for a specific tax period between the time of the levy and the receipt of the levy proceeds a payment is posted to the tax period listed on the levy the levy proceeds are received thereafter in an amount equal to that shown on the levy the levy proceeds are posted to the tax period shown on the levy and because of the intervening payment a credit now exists for the tax period the taxpayer has another tax_liability for a tax period not included on the levy in which the taxpayer has not received a cdp_notice law and analysis this advice concerns your advisory opinion dated date addressed to the pacific northwest district_director special procedures function regarding the application of surplus proceeds pertaining to the upcoming alaska permanent fund dividend levy program based on the facts described above you concluded that pursuant to sec_6402 the service is authorized to apply the credit to the unpaid tax_liability for the period not included on the levy after further analysis we now agree with your conclusion initially in a memorandum to your office dated date we disagreed with your conclusion in our memorandum we concluded that pursuant to sec_6330 the service could not apply the surplus levy proceeds to the tax period not included on the levy we stated that the service was in effect levying the taxpayer’s property to satisfy a tax_liability for a tax period in which the taxpayer had not received a pre-levy cdp_notice after reconsidering the requirements of sec_6330 and sec_6402 we now believe that sec_6330 does not apply to the application of surplus proceeds in this case because such application is not a levy pursuant to sec_6342 surplus levy proceeds constitute an overpayment sec_6402 provides that the secretary may credit any overpayment against any liability in the hypothetical case scenario the requirements for a sec_6402 provides as follows a general_rule - in the case of any overpayment the secretary within the applicable_period of limitations may credit the amount of such overpayment including any interest allowed thereon against any liability in respect of an internal revenue tax on the part of the person who made the overpayment and shall subject_to subsections c d and e refund any balance to such person gl-801188-00 -3- cdp_notice in sec_6330 were satisfied for the liabilities listed on the levy applying the surplus levy proceeds to a tax and tax period not included on the levy does not constitute an additional levy but rather an offset accordingly the advice given in the date memorandum irs cca irs lexi sec_39 date is rescinded we note that the service has procedures in place to minimize the occurrence of situations such as the one described here see generally irm dollar_figure provide conditions for releasing levies and issuing multiple simultaneous levies for example irm sec_21 dollar_figure provides that a partial levy release should be issued to avoid potential over collection in situations where payments or adjustments will reduce but not fully pay a liability for a tax period on which a levy is outstanding in addition this section provides the procedures for issuing partial levy releases in situations where multiple simultaneous levies were used another example is irm sec_21 dollar_figure which provides the limitations and controls for issuing multiple simultaneous levies this section provides that customer service field operations must approve all automated collection system acs plans governing the use of multiple simultaneous levies to ensure that the acs support function implements and adheres to procedural safeguards that minimize instances of over collection moreover this section provides that all instances of over collection resulting from multiple simultaneous levies must be reported to management in order to determine if procedural improvements are necessary if you have any further questions please contact collection bankruptcy and summonses branch at


t c memo united_states tax_court gary w swanson petitioner v commissioner of internal revenue respondent docket no filed date vivian d hoard for petitioner brenda m fitzgerald for respondent memorandum opinion jacobs judge the parties submitted this case fully stipulated pursuant to rule the issue for decision is whether respondent’s denial of petitioner’s claim_for_abatement of interest with respect to his income_tax_liability for was an abuse_of_discretion we hold that it was not all rule references are to the tax_court rules_of_practice and procedure and unless otherwise indicated all section references are to the internal_revenue_code background we adopt as findings_of_fact all statements contained in the stipulation of facts the stipulation of facts and the exhibits attached thereto are incorporated herein by this reference petitioner resided in georgia when he filed his petition in petitioner held a limited_partner interest in california jojoba investors cji after examination respondent disallowed certain deductions claimed by the partnership pursuant to the provisions of the tax equity and fiscal responsibility act of tefra publaw_97_248 96_stat_648 a notice of final_partnership_administrative_adjustment fpaa was issued to cji for on or about date in response to the fpaa on date cji timely petitioned this court contesting the proposed adjustments cal jojoba investors v commissioner docket no cal jojoba 1petitioner previously petitioned this court in docket no to review respondent’s determination that he was liable for additions to tax under sec_6653 and for that matter was resolved in swanson v commissioner tcmemo_2009_31 on date the parties in cal jojoba filed a stipulation to be bound in which each agreed that the outcome of cal jojoba would be determined by the result reached in utah jojoba i research v commissioner docket no utah jojoba i the terms of the stipulation to be bound pertinent hereto provided the above adjustments are the only issues in this case a upon resolution of these issues a proposed decision will be prepared by respondent’s counsel a decision shall be submitted in this case when the decision in the controlling case whether litigated or settled becomes final under sec_7481 if the controlling case is appealed the partners in the california jojoba investors partnership consent to the assessment and collection of the respective deficiencies attributable to the partnership_item adjustments formulated by reference to the tax court’s opinion notwithstanding the restrictions under sec_6225 this stipulation is not a settlement agreement for purposes of i r c c and b c the stipulation to be bound allowed for the imposition of sec_6621 tax-motivated interest all issues involving the above adjustments shall be resolved as if the partnership in this case was the same as the partnership in the controlling case a if the court makes findings of underlying facts with respect to tax_motivated_transactions a valuation_overstatement or other elements applicable to a determination of additions to tax and or sec_6621 interest which are attributable to the above- designated partnership_item adjustments the findings_of_fact in the controlling case shall apply to the partners in the california jojoba investors partnership as if the partnership in this case was the same as the partnership in the controlling case petitioner did not enter into a closing_agreement or any other settlement agreement with respondent on date in utah jojoba i research v commissioner tcmemo_1998_6 the court sustained respondent’s adjustments decision was entered on date and became final on date no appeal having been filed see sec_7483 resolution of cal jojoba was delayed because the tax_matters_partner tmp of cji refused to cooperate and consequently no decision document could be entered on date we ordered counsel for the partnership and respondent to either arrange with the tmp to execute a stipulation for decision consistent with the stipulation to be bound or file status reports explaining why the tmp could not be contacted with a deadline of date we ordered that if the parties were unable to convince the tmp to execute the stipulation for decision respondent would submit on or before date a motion to appoint a new tmp explaining the reasons for seeking a new tmp and suggesting the name of a new tmp on date respondent filed a status report with the court stating that the tmp refused to sign the stipulation for decision or otherwise perform his duties the report stated that respondent was prepared to enforce the stipulation to be bound thereafter on date respondent filed a motion for entry of decision or to appoint a tax_matters_partner attached to respondent’s motion was a list of the partners of cji including petitioner respondent noted in his motion that all of the listed partners had been served with the motion on date counsel for the partnership sent a notice to the partners of cji which informed the partners that respondent had disallowed all deductions for provided the partners with information to contact the representative of respondent who was managing the matter and informed them that the tmp had abdicated his role the record does not indicate that any other action occurred until date when the court issued an order directing the partners of cji to show cause why respondent’s motion for entry of decision should not be granted the order was mailed to the last known addresses of all known partners 2the tmp did not follow the applicable procedures to withdraw as tmp he simply refused to cooperate on date respondent provided the court with an updated list of the addresses of all partners of cji including petitioner at his address in georgia on date the court issued an order in which the clerk of court was directed to serve another copy of the court’s date show cause order on all partners at their updated addresses on date the court entered an order and decision in which the order to show cause was made absolute and respondent’s motion for entry of decision was granted that order and decision stated that the partnership_item adjustments as determined and set forth in the fpaa were sustained the order and decision was served on all known partners including petitioner on date the decision in the partnership proceeding became final days after the order and decision was entered on date pursuant to respondent’s standard procedure respondent’s counsel transferred the case administrative file for processing to respondent’s appeals_office along with a copy of our decision see internal_revenue_manual pt date at the time the case administrative file was transferred a number of tefra proceedings related to partnerships tied to the utah jojoba i matter were in process which delayed the processing of the case a tefra closing package was ultimately prepared and on date the package was given to an internal_revenue_service supervisor for review after review on date the tefra closing package was sent to respondent’s brookhaven processing center for issuance of the affected items notices to the partners of cji on date respondent sent petitioner a letter with which was enclosed a form 4549-a income_tax discrepancy adjustments and computations relevant to adjustments made to petitioner’s federal_income_tax return as a result of petitioner’s investment in cji as part of the tax calculation respondent determined that all or part of the underpayment_of_tax petitioner was required to report on his federal_income_tax return was a substantial_underpayment attributable to tax- motivated transactions therefore pursuant to sec_6621 the annual interest rate applied to the underpayment_of_tax wa sec_120 percent of the normal interest rate on date respondent timely issued a notice_of_deficiency to petitioner with respect to his tax_year petitioner timely filed a petition with the court and as petitioner’s deficiency case went forward on date petitioner’s representative sent a letter to respondent requesting an abatement of all interest accrued for the period date to date attached to the letter was a 3the matter was decided in swanson v commissioner tcmemo_2009_31 see note form_843 claim_for_refund and request for abatement by letter dated date respondent denied petitioner’s request the denial was based on respondent’s determination that there was no error or delay caused by respondent in the performance of a ministerial_act on date petitioner appealed the disallowance of his interest abatement request to respondent’s appeals_office on date respondent sent petitioner a full disallowance--final determination notice disallowing petitioner’s abatement request in determining that there were no errors or delays on respondent’s part that merited the abatement of interest respondent informed petitioner we did not find any errors or delays on our part that merit the abatement of interest in our review of available records and other information for the period from date to date on date petitioner petitioned the court for a review of respondent’s failure to abate interest pursuant to sec_6404 in his petition petitioner requested the court to determine that there is no deficiency in tax or additions to tax for tax_year in response to this petition respondent filed a motion to dismiss for failure to state a claim on which relief can be granted maintaining inter alia that petitioner’s request for relief was not appropriate in an interest abatement matter on date petitioner filed an objection to respondent’s motion on date a hearing with respect to respondent’s motion was held at the hearing petitioner was given leave to file an amended petition on date petitioner filed an amended petition in which he requested the abatement of interest from date until date petitioner also requested that we abate the imposition of tax- motivated interest assessed pursuant to sec_6621 i requests for abatement of interest discussion for tax years beginning before date the commissioner had authority to abate the assessment of interest with respect to a deficiency in income_tax attributable to any error or delay by an officer_or_employee of the internal_revenue_service acting in his official capacity in performing a ministerial_act sec_6404 or any payment of tax described in sec_6212 to the extent that any error or delay in such payment is attributable to such officer_or_employee being erroneous or dilatory in performing a ministerial_act sec_6404 but only if no significant aspect of such error or delay can be attributed to the taxpayer involved and 4although the decision in utah jojoba i became final on date petitioner requests abatement of interest only from date 5we dismissed as moot respondent’s motion to dismiss on date after the internal_revenue_service has contacted the taxpayer in writing with respect to such deficiency or payment sec_6404 flush language sec_6404 is not intended to be routinely used to avoid payment of interest rather congress intended abatement of interest only where failure to do so would be widely perceived as grossly unfair h rept pincite 1986_3_cb_1 s rept pincite 1986_3_cb_1 the relevant regulation provides the term ministerial_act means a procedural or mechanical act that does not involve the exercise of judgment or discretion and that occurs during the processing of a taxpayer’s case after all prerequisites to the act such as conferences and review by supervisors have taken place a decision concerning the proper application of federal tax law or other federal or state law is not a ministerial_act sec_301_6404-2t b temporary proced admin regs fed reg date if the commissioner denies a taxpayer’s interest abatement request the taxpayer may petition this court for review sec_6404 see 550_us_501 sec_6404 was enacted by the tax_reform_act_of_1986 tra publaw_99_514 100_stat_2762 tra sec_1563 100_stat_2762 provided that the section would apply retroactively for tax years beginning after date in general 7the parties have stipulated that petitioner meets the continued holding that the tax_court is the exclusive forum for judicial review of the commissioner’s refusal to abate interest baral v commissioner tcmemo_2009_113 inasmuch as the commissioner’s power to abate interest is discretionary the court gives due deference to the commissioner’s determination and in order to prevail the taxpayer must prove that the commissioner exercised his discretion arbitrarily capriciously or without sound basis in fact or law 112_tc_19 our inquiry is a factual one see chakoian v commissioner tcmemo_2009_151 boyd v commissioner tcmemo_2000_16 and the taxpayer bears the burden_of_proof rule a petitioner requests the abatement of interest which otherwise would have accrued between date and date as well as the abatement of increased interest which otherwise would be assessed because of a substantial_underpayment attributed to a tax-motivated transaction ii interest accrued between date and date sec_6225 generally provides that no assessment of a deficiency attributable to an adjustment to a partnership_item may be made until the decision of the court with respect to the partnership matter becomes final petitioner contends that continued requirements of sec_7430 sec_6225 does not apply because the stipulation to be bound was an immediately enforceable contract and hence respondent could have assessed the tax against petitioner when the decision in utah jojoba i became final specifically petitioner maintains that there were no discretionary matters for respondent to address because article of the stipulation to be bound waived any restrictions on assessments under sec_6225 once utah jojoba i became final see supra p according to petitioner all that remained to be done by respondent was to prepare and send petitioner a bill and thus respondent’s failing to make the assessment and send a bill once utah jojoba i became final was a ministerial error and refusing to abate interest during the time utah jojoba i became final and the bill was issued was an abuse_of_discretion we do not agree that once the decision in utah jojoba i became final all that remained was for respondent to carry out a ministerial_act the partnership-level proceeding related to this matter cal jojoba was still ongoing when utah jojoba i was resolved we are mindful that the stipulation to be bound contained a provision that if the controlling case utah jojoba i were to be appealed the partners of cji agreed to permit the assessment and collection of deficiencies notwithstanding the restrictions of sec_6225 however that provision did not affect the requirement that the court enter a decision in cal jojoba before any assessment or collection could occur and there was no mechanism by which respondent could declare that the tax_court proceeding in that docket had been resolved in his favor and proceed to assessment before entry of a decision therein see larkin v commissioner tcmemo_2010_73 further while there was a delay in finalizing the partnership-level proceeding in cal jojoba the delay was not as a result of respondent’s failure to perform a ministerial_act see 113_tc_145 respondent’s decision on how to proceed in the litigation phase of the case necessarily required the exercise of judgment and thus cannot be a ministerial_act sec_301_6404-2t b temporary proced admin regs supra after the court’s decision became final respondent was required to process the tefra closing package this was done respondent’s counsel promptly forwarded his files to the appropriate individual and once the tefra closing package was completed it was sent for supervisory review we therefore hold that the handling of the partnership- level proceeding in cal jojoba and the processing and supervisory review of the tefra closing package were not delayed by ministerial error see sec_301_6404-2t b temporary proced admin regs supra and respondent did not abuse his discretion in failing to abate interest charged to petitioner iii sec_6621 interest sec_6621 as applicable in this matter provides for an increased rate of interest with respect to any substantial_underpayment attributable to tax_motivated_transactions a substantial_underpayment attributable to tax_motivated_transactions is defined pursuant to sec_6621 as any underpayment of taxes imposed by subtitle a for any taxable_year which is attributable to or more tax_motivated_transactions if the amount of the underpayment for such year so attributable exceeds dollar_figure petitioner argues that because utah jojoba i did not apply sec_6621 interest to the partnership in that matter and because under the stipulation to be bound the outcome of cal jojoba would be determined by the result reached in utah jojoba i sec_6621 interest should not be assessed in cal jojoba petitioner maintains this court has the inherent jurisdiction to force respondent to comply with his stipulation to be bound sec_6621 was repealed as of date by the omnibus budget and reconciliation act of publaw_101_239 sec b 103_stat_2399 petitioner is incorrect we do not have jurisdiction pursuant to sec_6404 to abate sec_6621 interest see kincaid v commissioner tcmemo_1999_419 we therefore hold that the interest arising from cal jojoba that accrued is not the result of an irs officer_or_employee being erroneous or dilatory in performing a ministerial_act and respondent did not abuse his discretion in denying petitioner’s request for an abatement of interest to reflect the foregoing decision will be entered for respondent


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 b05 plr-118126-13 date date legend parent ------------------------------------------------------------------------------- ----------------------------- subsidiary subsidiary ------------------------------------------------------ ---------------------------------------------- subsidiary ------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------- company official ------------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------- -------------------------------------------------------------- company official --------------------------------------------------------------------------------- ------------------------------------ tax professional ---------------------------------------------------------------------------------- --------------------------------- date --------------------------- dear ----------------- this letter responds to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file an election the extension is being requested for parent subsidiary subsidiary and subsidiary to make an election to file a consolidated federal_income_tax return with parent as the common parent under plr-118126-13 sec_1_1502-75 of the income_tax regulations hereinafter referred to as the election effective for the taxable_year ending on date the material information provided is summarized below for the taxable_year ending date parent was the common parent of an affiliated_group_of_corporations comprised of parent subsidiary subsidiary and subsidiary the parent group an election for the parent group to file a consolidated_income_tax_return with parent as the common parent for the taxable_year ending on date was due on the last day prescribed by law including extensions of time for the filing of parent’s return but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for the parent group’s taxable_year for which they want to make the election or any subsequent taxable_year parent has represented that it does not seek 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 requested relief sec_1_1502-75 of the income_tax regulations provides in part that an affiliated_group_of_corporations which did not file a consolidated_return for the immediately preceding_taxable_year may file a consolidated_return in lieu of separate returns for the taxable_year provided that each corporation which has been a member of the group during any part of the taxable_year for which the consolidated_return is to be filed consents in accordance with sec_1_1502-75 to the regulations under sec_1502 if a group wishes to exercise its privilege of filing a consolidated_return such consolidated_return must be filed not later than the last day prescribed by law including extensions of time for the filing of the common parent’s return 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 internal_revenue_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 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 sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1 a 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 shows it plr-118126-13 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 parent company official company 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 a qualified_tax professional who failed to make or advise parent to make the election and that the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that parent has shown 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 accordingly provided that the parent group qualifies substantively to file a consolidated_return for the applicable tax_year an extension of time is granted under sec_301_9100-3 until days from the date on this letter for parent to file the election by filing a consolidated_return with parent as the common parent and attaching a form_1122 for each of subsidiary subsidiary and subsidiary for its taxable_year ending on date the parent group must attach a copy of this ruling letter to such return or if the parent group files the return electronically a statement must be attached to the return that provides the date and the control number of this ruling letter the above extension of time is conditioned on the parent group’s tax_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 timely made taking into account the time_value_of_money no opinion is expressed as to the parent group’s tax_liability for the year involved a determination thereof will be made by the applicable director's office upon audit of the federal_income_tax returns involved we express no opinion with respect to whether in fact the parent group qualifies substantively to file a consolidated_return in addition we express no opinion as to the tax effects or consequences of filing the return or 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 for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by parent company official company official and tax professional however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply plr-118126-13 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 copies of this letter are being sent to your authorized representatives sincerely _ken cohen_____________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate


department of the treasury internal_revenue_service te_ge eo examinations commerce st mail code dal tax_exempt_and_government_entities_division dallas texas date date taxpayer_identification_number number release date legend org - organization name xx - date address - address org address form tax years ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear in a determination_letter dated october 19xx you were held to be exempt from federal_income_tax under sec_501 of the internal_revenue_code the code based on recent information received we have determined you have not operated in accordance with the provisions of sec_501 of the code accordingly your exemption from federal_income_tax is revoked effective january 20xx this is a final adverse determination_letter with regard to your status under sec_501 of the code we previously provided you a report of examination explaining why we believe revocation of your exempt status is necessary at that time we informed you of your right to contact the taxpayer_advocate as well as your appeal rights you are required to file federal_income_tax returns for the tax periods shown above if you have not yet filed these returns please file them with the ogden service_center within days from the date of this letter unless a request for an extension of time is granted or unless an examiner's report for income_tax_liability was issued to you with other instructions file returns for later tax years with the appropriate service_center indicated in the instructions for those returns you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at lf you have any questions please contact the person whose name and telephone number are shown at the beginning of this letter sincerely nanette m downing director eo examinations internal_revenue_service date date org address department of the treasury te_ge division mail stop sf golden gate avenue san francisco california taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your organization's exempt status is necessary if you do not agree with our position you may appeal your case the enclosed publication the examination process explains how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process if you request a conference we will forward your written_statement of protest to the appeals_office and they will contact you for your convenience an envelope is enclosed if you and appeals do not agree on some or all of the issues after your appeals_conference or if you do not request an appeals_conference you may file suit in united_states tax_court the united_states court of federal claims or united_states district_court after satisfying procedural and jurisdictional requirements as described in publication letter rev catalog number 34801v you may also request that we refer this matter for technical_advice as explained in publication exempt_organization appeal procedures for unagreed issues if a determination_letter is issued to you based on technical_advice no further administrative appeal is available to you within the irs on the issue that was the subject of the technical_advice if you accept our findings please sign and return the enclosed form_6018 consent to proposed adverse action we will then send you a final letter revoking your exempt status if we do not hear from you within days from the date of this letter we will process your case on the basis of the recommendations shown in the report of examination and this letter will become final in that event you will be required to file federal_income_tax returns for the tax period s shown above file these returns with the ogden service_center within days from the date of this letter unless a request for an extension of time is granted file returns for later tax years with the appropriate service_center indicated in the instructions for those returns you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition ina united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely nanette m downing director eo examinations enclosures publication publication form_6018 report of examination envelope letter rev catalog number 34801v form 886-a explanation of items name of taxpayer rev date december 20xx tax identification_number year period ended org ein schedule number or exhibit issue is org a social_club exempt from tax under sec_501 of the internal_revenue_code facts org was incorporated on or about may 19xx it received a letter of determination recognizing it as a social_club exempt under internal_revenue_code sec_501 dated october 19xx in its application_for determination it answered no to the question are non-members other than bona_fide guests of members permitted or will they be permitted to use the club facilities or participate in or attend any functions or activities conducted by the organization it included in the application a copy of its articles of incorporation article ii stated the purposes of the organization which included promoting the collective and individual property and civic interests of property owners in its tract regulating the beach and recreational facilities owned by org care for and maintain public areas dedicated to community use maintain a clubhouse or social hall cooperate with owners of vacant lots in keeping them in good order aid members of the association in the enforcement of conditions covenants and restrictions along with any necessary general powers the internal_revenue_service examined the organization for the year ending december 20xx the organizations activities were arrange to have snowplows plow the driveways of its members in winter operate a shuttle bus service during the summer through the community to provide transportation to the org make payments to the org so that its members guests and member’s tenants could use its facilities and provide dumpsters for_the_use_of its members for a few days during the summer the bylaws of the organization provided that day guests of the members would need to be accompanied by a member to use the beach but did not apply this restriction to other guests or tenants of the members tenants could not extend guest privileges to others not staying with them the snow removal contract provided that the organization would give a list of members by street address and designate which were full time residents so that the snow removal company would provide snow removal only from members’ driveways the contract with the shuttle bus company did not contain a provision limiting its use to members the expenses of the organization for that year were as follows clean up shuttle use of beach and other_payments to org snow removal misc expense and overhead total dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure the organization did not maintain a clubhouse or social hall law sec_501 of the internal_revenue_code provides for exemption from taxation for clubs organized for pleasure recreation and other nonprofitable purposes substantially_all of the activities of which are for such purposes and no part of the net_earnings of which inures to the benefit of any private shareholder form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service


significant index no department of the treasury internal_revenue_service washington d c i tax_exempt_and_government_entities_division feb t ep ralal plan no ein - plan plan_sponsor re dear the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 of the code sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 including a certification from the plan’s actuary that this letter constitutes notice that approval has been granted for your request for an automatic_extension for amortizing the unfunded liabilities as of may _ for the above-named plan this approval applies to such unfunded liabilities which are described in sec_431 and sec_431 of the internal_revenue_code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning may identified in your application submission that are established as of may shown in the table starting on page this approval will extend the amortization periods for years __ and applies to the eligible amortization charge bases as as i absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years the plan_sponsor has adopted a plan to improve the plan's funding status ii iii iv the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and the notice required under paragraph a has been provided in accordance with section dollar_figure of revproc_2010_52 in granting this ruling it is expected that i ii iii the plan's assumptions and methods will be reviewed and updated as appropriate so that each prescribed assumption is applied in accordance with applicable law and regulations each other assumption is reasonable taking into account the experience of the plan and reasonable expectations and such other assumptions in combination offer the best estimate of anticipated experience under the plan and the plan_sponsor obtained the appropriate approvals for any changes in assumptions or funding methods whether through an individual private_letter_ruling or by qualifying for automatic approvals available in the code treasury regulations or other generally applicable guidance b c a furthermore we are not expressing any opinion as to the accuracy of any material submitted with your request period remaining amortization outstanding initial_amount date of first charge balance beginning of year summary of outstanding charge bases subject_to the amortization extension charge 9g h j k m e d n i f 2c 5nmn9' 2c thwnn19 2c than tang thin9 tain9 tains 7thin9 tang 20k total charges subject_to the amortization extension your attention is called to sec_412 of the code and sec_302 of erisa which describe the consequences that would result in the event the plan is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting while the amortization extension remains in place please note that any amendment that increases liabilities for a profit sharing plan or any other retirement plans whether qualified or unqualified maintained by the trustees of the plan and covering participants of the plan to which this ruling applies would be considered an amendment for purposes of sec_412 of the code and sec_302 of erisa we have sent a copy of this letter to the manager ep classification in baltimore maryland to the manager ep compliance unit in chicago illinois and to your authorized representatives pursuant to a power_of_attorney on file in this office this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance concerning this matter please contact id yat - sincerely yours david m ziegler manager employee_plans actuarial group oc manager ep classification baltimore maryland manager ep compliance unit chicago illinois