internal_revenue_service number release date index number 468a -------------------- ----------------------------------------------------- --------------------- ---------------------- -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------------- --------------------------------------------------- telephone number -------------------- refer reply to cc psi b06 plr-108497-16 date date legend taxpayer parent plant location state state state state state commission a commission b commission c commission d commission e order recent study prior study method date a b c d e f g h i ------------------------------------------------------------------------------------- ----------------------------------------------- ----------------------------------------------------------------- -------------------------------------------------- -------------- -------------- ------------ ----------------- ------------------ -------------------------------------------------------------- -------------------------------------------------------------------- --------------------------------------------------------------------- ------------------------------------------------------------------ ---------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- --------------------------- ----------------------------------------------------------------------- ---------------------------------------------------------------------- ----------- --------------------- ----------- --------- --------- ----------- -- ---------------- ------------------- ------ ------ j k l m n o p q r x y z aa bb cc dd ee ff gg hh ii year year year year year year fund ------------------------------------------------------ director ------ ------ ----------- ----------- ----------- ----------- ----------- ------------- ------------- ----- --- --- ------- ------- ------------------------------------ ------------------------------------- ---------------- ---------------- ---------------- ---------------- --------------- ------ -------- ------ ------ ------ ------ ---- ----------------------------------------------------------- dear --------------- this letter responds to your request dated date for a schedule of deduction amounts and a revised schedule of ruling amounts pursuant to sec_468a of the internal_revenue_code and sec_1_468a-8 of the income_tax regulations you also provided additional information by letter dated date taxpayer was previously granted schedules of ruling amounts most recently on date and taxpayer was granted a schedule of deduction amounts on date information was submitted pursuant to sec_1_468a-3 taxpayer represents the facts and information relating to its request for a schedule of deduction amounts and request for a schedule of ruling amounts as follows plr-108497-16 taxpayer is an investor-owned utility incorporated in state taxpayer along with an affiliate incorporated in state is engaged in the operation of an electric public_utility system involving the generation transmission distribution and sale of electric energy and the distribution and sale of natural_gas in state state state state and state taxpayer files a consolidated federal_income_tax return with its parent on a calendar-year basis using the accrual_method of accounting taxpayer is under the audit jurisdiction of the industry director taxpayer owns x percent of plant the plant is situated at location the plant’s operating license was extended by the nuclear regulatory commission and expires in year with respect to the decommissioning costs related to the plant which are included in the taxpayer’s cost of service for ratemaking purposes the taxpayer is subject_to regulation by commission a a percent commission b b percent commission c c percent commission d d percent and commission e e percent commission a in order dated date approved the taxpayer’s estimated decommissioning costs to be included in taxpayer’s cost of service for ratemaking purposes following commission a’s mandatory periodic review of taxpayer’s decommissioning costs the order approves and relies upon assumptions provided in the recent study which takes the extension of the operating license of plant into account these costs as well as those in prior study have been incorporated into the cost of service by commission a and commission d taxpayer’s decommissioning costs incorporated into its cost of service by commission b and commission c are based on prior study the proposed method of decommissioning under both studies for the plant is method the total estimated cost of dollar_figuref in year dollars was used as a base cost for decommissioning the plant the total estimated future cost of decommissioning the plant is dollar_figureg in future dollars it is estimated that substantial decommissioning costs will first be incurred in year and that decommissioning will be substantially complete at the end of year the methodology used to convert the year dollars to future dollars was by escalating the estimated costs taking into account estimates of inflation and escalation at a rate of h percent for those costs related to operations and radiological categories and i percent for those costs related to storage of spent fuel and site restoration the assumed after-tax rate of return to be earned by the amount collected for decommissioning is j percent through year and is k percent thereafter in the prior schedule of ruling amounts issued under sec_468a of the code as in effect prior to the estimated_useful_life of the plant is y years and the estimated period for which the fund is to be in effect is z years thus the percentage of the total estimated costs qualifying for deduction in the schedule of ruling amounts under prior_law was aa percent for commissions a c and e and bb percent for commissions b and d by letter dated date the service granted taxpayer a plr-108497-16 schedule of deduction amounts allowing taxpayer to make a special transfer of dollar_figurecc to the fund sec_468a as amended by the energy tax incentives act of the act publaw_109_58 119_stat_594 allows an electing taxpayer to deduct payments made to a nuclear decommissioning reserve fund sec_468a limits the amount that may be paid into the nuclear decommissioning fund in any year to the ruling_amount applicable to that year prior to the changes made by the act the deduction was limited to the lesser_of the amount included in the utility’s cost of service for ratemaking purposes or the ruling_amount generally as a result only regulated utilities could take advantage of sec_468a the act amendment of sec_468a eliminated the cost-of-service limitation accordingly decommissioning costs of an unregulated nuclear power plant may now be funded by deductible contributions to a qualified nuclear decommissioning fund sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund the total nuclear decommissioning cost of that nuclear power plant over the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate prior to the changes made by the act deductible contributions were limited to the amount necessary for an electing taxpayer to fund the plant’s post-1983 nuclear decommissioning costs determined as if decommissioning costs accrued ratably over the estimated_useful_life of the plant provided that the taxpayer elected to establish a fund in prior_law also did not allow a taxpayer electing to establish a fund later than to contribute to that fund any amount in excess of that amount necessary to fund the ratable portion of the plant’s nuclear decommissioning costs beginning in the year the fund is established sec_468a now allows a taxpayer to contribute to a nuclear decommissioning fund the entire cost of decommissioning the plant including both the pre-1984 amount that was denied under the law prior to the act as well as any amount attributable to any year after in which a taxpayer had not established a fund under sec_468a sec_468a provides that the deduction for the contribution of the previously-excluded amount is allowed ratably over the remaining useful_life of the nuclear plant plr-108497-16 sec_1_468a-1 provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 of the regulations is a taxpayer that has a qualifying interest in any portion of a nuclear power plant a qualifying interest is among other things a direct ownership_interest sec_1_468a-2 provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year the limitation on the amount of cash payments for purposes of sec_1_468a-2 does not apply to any special transfer permitted under sec_1_468a-8 sec_1_468a-3 provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on reasonable assumptions concerning the after-tax rate of return to be earned by the amounts collected for decommissioning the total estimated cost of decommissioning the nuclear plant and the frequency of contributions to a nuclear decommissioning fund for a taxable_year under sec_1_468a-3 the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer’s proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3 provides that the taxpayer bears the burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the regulations and that it is based on reasonable assumptions that section also provides additional guidance regarding how the service will determine whether a proposed schedule of ruling amounts is based on reasonable assumptions for example if a public_utility commission established or approved the currently applicable rates for the furnishing or sale by the taxpayer of electricity from the plant the taxpayer can generally satisfy this burden_of_proof by demonstrating that the schedule of ruling amounts is calculated using the assumptions used by the public_utility commission in its most recent order in addition a taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a public_utility commission that formerly had regulatory jurisdiction over the plant as support for the assumptions used in calculating the taxpayer’s proposed schedule of ruling amounts with the understanding that the assumptions used by the public_utility commission may be given less weight if they are out of date or were developed in a proceeding for a different plr-108497-16 taxpayer the use of other industry standards such as the assumptions underlying the taxpayer’s most recent financial assurance filing with the nrc are described by the regulations as an alternative means of demonstrating that the taxpayer has calculated its proposed schedule of ruling amounts on a reasonable basis sec_1_468a-3 further provides that consistency with financial_accounting statements is not sufficient in the absence of other supporting evidence to meet the taxpayer’s burden_of_proof sec_1_468a-3 provides that in general the ruling_amount for any_tax year in the funding_period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3 the funding_period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the taxable_year that includes the last day of the estimated_useful_life of the nuclear power plant to which the fund relates sec_1_468a-3 provides rules for determining the estimated_useful_life of a nuclear plant for purposes of sec_468a in general under sec_1_468a-3 if the plant was included in rate base for ratemaking purposes for a period prior to date the date used in the first such ratemaking proceeding as the estimated date on which the nuclear plant will no longer be included in the taxpayer’s rate base is the end of the estimated_useful_life of the nuclear plant sec_1_468a-3 provides that if the nuclear plant is not described in sec_1_468a-3 the last day of the estimated_useful_life of the nuclear plant is determined as of the date the plant is placed_in_service under sec_1_468a-3 any reasonable method may be used in determining the estimated_useful_life of a nuclear power plant that is not described in sec_1_468a-3 sec_1_468a-3 provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer’s share of the total estimated cost of decommissioning the nuclear power plant sec_1_468a-3 provides that a taxpayer’s share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer’s qualifying interest in the plant sec_1_468a-3 provides the rules regarding the manner of requesting a schedule of ruling amounts sec_1_468a-3 provides that the service will not provide or revise a ruling_amount applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment_date as defined in sec_1_468a-2 for such taxable_year sec_1_468a-3 enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year plr-108497-16 sec_1_468a-3 provides that the service may prescribe administrative procedures that supplement the provisions of sec_1_468a-3 and in addition that section provides that the service may in its discretion waive the requirements of sec_1_468a-3 and under appropriate circumstances sec_1_468a-3 describes the circumstances in which a taxpayer must request a revised schedule of ruling amounts sec_1_468a-3 requires that a taxpayer request a revised schedule of ruling amounts for the fund if the taxpayer requests a schedule of deduction amounts the revised schedule of ruling amounts must apply beginning with the first taxable_year following the first year in which a deduction is allowed under the schedule of deduction amounts sec_1_468a-3 provides that any taxpayer that has previously obtained a schedule of ruling amounts may request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year sec_1_468a-8 provides that under the provisions of sec_468a as described above a taxpayer may make a special transfer of cash or property to the nuclear decommissioning fund this special transfer is not subject_to the sec_468a limitation the amount of the special transfer is the present_value of the pre-2006 nonqualifying percentage of the estimated future costs of decommissioning the nuclear plant that was disallowed under sec_468a prior to the act sec_1_468a-8 defines the pre-2005 nonqualifying percentage as equal to percent reduced by the sum of the qualifying percentage used in determining the taxpayer’s last schedule of ruling amounts for the fund under sec_468a as it existed prior to the act and the percentage transferred in any previous special transfer sec_1_468a-8 provides that the taxpayer is not required to transfer the entire amount eligible for the special transfer in one year but must take any prior special transfers into account in calculating the pre-2005 qualifying percentage sec_1_468a-8 provides that the deduction for the special transfer is allowed ratably over the remaining useful_life of the nuclear plant under sec_1 468a- b i the deduction for property contributed in a special transfer is limited to the lesser_of the fair_market_value of the property or the taxpayer’s basis in the property under sec_1_468a-8 the taxpayer recognizes no gain_or_loss on the special transfer of property the taxpayer’s basis in the fund is not increased by reason of the special transfer of property and the fund’s basis in the property transferred in the special transfer is the same as the transferee’s basis in that property immediately prior to the special transfer plr-108497-16 sec_1_468a-8 provides that taxpayer may not make a special transfer to a qualified nuclear decommissioning fund unless the taxpayer requests from the irs a schedule of deduction amounts in connection with such transfer a request for a schedule of deduction amounts may be made in connection with a request for a schedule of ruling amounts but in such case the calculations for both the schedule of ruling amounts and the schedule of deduction amounts must be separately_stated as stated above prior to the changes made by the act deductible contributions were limited to the lesser_of the amount necessary found the plant’s post-1983 nuclear decommissioning costs or the amount necessary to fund the plant’s decommissioning costs for that portion of the plant’s estimated_useful_life for which a fund had been established under that prior_law taxpayer was allowed to contribute to commissions a c and e jurisdictions aa percent of the amounts necessary to fully decommission its share of the plant and to commissions b and d jurisdictions bb percent sec_468a allows a taxpayer to contribute to the nuclear decommissioning fund the pre-1984 amount that was denied under the law prior to the act taxpayer made a special transfer to fund of dollar_figuredd pursuant to the letter from the service dated date under the provisions of sec_468a taxpayer was permitted to make a special transfer of dollar_figurecc in year dollars at that time to fully make up for the pre-1984 amount that was denied under the law prior to the act the amount of dollar_figuredd is ee percent of dollar_figurecc taxpayer now proposes to make a special transfer of the remaining ff percent of the special deduction allowed by the service in the date ruling escalating dollar_figuredd to year dollars is accomplished by multiplying dollar_figuredd by an escalating factor of gg the same factor representing the escalation of total estimated decommissioning costs between year and year dollars the amount that taxpayer is allowed to contribute to the fund as a special transfer is dollar_figurehh taxpayer has requested that it be allowed to contribute to the fund as a special transfer in year is dollar_figureii we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder we find that taxpayer’s proposal to contribute dollar_figureii to the fund and to deduct the amount transferred is consistent with the principles and provisions of sec_468a and the regulations thereunder based solely upon these representations of the facts we conclude that the taxpayer is permitted to make a special transfer of dollar_figureii under sec_1_468a-8 a taxpayer must take any prior special transfers into account in calculating the pre-2005 qualifying percentage plr-108497-16 year year schedule of deduction amounts deduction amount dollar_figureii we note that if taxpayer elects to make a special transfer of property for all or a portion of this special transfer the amount of the transfer is the lesser_of the fair_market_value of the property transferred or the basis of the property in the hands of the taxpayer immediately prior to the transfer in addition because taxpayer has elected to make a special transfer of less than the dollar_figurehh permitted taxpayer is entitled to make an additional special transfer of the difference between the amount permitted to be transferred and the amount transferred to make an additional special transfer taxpayer must request an additional schedule of deductions such request must take the prior schedule of deductions into account in calculating the permissible amount of the special transfer furthermore regarding taxpayer’s request for a revised schedule of ruling amounts we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions pursuant to sec_1_468a-3 taxpayer has met its burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the code and regulations and is based on reasonable assumptions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 of the regulations taxpayer as owner of the plant has calculated its decommissioning costs under sec_1_468a-3 of the regulations the proposed schedule of ruling amounts was derived by following the assumptions contained in recent study and prior study that have been considered and approved by commission a the underlying assumptions were used by commission a to calculate the amount of decommissioning costs to be included in taxpayer’s cost of service for ratemaking purposes thus taxpayer has demonstrated pursuant to sec_1_468a-3 that the proposed schedule of ruling amounts is based on reasonable assumptions and is consistent with the principles of sec_468a and the regulations thereunder plr-108497-16 the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the ruling_amount applicable to the fund as set forth under sec_1_468a-2 of the regulations based solely on the determinations above we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code we have approved the following revised schedule of ruling amounts approved schedule of ruling amounts years commission a commission d commission c totals year each year year year dollar_figurel dollar_figurem dollar_figuren dollar_figureo dollar_figurep dollar_figurep dollar_figureq dollar_figurer if any of the events described in sec_1_468a-3 occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which this schedule of ruling amounts is received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above plr-108497-16 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer we are also sending a copy of this letter_ruling to the director pursuant to sec_1_468a-7 a copy of this letter must be attached with the required election statement to the taxpayer’s federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs special industries cc


department of the treasury internal_revenue_service washington d c number release date cc dom fs fi p tl-n-4364-99 uilc date internal_revenue_service national_office field_service_advice memorandum for from district_counsel deborah a butler assistant chief_counsel cc dom fs subject sec_475 - mark-to-market this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend x y z year year years date date issue s whether x’s retail and wholesale installment receivables are customer paper for purposes of sec_1_475_c_-1 whether x must obtain the consent of the commissioner before it changes its method_of_accounting to comply with sec_475 if that change is made after year conclusions based upon the facts available we believe x may be holding securities that are both customer paper and noncustomer paper for sec_475 purposes if additional facts support this conclusion then x was not required to elect out of the exception for sellers of nonfinancial goods and services customer paper exception to be subject_to sec_475 additional facts need to be developed to determine whether x applied the sec_475 mark-to-market method for year if x did so it was entitled to an automatic consent to use that method for year and subsequent years if however x did not use the mark-to-market method in year it is required to request the commissioner’s consent to change its method to comply with sec_475 for years and subsequent years facts corporation x is a financial services subsidiary of corporation y y is in the business of manufacturing z x has a portfolio of retail installment receivables and wholesale installment receivables the retail installment receivables are installment loans to customers who purchased z from various dealers the wholesale installment receivables are loans made by x to dealers to finance their purchase of z for sale to retail customers x’s year return showed no evidence that x marked to market any of its securities x however represents that it applied the sec_475 mark to market principles for its year sec_1 and securities but had no adjustment to income in addition on date x made a protective identification that identified all securities as held for investment and thus not subject_to mark-to-market other than the retail and wholesale installment receivables sec_475 revrul_97_39 1997_2_cb_62 holding for its years x marked to market its portfolios of installment receivables x filed no form_3115 in response to an information_document_request x claims that it was not required to file a form_3115 since the legislative_history of sec_475 provides for an automatic consent to change to the mark-to-market method for a taxpayer who became a dealer of securities in for purposes of sec_475 none of the returns filed for years attached a statement electing out of the mark to market exception for customer paper or negligible sales on date x filed an informal refund claim the basis for the claim is a significant increase in the write downs to market for the years law and analysis sec_475 generally requires a dealer_in_securities to account for its securities on a mark-to-market method_of_accounting it provides that for any security which is not inventory in the hands of the dealer and which is held at the close of any taxable_year the dealer shall recognize gain_or_loss as if the security were sold for its fair_market_value on the last business_day of the taxable_year sec_475 defines a dealer_in_securities as a taxpayer who either regularly purchases securities from or sells securities to customers in the ordinary course of its trade_or_business or regularly offers to enter into assume offset assign or otherwise terminate positions in securities with customers in the ordinary course of a trade_or_business sec_1_475_c_-1 provides that whether a taxpayer is transacting business with customers is determined on the basis of all the facts and circumstances sec_475 defines the term security to include a note bond debenture or other evidence_of_indebtedness assuming x is not subject_to the exception of sec_1_475_c_-1 discussed below x qualifies as a dealer_in_securities under sec_475 x regularly provides financing to either dealers for their entire floor_plan of z or to customers who have purchased z from dealers x is transacting business with customers in the ordinary course of its business sec_1 c - b generally excludes from the dealer definition a taxpayer who would not be a dealer_in_securities but for its purchase and sale of debt instruments that are customer paper the regulations define a debt_instrument as customer paper if the person’s principal activity is selling nonfinancial goods or providing nonfinancial services the debt_instrument was issued by a purchaser of goods or services at the time of the purchase of those goods or services in order to finance the purchase and at all times since the debt_instrument was issued it has been held either by the person selling those goods or services or by a member of the same consolidated_group as that person sec_475 was added for tax years ending on or after date and it removes trade receivables from the definition of security for sec_475 purposes we are uncertain whether the purchaser of the z obtains financing directly from x or whether the dealer originally finances the purchase and then sells or assigns the loans to x sec_1_475_c_-1 ii and iii under sec_1 c -1 b i a taxpayer may elect to waive the customer paper exception the regulations provide that a taxpayer may file a statement identifying itself by name and taxpayer number stating that it is electing not to be governed by exception for sellers of nonfinancial goods and services for tax years ending on a certain date and for all subsequent years the waiver may also be elected for a year ending on or before date by attaching a statement to an amended_return filed not later than date see revrul_97_39 holding an election under sec_1_475_c_-1 also is deemed to be an election to waive the exemption from application of sec_475 provided by sec_1_475_c_-1 for taxpayers with negligible sales of securities see revrul_97_39 holdings and revproc_97_43 1997_2_cb_494 provides the procedures for a taxpayer to obtain the automatic consent of the commissioner to change its method_of_accounting to reflect this application of sec_475 as a result of making an election under sec_1_475_c_-1 the enabling statute of the omnibus reconciliation act of section c provided for the automatic consent for a change in method_of_accounting for taxpayers who became a dealer for the taxable_year that includes date merely by virtue of the passage of the act and who accounted for securities as a dealer under sec_475 on its original return for that year consent for any other changes of method to comply with sec_475 must be obtained either on a taxpayer-by-taxpayer basis or as part of an automatic consent contained in published guidance see revrul_97_39 holding the incoming request assumed that all of the receivables were customer paper and thus the customer paper exception in sec_1 c -1 b would apply we believe however the primary issue is whether in fact all of the receivables meet the definition of customer paper customer paper as defined in the regulations requires that x’s principal activity be selling or providing nonfinancial goods or services x is in the business of providing financial services loans financing for the purchase of z the wholesale installment receivables are more likely to be customer paper than the retail installment receivables because of the nature of the transaction x provides the financing for the purchase of dealers’ entire floor plans x is a subsidiary of y y is the manufacturer of the z if the dealers purchase their floor plans from y x’s principal activity can be deemed to be providing nonfinancial goods because x and y are related parties thus x meets the first requirement for customer paper x also meets the second requirement since the financing was issued to purchase the automobile floor plans the third requirement is that the debt_instrument was held at all times since it was issued by x or a member of the same consolidated_group if that requirement is met then the wholesale installment receivables are customer paper further factual development will determine whether x meets this requirement the retail installment receivables do not appear to be x’s customer paper x provides loans to purchasers of z unlike the wholesale receivables the z can not be deemed purchased from x since the customer directly purchased the z from dealers therefore the retail installment receivables apparently are not customer paper and are securities subject_to sec_475 sec_475 b and c provide that the mark-to-market requirement of sec_475 does not apply to any security held for investment certain securities that are not held_for_sale and any security that is a hedge of an item that is not subject_to the mark-to-market rules further under sec_475 a security is not treated as described in sec_475 b or c unless it is clearly identified in the dealer’s records as being described in such subparagraph before the close of the day on which it was acquired originated or entered into or such other time as the secretary may by regulations prescribe an exception to this same day identification rule is contained in holding of revproc_97_39 assuming not all of the receivables at issue are customer paper the exception of sec_1 c -1 b would not be available to x once a taxpayer is determined to be a dealer_in_securities sec_475 a requires that all securities must be marked to market unless they had specifically been identified as not subject_to sec_475 under sec_475 x had identified under sec_475 all of its securities on its date security identification except for the receivables at issue therefore x is subject_to sec_475 without having to elect out of the customer paper exception it is not clear whether x applied the sec_475 mark-to-market method for year the service has taken the position that if a taxpayer did not change its method to mark-to-market for the year under the automatic consent provided by the statute any later changes would require the commissioner’s consent or be subject_to other automatic consent requirements contained in published guidance see revrul_97_39 pincite holdings and if x did not apply the mark-to-market method for year it must obtain the commissioner’s consent before it can change to that method in later years it is our understanding that no form_3115 was filed for later years case development hazards and other considerations this case needs additional factual development we recommend that you confirm whether the wholesale installment receivables are solely for the financing of dealer floor plans and whether the dealers purchased the z from y for those receivables if the z are not purchased from y these receivables can not be customer paper in addition you need to confirm that these receivables have been held by x at all times since their issuance our conclusion that x is a dealer under sec_475 would not change if the wholesale installment receivables are not customer paper x would still be buying securities under sec_475 however it could be important to know whether the customer paper requirements are met if the retail installments receivables are not as described if further factual development established that the retail receivables were customer paper then x might hold only customer paper and x would have had to properly elect out of the customer paper exception before it could use the mark-to -market method of sec_475 however we do not believe that to be the situation based upon our discussions with you in addition you should clarify whether x did use the mark-to-market method for year if so automatic consent would be granted for year and subsequent years if x did not use the mark-to-market method the commissioner’s consent would be required before x could use that method in subsequent years the following should be helpful in resolving this question please call if you have any further questions by carol p nachman special counsel financial institutions products branch cc


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 b06 plr-135523-07 date november legend legend parent subsidiary subsidiary date date date tax professional company official dear ------------ ----------------------------- ----------------------- -- ------------------------------ ----------------------- -------------------------- ----------------------- -------------------------- --------------------------- -------------------------- -------------------------------- ------------------------------------- -------------- --------------------------------------------------------------- --------------------------------------- plr-135523-07 this letter responds to a letter dated date requesting on behalf of parent an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election the extension is being requested for parent to file an election under sec_1_1502-75 of the income_tax regulations to file a consolidated federal_income_tax return with its includible subsidiaries the election for the year ending date the material information submitted in the date letter and supplemental information provided in correspondence dated date is summarized below parent was formed on date and is the common parent of an affiliated_group parent group subsidiary was also formed on date and is wholly owned by parent on date the parent group acquired subsidiary the common parent of the subsidiary consolidated_group it has been represented that the acquisition of subsidiary did not constitute a reverse_acquisition within the meaning of sec_1_1502-75 parent subsidiary subsidiary and subsidiary 2’s group members intended to file a consolidated_return with respect to the parent group’s consolidated tax_year ending date the election for the parent group to file a consolidated_return for the year ending date tax_year was due no later than the last day prescribed by law including extensions of time for the filing of parent's return however for various reasons a valid election was not made 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 parent or any member of parent group for the year ending date tax_year sec_1_1502-75 provides that a group which did not file a consolidated_return for the immediately preceding tax_year may file a consolidated_return in lieu of separate returns for the tax_year provided that each corporation which has been a member of the group during any part of the of the tax_year for which the consolidated_return is to be filed consents 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 filing 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 parent who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for plr-135523-07 relief under sec_301_9100-3 will be granted when the parent provides evidence to establish that the parent 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 establishes that it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent tax professional and company official 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 interests of the government will not be prejudiced if relief is granted sec_301 b v based on the facts and information submitted including the affidavits submitted and the representations that have been made we conclude that parent has established that it acted reasonably and in good_faith in failing to timely file the election 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 parent group qualifies substantively to file a consolidated_return for the applicable tax_year we grant an extension of time under sec_301_9100-3 until sixty days from the date on this letter for parent group to file the election by filing a consolidated_return for the year ending date tax_year and including the required forms the above extension of time is conditioned on parent group's tax_liability if any not being lower in the aggregate for all years to which the election applies than it would have been if the election had been made timely taking into account the time_value_of_money no opinion is expressed as to parent group's tax_liability for the year involved a determination thereof will be made upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that parent's group's liability is lower sec_301_9100-3 we express no opinion with respect to whether parent group qualifies substantively to file a consolidated_return or whether the acquisition of subsidiary constituted a reverse_acquisition in addition no opinion is expressed as to the tax effects or consequences of filing the election late under the provisions of any other section of the code or regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing 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 and or its representatives however plr-135523-07 all essential facts must be verified 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 this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively if parent group files its return electronically parent group may satisfy this requirement by attaching a statement to the return that provides the date and control number of this letter_ruling pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely _ken cohen__________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date date contact person identification_number contact number employer_identification_number form required to be filed tax years uil dear this is our final_determination that you do not qualify for exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 recently we sent you a letter in response to your application that proposed an adverse determination the letter explained the facts law and rationale and gave you days to file a protest since we did not receive a protest within the requisite days the proposed adverse determination is now final _ you must file federal_income_tax returns on the form and for the years listed above within file the returns in accordance days of this letter unless you request an extension of time to file with their instructions and do not send them to this office failure_to_file the returns timely may result in a penalty we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice action if you agree with our deletions you do not need to take any further if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter federal_income_tax status and responsibilities please contact irs customer service at if you have any questions about your or the irs customer service number for businesses the irs customer service number for people with hearing impairments is sincerely holly o paz director rulings and agreements enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter department of the treasury internal_revenue_service washington d c contact person identification_number contact number fax number employer_identification_number uil tax_exempt_and_government_entities_division date date legend- state date1 date2 dear we have considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code as an organization described in sec_501 based on the information provided we have concluded that you do not qualify for exemption the basis for our conclusion is set forth below facts you are a state nonprofit cooperative association formed on date1 however according to its business website state has classified your corporate status as suspended since date2 you were incorporated by three individuals your articles of incorporation state that you were formed for the pleasure recreation and other non-profit purposes authorized under sec_501 of the internal_revenue_code your purpose is to form a cooperative that will facilitate and organize transactions between members who collectively cultivate and possess marijuana for medical purposes this includes promoting advocating and financing the safe and legal access of medical marijuana for therapeutic and medical purposes as well as research you will limit access to any marijuana you own or possess to your members who pursuant to state law are qualified medical marijuana patients and or primary caregivers your incorporators are engaged in the production of cannabis and have associated themselves together to form a nonprofit cooperative association your incorporators are not organizations exempt from federal_income_tax under sec_521 of the code or members of such organizations you will have no more than three directors on your board and they will serve four-year terms the directors must be qualified members to serve on the board directors receive compensation_for their services and are entitled to reasonable reimbursement for traveling and other expenses any person or entity that is a qualified patient or caregiver as defined by the state code may submit a membership application to become a member of your association your board_of directors may admit or deny membership in its discretion there is no fee to become a member but the board may require members to invest funds for effective corporate purposes you do not issue stock shares and while the property interest of each of your members may be unequal the voting rights are equal with each member having one vote you measure each member’s property rights and interests by the member’s total non-refunded contribution of funds property or cannabis pro_rata to your total retained funds to provide capital for your corporate purposes you may retain funds from your net sales you classify the total funds that you retain as the revolving fund and the amounts retained from each member as revolving fund credits revolving fund credits are evidence of your indebtedness to each member you do not plan to pay interest on the credits but if the board provides for interest you will not pay more than eight percent per annum you may enter into marketing crop purchase or other agreements with any member or patron the agreements may incorporate provisions relating to the harvesting handling packing processing selling shipping delivery or title transfer of cannabis produced by the member or patron after delivery you may receive unqualified power to take title over and process sell dispose or transfer the cannabis applicable law sec_501 of the internal_revenue_code exempts from taxation organizations described in sec_501 sec_501 of the code describes corporations organized to finance the ordinary crop operations of its members or other producers the corporation must be organized by a sec_521 farmers cooperative or the cooperative’s members and operated in conjunction with the sec_521 farmers’ cooperative that organized it a sec_501 organization may issue capital stock but if the stock has a dividend rate it may not be higher than the greater of the legal rate of interest in its incorporation state or eight percent per annum on the value of the consideration for which the stock was issued if the sec_501 organization issues stock the sec_521 farmers’ cooperative must own substantially_all of it nonvoting preferred_stock may be owned by others but those stockholders must not participate directly or indirectly in the profits of the sec_501 corporation on dissolution or otherwise beyond the fixed dividends sec_501 organizations may accumulate and maintain a reasonable reserve for any necessary purpose or if required by state law sec_521 of the code exempts farmers’ cooperatives from taxation except as otherwise provided in sec_1381 - farmers’ cooperatives include farmers’ associations fruit growers’ associations or like associations organized and operated on a cooperative basis for one of two purposes the cooperative may organize to market its members’ or other producers’ products then return the sales proceeds less necessary marketing expenses based on either the quantity or the value of the products furnished by the members or producers marketing association alternatively the farmers’ cooperative may organize to purchase supplies and equipment so its members or others may pay cost rather than retail purchasing association’ sec_1_501_c_16_-1 states that a corporation organized by a farmers’ cooperative or its members is tax-exempt if organized for the purpose of financing its members’ or other producers’ ordinary crop operations the farmers’ cooperative that organizes the financing corporation must be exempt under sec_521 and operate the financing corporation in conjunction with itself further the provisions of sec_1_521-1 relating to a reserve or surplus and to capital stock shall also apply to sec_501 corporations sec_1_521-1 requires the sec_521 marketing association to distribute the proceeds of the business proportionally between members and nonmembers it must also keep permanent records of the business done with both members and nonmembers sec_1_521-1 specifies that an association may have capital stock so long as the stock’s dividend rate is not higher than the greater of the legal rate of interest in its incorporation state or percent per annum on the value of the consideration for which the stock was issued additionally the producers who market their products or purchase their supplies and equipment through the association must own substantially_all of the stock of the association sec_1_521-1 specifies that accumulation and maintenance of a reserve to either meet state requirements or for any necessary purpose will not destroy the exemption sec_1_521-1 expands the description of sec_521 purchasing associations defines the term supplies and equipment as it is used in sec_521 and states that the provisions in sec_1_521-1 relating to a reserve or surplus and to capital stock applies to purchasing associations the value of the supplies and equipment purchases for nonmembers may not exceed the value of the supplies and equipment purchased for members and the total value of the purchases made for nonmembers who are not producers must not exceed percent of the value of all of the association’s purchases sec_1_521-1 requires an organization claiming exemption under sec_521 to file a form_1028 with the district_director for the internal_revenue_district where the organization’s principal_place_of_business or principal office is located u s c defines marijuana as all parts of the plant cannabis sativa l whether growing or not the seeds thereof the resin extracted from any part of such plant and every compound manufacture salt derivative mixture or preparation of such plant its seeds or resin u s c sec_812 sch i c lists marijuana as a hallucinogenic substance and includes it on schedule i of the schedules of controlled substances a schedule i substance is a substance that has a high potential for abuse has no currently accepted medical use in treatment in the united_states and there is a lack of accepted safety for use of the drug under medical supervision u s c sec_841 known as the controlled substances act act states that it is illegal for anyone to knowingly or intentionally manufacture distribute or dispense or possess with intent to manufacture distribute or dispense a controlled substance article vi clause of the united_states constitution states that federal laws prevail over conflicting or inconsistent state laws 532_us_483 reiterates that there is only one exception from the act for cannabis government-approved research projects it is clear from the text of the act that congress has made a determination that marijuana has no medical benefits worthy of an exception d pincite in 461_us_574 103_sct_2017 the supreme court held that racially discriminatory education is contrary to public policy and therefore the university could not be viewed as providing public benefit within the charitable concept in 95_us_303 the court noted that a charitable use where neither law nor public policy forbids may be applied to almost any thing that tends to promote the well-doing and well-being of social man the court in 825_f2d_1027 6th cir summarized how courts interpret tax statutes the general canon of construction is that statutes imposing a tax are interpreted liberally in favor of the taxpayer but provisions granting a deduction or exemption are matters of legislative ‘grace’ and are construed strictly in favor of the government d pincite citations omitted of in 505_f2d_1068 6th cir the court held that an organization seeking tax-exempt status bears a heavy burden to prove that it satisfies all the requirements of the exemption statute the court noted that the tax_court has stated consistently that a statute creating an exemption must be strictly construed and any doubt must be resolved in favor of thie taxing power d citations removed the court in 330_fsupp_1150 d c cir discussed multiple cases that limited tax benefits such as the dependency_deduction the business_expense deduction and the charitable deduction due to violation of federal or state laws before considering the more particular subject of charities we refer to the general and well established principle that the congressional intent in providing tax deductions and exemptions is not construed to be applicable to activities that are d pincite illegal in mysteryboy inc v commissioner tcmemo_2010_13 the tax_court held that the organization failed the operational_test partly because the organization proposed to promote illegal activities revrul_75_384 1975_2_cb_204 holds that a nonprofit organization whose purpose was to promote world peace disarmament and nonviolent direct action did not qualify for exemption under sec_501 or c the organization’s primary activity was to sponsor antiwar protest demonstrations in which it urged demonstrators to violate local ordinances and commit acts of civil disobedience citing the law of trusts the ruling stated that all charitable organizations are subject_to the requirement that their purposes cannot be illegal or contrary to public policy see restatement second of trusts see also restatement third of trusts sec_29 the purpose is illegal if the trust will use the trust property for an object that is in violation of the criminal_law if the trust tends to induce the commission of crime or if the accomplishment of the purpose is otherwise against public policy sec_29 v scott on trusts 3d ed see also restatement third of trusts the restatement third of trusts sec_29 states that an intended trust or trust provision is invalid if its purpose is unlawful its performance calls for the commission of a criminal or tortious act or it is contrary to public policy analysis based on the information you provided in your application and supporting documentation we conclude that you are not organized and operated exclusively for exempt purposes under sec_501 as a crop financing organization sec_50 c requirements an exemption are matters of legislative ‘grace’ and are construed strictly in p rovisions granting favor of the government weingarden v comm’r f 2d pincite organizations exempt under sec_521 form crop-financing organizations to provide financing to their member farmers so they may cultivate their crops and livestock the crop-financing_organization may be recognized as exempt under sec_501 if it proves it is both organized and operated according to the requirements of the statue see harding hospital v u s f 2d pincite a crop-financing_organization must be a corporation sec_501 the organization must have been organized by either a farmers’ cooperative exempt under sec_521 or by the members of a farmers’ cooperative exempt under sec_521 d the crop-financing organization‘s purpose must be to finance the ordinary crop operations of its members or other producers and it must operate in conjunction with the sec_521 farmers’ cooperative that formed it deny exemption solely because the crop-financing_organization issues capital stock or maintains a reserve d sec_1_521-1 finally congress stated that the irs may not d although you appear to satisfy the provisions relating to capital stock and a reserve you do not satisfy the other organizational requirements of sec_501 state has suspended your corporate status therefore you do not meet the first organizational requirement of sec_501 you also have not shown that you were created by a sec_521 farmers’ cooperative or that your incorporators were members of a sec_521 exempt farmers’ cooperative and as such do not meet the second organizational requirement finally your articles of incorporation state that you were formed for the pleasure recreation and other non-profit purposes authorized under sec_501 as ‘pleasure’ and ‘recreation’ are not exempt purposes listed under sec_501 or the accompanying regulations you do not completely satisfy the third organizational requirement d because you do not meet each of the organizational requirements of sec_501 you are not considered to be organized as a crop- financing organization you also fail to satisfy the operational requirements of sec_501 and the accompanying regulations see sec_1_501_c_16_-1 you cannot operate in conjunction with the sec_521 farmers’ cooperative that formed you as you were not formed by a sec_521 farmers’ cooperative as defined by the code and accompanying regulations or by the members of such a farmers’ cooperative legality as noted above exemptions are not a right but a matter of legislative ‘grace ’ weingarden v comm’r f 2d pincite congress grants various organizations exemption from federal income in exchange for this favorable tax treatment the organization must adhere to certain laws and tax doctrines this general and well-established principle is not limited to exemptions for charitable organizations but applies to all deductions and exemptions from federal tax congress did not intend to provide tax deductions and exemptions to activities that are illegal see green v connally f_supp pincite the common_law of trusts specifies that a charitable_trust is invalid if its purpose is unlawful or if its performance calls for the commission of a criminal or tortious act see restatement third of trusts sec_29 evaluating the same common_law the supreme court noted a charitable use where neither law nor public policy forbids may be applied to almost any thing that tends to promote the well-doing and well-being of social man ould v washington hospital for foundlings u s pincite the general principle that tax deductions and exemptions are not applicable to activities that are illegal is well established and the courts and the irs have consistently applied this general principle to organizations seeking exemption see 330_fsupp_1150 d c cir mysteryboy inc v comm’r t c memo organization that encouraged sexual activity with minors with the goal to repeal child pornography and rape laws was not exempt from federal income_taxation activities of the organization violated public policy as reflected in federal and state laws revrul_75_384 supra therefore similar to other exemptions and deductions if a sec_501 organization commits illegal actions or encourages others to commit illegal actions while performing its activities it will not receive congress’ legislative grace of exemption from federal_income_tax see weingarden v comm’r f 2d pincite your activities violate this general principle your primary activity facilitating and organizing transactions between members who cultivate and possess cannabis is illegal under federal_law you enter into agreements that give you title to the cannabis grown by your members once you obtain title you process sell and otherwise dispose_of it as you decide federal_law does not recognize any health benefits of cannabis and classifies it as a controlled substance u s c sec_812 federal_law prohibits the manufacture distribution possession or dispensing of a controlled substance u s c sec_841 congress has made a determination that marijuana has no medical benefits worthy of an exception to the general_rule that the manufacture and distribution of cannabis is illegal oakland cannabis buyers’ coop u s pincite federal_law always prevails over conflicting or inconsistent state law see u s const art vi cl current federal_law prohibits the use of cannabis except in limited circumstances those limited circumstances do not include the use of cannabis for medicinal purposes see oakland cannabis buyers’ coop u s pincite the fact that state legalized distribution of cannabis to a limited extent is not determinative because distribution of cannabis is illegal under federal_law you operate in a manner that promotes activities that federal_law prohibits violate s public policy as reflected in those laws and tends to promote illegal activities mysteryboy inc v comm’r tcmemo_2010_13 because you advocate and engage in activities that contravene federal_law you failed to prove that you satisfy the requirements of sec_501 and the related regulations see harding hospital inc f 2d pincite conclusion based on the facts and information submitted you are not currently a legal corporation and you were not organized by a sec_521 exempt farmers’ cooperative or by the members of such a cooperative therefore you cannot operate in conjunction with such a cooperative and are not described in sec_501 of the code additionally your primary purpose of facilitating and organizing transactions involving cannabis not only violates federal_law and public policy but also promotes illegal activities accordingly you do not qualify for exemption as an organization described in sec_501 of the code and you must file federal_income_tax returns you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination your protest statement should be accompanied by the following declaration under penalties of perjury declare that have examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all the relevant facts and such facts are true correct and complete you also have a right to request a conference to discuss your protest this request should be made when you file your protest statement an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you representation during the conference procedures you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so for more information about representation see publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publicatioris if you want if you do not intend to protest this determination you do not need to take any further action not hear from you within days we will issue a final adverse determination_letter that letter will provide information about filing tax returns and other matters if we do please send your protest statement form_2848 and any supporting documents to this address internal_revenue_service washington dc if you fax you may also fax your statement using the fax number shown in the heading of this letter your statement please call the person identified in the heading of this letter to confirm that she received your fax lf you have any questions please contact the person whose name and telephone number are shown in the heading of this letter holly paz director rulings and agreements sincerely


thomas edward settles petitioner v commissioner of internal revenue respondent docket nos 13224-09l 13225-09l filed date after p filed his petitions in this court seeking review of r’s collection actions pursuant to sec_6330 he filed a petition in bankruptcy court the proceedings in this court were automatically stayed pursuant to u s c sec_362 in an adversary proceeding pursuant to u s c sec_505 the bankruptcy court decided p’s underlying tax liabil- ities while the bankruptcy proceeding was still pending and without having first received any order of the bankruptcy court vacating or lifting the stay p filed motions to dismiss in the instant cases held the automatic_stay pursuant to u s c sec_362 does not prevent the granting of p’s motions to dismiss the petitions for review of collection actions filed pursuant to sec_6330 in this court thomas edward settles pro_se shawna a early for respondent verdate 0ct jun jkt po frm fmt sfmt v files settles sheila settles v commissioner opinion wells judge these cases are before the court on peti- tioner’s motions to dismiss the sole issue we must decide is whether the dismissal of petitioner’s cases would violate the automatic_stay that arises pursuant to u s c sec_362 when a bankruptcy petition is filed that has not been vacated or lifted and the bankruptcy proceedings are still pending background on date petitioner filed petitions in this court in the cases docketed at nos 13224-09l and 13225-09l chal- lenging among other things his underlying federal_income_tax liabilities for his and tax years at the time he filed his petitions he was a resident of tennessee on date petitioner filed a chapter bankruptcy petition with the u s bankruptcy court for the eastern district of tennessee bankruptcy court on date respondent filed with this court notices of proceeding in bankruptcy and on date this court issued an order in each of the instant cases that pursuant to u s c sec_362 the proceedings in this court were automatically stayed on date petitioner filed in the bankruptcy court an adversary proceeding against respondent pursuant to u s c sec_505 seeking declaratory_judgment as to the existence and or correctness of respondent’s proof_of_claim for outstanding income_tax liabilities that had been filed in the bankruptcy court and were the same underlying liabilities in issue in the instant cases on date the bankruptcy court granted respondent’s motion for summary_judgment and ruled that petitioner was estopped from challenging the amounts of the outstanding tax_liabilities respondent asserted in his proof_of_claim in the bankruptcy court the bankruptcy proceedings are still pending and the stay under u s c sec_362 has not been vacated or lifted consequently on date petitioner submitted to the court and to respondent motions to dismiss as moot the peti- tions in the instant cases on date the court filed petitioner’s motions in the instant cases respondent has no objection to the granting of petitioner’s motions verdate 0ct jun jkt po frm fmt sfmt v files settles sheila united_states tax_court reports discussion although other courts have addressed issues similar to the question before us this is the first occasion the tax_court has had to address the issue of whether we may dismiss a case that has been stayed under the automatic_stay provision of u s c sec_362 before the stay has been vacated or lifted by the bankruptcy court having jurisdiction over the matter as a preliminary matter we consider whether the tax_court even in the absence of the u s c sec_362 automatic_stay can grant petitioner’s motions to dismiss the instant cases in the deficiency context once a taxpayer has filed a petition with the tax_court the taxpayer cannot with- draw that petition see 62_tc_519 when the tax_court dismisses a deficiency case for a reason other than lack of jurisdiction we generally are required by sec_7459 to enter a decision for the commissioner for the amount of tax determined against the taxpayer in the notice_of_deficiency id pincite rule d requires that a decision entered pursuant to a dismissal on a ground other than lack of jurisdiction operate as an adju- dication on the merits of the taxpayer’s case however in the instant cases petitioner petitioned the court to review a collection action under sec_6330 not to redetermine a deficiency under sec_6213 in contrast to the deficiency context a taxpayer who files a petition asking the tax_court to review a collection action does have the option to withdraw that petition 118_tc_330 in wagner v commissioner t c pincite we distinguished petitions in collection cases from those in deficiency cases because sec_7459 applies only to a petition that is filed for redeter- mination of a deficiency and makes no mention of a petition filed to review a collection action in deciding that the tax- payers could withdraw their petition in wagner we consid- ered the federal rules of civil procedure which we may con- sult when our rules do not contain an applicable rule id pincite see rule b rule a of the federal rule sec_1 unless otherwise indicated section references are to the internal_revenue_code_of_1986 as amended and rule references are to the tax_court rules_of_practice and procedure in 118_tc_330 n we stated that rule b relat- verdate 0ct jun jkt po frm fmt sfmt v files settles sheila settles v commissioner of civil procedure permits a court to dismiss an action at the plaintiff ’s request on terms that the court considers proper the purpose of rule a of the federal rules of civil procedure which requires court approval of a voluntary dis- missal is to protect the nonmovant from unfair treatment 583_f3d_948 6th cir grover by 33_f3d_716 6th cir unless the court orders otherwise the granting of a motion to dismiss pursuant to rule a of the federal rules of civil proce- dure is without prejudice as noted above respondent has no objection to the dis- missal of petitioner’s cases we conclude that consistent with wagner we may dismiss petitioner’s cases pursuant to rule a of the federal rules of civil procedure however we next consider whether we may grant a motion to voluntarily dismiss where an automatic_stay pursuant to u s c sec_362 is pending and has not been vacated pursuant to u s c sec_362 a bankruptcy petition operates as a stay applicable to all entities of the commencement or continuation of a proceeding before the united_states tax_court concerning a tax_liability of a debtor the term entity is defined to include person estate_trust governmental_unit and united_states trustee u s c sec_101 petitioner contends that the dismissal of the instant cases would not violate the automatic_stay under u s c sec_362 because u s c sec_362 stays the commencement or continuation of an action but not its dis- missal we are guided by the decisions of a number of other courts that have considered whether the dismissal of a case against a debtor violates the automatic_stay pursuant to u s c sec_362 ing to dismissals does not apply where the taxpayers voluntarily move the court to dismiss their petition filed under sec_6320 to review a notice_of_federal_tax_lien we note however that the statutory period during which petitioner could refile a petition in this court has expired pursuant to sec_6330 by its terms u s c sec_362 acts to stay actions or proceedings against the debtor in contrast u s c sec_362 acts to stay the commencement or continuation of a proceeding before the united_states tax_court the stay pursuant to u s c sec_362 is different from that pursuant to u s c sec_362 in that it acts to stay actions brought by the debtor however the provisions are similar in that they act to stay proceedings related to disputes regarding debts owed by the debtor accordingly as we explain below we consider the decisions of other courts concerning the purpose of the stay pursuant to u s c sec continued verdate 0ct jun jkt po frm fmt sfmt v files settles sheila united_states tax_court reports in general courts have held that u s c sec_362 does not prevent courts from dismissing cases against debtors for failures to comply with court rules or to prosecute pursuant to rule b of the federal rules of civil proce- dure see o’donnell v venc466_f3d_1104 9th cir 860_f2d_871 8th cir similarly courts have held that the automatic_stay does not prevent a court from dismissing a case against the debtor on the motion of the plaintiff pursuant to rule a of the federal rules of civil procedure see 288_f3d_234 5th cir 249_br_807 s d ala 852_fsupp_226 s d n y in contrast courts have held that where an order of dismissal against the debtor would require the court to con- sider issues related to the underlying case the dismissal would constitute a continuation of the judicial proceeding and is therefore barred by the automatic_stay see 72_f3d_754 9th cir cf 778_f2d_238 5th cir in deciding whether dismissal of a particular case violate sec_11 u s c sec_362 courts have looked to the purpose of the automatic_stay see 72_f3d_754 966_f2d_457 9th cir the purpose of u s c sec_362 is twofold it protects debtors by giving them breathing room stopping collection efforts and giving them the opportunity to attempt a repay- ment or reorganization plan and it protects creditors because otherwise ‘certain creditors would be able to pursue their own remedies against the debtor’s property those who acted first would obtain payment of the claims in preference to and to the detriment of other creditors ’ indep union of flight attendants f 2d pincite quoting h_r rept no pincite u s c c a n as with the automatic_stay pursuant to u s c sec it a the provisions of paragraph applicable to proceedings in the tax_court applies by its making a to be instructive for considering whether the stay pursuant to u s c sec_362 acts to bar petitioner’s voluntary dismissal of the instant cases verdate 0ct jun jkt po frm fmt sfmt v files settles sheila settles v commissioner terms only to the commencement or continuation of pro- ceedings and not to their dismissal as we explained in 96_tc_895 in addi- tion to those purposes of u s c sec_362 articulated above the purpose of enacting u s c sec_362 was to clarify that this court would no longer exercise wholly concurrent jurisdiction with the bankruptcy court with respect to the resolution of tax issues dismissing petitioner’s cases does not require that we con- sider any issues related to the underlying cases con- sequently consistent with the analysis of other courts a dismissal of the instant cases would not constitute a continu- ation of the judicial proceedings see dean f 3d pincite additionally granting petitioner’s motions to dismiss the instant cases is entirely consistent with the purposes of u s c sec_362 because the bankruptcy court has already adjudicated petitioner’s tax_liabilities the goal of judicial economy has been satisfied indeed that goal will be furthered by prompt dismissal of the instant cases rather than by permitting them to languish on our docket until after the bankruptcy court resolves the remainder of peti- tioner’s disputes with respect to his creditors similarly the dismissal of petitioner’s cases is not inconsistent with the dual purpose of protecting the debtor from harassment by creditors and protecting creditors from other creditors accordingly we hold that u s c sec_362 does not prevent the dismissal of the instant cases on motions of peti- tioner for instance the court_of_appeals for the ninth circuit reasoned as follows t o permit post-filing dismissal based on resolution of issues presented by or related to an un- derlying case would require us to impose an unworkable rule to avoid undermining the debtor protection purpose of the automatic_stay before a court decides a question the court does not know which side will win therefore while a court actively considers an issue in a case against a debtor the court cannot know whether its consideration will in the end help or harm the debtor a rule permitting post-filing dismissal based on a determination of issues pre- sented by or related to an underlying case is unworkable because in practice it would require courts to know the answers to questions before deciding them as we were reminded by lewis carroll first the trial then the verdict such a holding should surprise no one 72_f3d_754 9th cir verdate 0ct jun jkt po frm fmt sfmt v files settles sheila united_states tax_court reports to reflect the foregoing appropriate orders of dismissal will be entered f verdate 0ct jun jkt po frm fmt sfmt v files settles sheila


internal_revenue_service number release date index number ------------------------------------ ----------------------------- --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------------ telephone number ---------------------- refer reply to cc psi plr-121384-16 date date legend decedent spouse date date ----------------------- ----------------------- ----------------- ------------------------ dear ----------------- this letter responds to your personal representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code code portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations submitted are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date the estate discovered its failure to elect portability after the due_date for making the election plr-121384-16 decedent’s estate represents that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of the decedent’s death and that during her lifetime decedent made no taxable_gifts decedent’s estate requests an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return plr-121384-16 sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely-filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request 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 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return plr-121384-16 under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date decedent’s estate represents that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly-prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void 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 plr-121384-16 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs special industries by melissa c liquerman melissa c liquerman chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes