t c memo united_states tax_court alec jeffrey megibow petitioner v commissioner of internal revenue respondent docket no filed date respondent determined deficiencies for petitioner’s and taxable years based primarily on the disallowance of amounts claimed as business_expense deductions held because petitioner failed to substantiate claimed deductions he is liable for income_tax deficiencies for and held further petitioner is liable for sec_6662 i r c accuracy-related_penalties with respect to the years in issue anthony m bentley for petitioner d sean mcmahon for respondent memorandum findings_of_fact and opinion wherry judge respondent determined the following deficiencies and penalties with respect to petitioner’s federal income taxes year deficiency dollar_figure big_number big_number penalty sec_6662 i r c dollar_figure dollar_figure dollar_figure the principal issues for decision are whether petitioner is entitled to business_expense deductions claimed on schedules c profit or loss from business for the taxable years and and whether petitioner is liable for the sec_6662 accuracy-related_penalty for the subject years in the notice_of_deficiency respondent also disallowed in full unreimbursed employee business_expenses claimed by petitioner on schedule a itemized_deductions for neither party specifically addressed this matter at trial or on brief such items are typically deemed conceded see rule sec_149 sec_151 and 87_tc_698 affd 832_f2d_403 7th cir to the extent that anything in petitioner’s brief could be interpreted to pertain to unless otherwise indicated section references are to the internal_revenue_code in effect for the years in issue and rule references are to the tax_court rules_of_practice and procedure this adjustment suffice it to say that our holding infra with respect to the schedule c expenses and the rationale therefor apply equally to these schedule a expenses certain additional adjustments made by respondent to petitioner’s itemized_deductions exemptions and self-employment_tax are correlative in nature and will be resolved by our holdings on the foregoing issues findings_of_fact some of the facts have been stipulated and are so found the stipulations of the parties with accompanying exhibits are incorporated herein by this reference at the time the petition was filed in this case petitioner resided in new york new york petitioner a physician timely filed form sec_1040 u s individual_income_tax_return for and on each of these returns petitioner reported wage income from new york university nyu medical center and attached corresponding forms w-2 wage and tax statement the amounts so reflected totaled dollar_figure dollar_figure and dollar_figure for and respectively petitioner also included with each return a schedule c for a medical practice with the stated name of alec megibow the schedules c reported the income expense deductions and net losses set forth below gross_income dollar_figure dollar_figure dollar_figure expenses car and truck depreciation travel meals and entertainment other big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number -- big_number big_number loss big_number big_number big_number for each year the other expenses shown on the schedule c incorporated an item labeled fees remitted to nyu medical center per letter in an amount equal to most or all of the schedule c gross_income reported for that year the remaining other expenses included figures for expenditures such as accounting professional dues telephone and communications legal postage garage and parking gifts amex dues publications computer and office music internet local travel cpe and research by a letter dated date revenue_agent melinda o’connell ms o’connell of the internal_revenue_service informed petitioner that his tax_return had been selected for examination a similar letter dated date under the signature of area manager michael donovan was subsequently issued informing petitioner that his and income_tax returns had been selected for examination although a detailed chronology of these examinations is unnecessary for resolving the issues in dispute some general observations are warranted the record contains evidence of repeated instances where petitioner or his representatives delayed or postponed appointments failed to provide timely substantive responses to requests for information or otherwise declined to act with any alacrity upon attempted communications from respondent additionally the processing of petitioner’s through tax years was likely impacted by certain other administrative and judicial actions instituted by petitioner petitioner is no stranger to the federal forum when it comes to his tax matters documents submitted in this case and public records reflect that petitioner has apparently been involved in at least three actions against the internal_revenue_service based on the freedom_of_information_act foia u s c sec_552 megibow v commissioner no cv s d n y date megibow v commissioner no cv s d n y date megibow v commissioner no cv s d n y date at least two foia requests one of which seems to have precipitated the second of the just-listed suits were made during the examinations of petitioner’s through returns and pertained to those audits a third foia request related to matters is this case was submitted after the issuance of the notice_of_deficiency and appears to have led to the most recent of the foia suits enumerated above petitioner has also litigated a previous tax_year before this court with respect to which a ruling in favor of respondent was issued in megibow v commissioner tcmemo_1998_455 that decision was appealed to the court_of_appeals for the second circuit and the appeal was ultimately dismissed on date megibow v commissioner no 2d cir date consistent with the foregoing general observations about petitioner’s administrative and judicial history the discussion below highlights aspects of the through examinations concerning substantiation of the schedule c expenses at issue here at an initial appointment on date with joel gendler mr gendler petitioner’s certified_public_accountant ms o’connell reviewed certain of petitioner’s bank statements for and prepared a form_4564 information_document_request for asking that specified records be provided among other things the form_4564 requested a letter from nyu showing income agreement and employee status any reimbursement of expenses and details of trips in to the united kingdom brazil amsterdam and argentina on or about date ms o’connell received from mr gendler copies of brochures from medical conferences in which petitioner participated at the above-listed foreign locations additionally at a time not clear from the record petitioner submitted to respondent a letter from the vice president for finance at nyu medical center dated date and reading as follows to internal_revenue_service alec megibow md social_security no is a full time faculty_member and employee of the new york university school of medicine dr megibow serves as a participating physician in a unit of physicians which provides professional radiologic services for patients billings to patients for services rendered by dr megibow are made to his name under the terms of an agreement entered into between this institution and the participating physicians in the unit all income derived from these professional services is remitted to new york university medical center and is credited to a special fund funds disbursed to the participating physician are reflected in their respective w-2 forms issued by new york university medical center during the calendar_year dollar_figure was collected for billings rendered in dr megibow’s name such amount was duly remitted to the medical center and credited to the aforementioned special fund no part of such receipts was retained by dr megibow on date ms o’connell mailed to mr gendler a second form_4564 with respect to this form_4564 asked for certain items outstanding from the date request for example another letter from nyu is needed outlining the reimbursment sic policy of expenses_incurred by the doctor and this form_4564 information_document_request identified in the top right-hand corner as request number by apparent typographical error referred to the earlier form_4564 as idr issued on the form_4564 issued on date is in fact designated on its face as request number for and sic any included on the w-2 additional information was also requested as set forth below please provide documentation to support the following schedule c expenses - depreciation- verification of purchase of depreciable items during - travel- please provide airline tickets hotel bills charge statements and cancelled checks to verify expenses - legal fees- documentation is needed to support the amount deducted please provede sic an explaination sic of why the expenses were deducted on schedule c when dr megibow is a w-2 employee in august of mr gendler sent to ms o’connell a one- page letter making the following statement please note that dr megibow acts in an independent_contractor capacity at n y u medical center in addition to practicing medicine for these people he lectures and promotes himself which enables him to obtain patient referrals he writes and publishes articles and lectures in addition to practicing medicine the expenses_incurred on his schedule c are not reimbursed by anyone and are expenses of his doing business that are necessary in the normal course of doing business i hope this explains the presentation of dr megibow’s tax information on date a third form_4564 request number was issued with respect to this form_4564 repeated verbatim the previous request number for as regards documentation supporting the claimed depreciation travel_expenses and legal fees and added requests for documentation supporting schedule c items for car and truck expenses professional dues telephone and communications local travel and cpe meanwhile schedule c deductions had likewise become a focus of the audit for and as evidenced by a form_4564 dated date identified as request number for and requesting documentation with respect to inter alia all business_expenses listed on schedule c for both years and all travel and entertainment_expenses for both years listed on schedule c including a diary showing your travel itinerary on date a final examination meeting was held with mr gendler the record indicates that as of that date petitioner had not provided further materials responsive to the above-described requests for substantiation at the meeting mr gendler acting under direction from petitioner’s counsel anthony bentley mr bentley declined to consent to an extension of the time for assessment as a result a decision was made to close the case based on the impending statute_of_limitations shortly after the meeting mr gendler apparently provided copies of amex statements for and certain bank statements but these items were not analyzed or incorporated in the adjustments on account of the decision to close the case the notice_of_deficiency underlying this proceeding was issued on date among other things the notice disallowed the business_expenses claimed by petitioner on schedules c with the exception of the amounts shown as fees remitted to nyu additional correspondence sent by mr bentley after that date was reviewed by ms o’connell but was determined not to be pertinent to the adjustments in the statutory notice the petition in this case was filed on date and trial was held on date mr bentley represented petitioner the stipulated joint exhibits consist of copies of petitioner’s and tax returns the notice_of_deficiency and the date letter from nyu medical center mr bentley introduced into evidence two additional exhibits the first is a group of documents purporting to represent production from respondent’s disclosure_officer received by mr bentley in response to one of petitioner’s foia requests the second is a similar group of documents purporting to represent production from the u s attorney for the southern district of new york received by mr bentley in response to one of petitioner’s foia requests as such the exhibits were proffered as representing the contents of respondent’s administrative files with respect to the examination of petitioner’s through returns no further explanation was offered by mr bentley after introducing the two exhibits into evidence mr bentley directed the court’s attention to petitioner’s signature on his three tax returns and pointing out that perjury is a felony in new york stated as follows the reason that i bring this to your honor’s attention is to invoke a presumption under the criminal_law of innocence for someone who is accused or suggested of having committed a crime certainly a felony the reason that i raise that presumption is so that i can introduce the tax returns as being the initial showing of credible_evidence in petitioner’s case to the effect that he is entitled to the deductions that he has taken because what he is presenting under penalty of perjury is a statement to the effect that he’s entitled to take those deductions has paid what he has said that he has paid and that such deductions are appropriate and not--the tax code having said all of those things petitioner rests petitioner did not testify nor were any witnesses called on his behalf respondent called ms o’connell who testified regarding the examination of petitioner’s returns respondent also introduced four additional exhibits pertaining to the examination at the conclusion of trial a briefing schedule was set with simultaneous opening briefs due_date and reply briefs due_date on date the court received from petitioner a document entitled petitioner’s motion to extend time to file brief for partial summary_judgment and to reopen the record with accompanying exhibits this document was returned to petitioner unfiled with the explanation that it represented an improper joinder of motions under rule and an inappropriate attempt to submit documents in the nature of evidence outside the trial setting and without stipulation on date a document titled as a motion to extend time to file briefs was filed by petitioner the preamble asked that the time to file opening briefs be extended in order to allow for resubmission of the previous motion for summary_judgment and to reopen the record by order dated date the court granted petitioner’s motion in that the time to file petitioner’s opening brief was extended to date denied the motion in all other respects and directed that the time for answering briefs be extended to date petitioner’s opening brief was filed on date having been postmarked timely on date respondent filed respondent’s reply brief and petitioner filed a motion to extend time to file briefs pursuant to court order respondent filed a response to petitioner’s motion on date additional correspondence received from petitioner on date was filed as a supplement to petitioner’s motion and by order dated date petitioner’s motion as supplemented was denied opinion i preliminary matters a petitioner’s motions for partial summary_judgment and to reopen the record on brief petitioner states that he reasserts and resubmits his previous motions for partial summary_judgment and to reopen the record these requests were denied by means of the court’s date order and we decline to modify that disposition for the reasons described briefly below summary_judgment is intended to expedite litigation and to avoid unnecessary and expensive trials 116_tc_73 fla peach corp v commissioner 90_tc_678 rule a allows a party to move for a summary adjudication in the moving party’s favor upon all or any part of the legal issues in controversy rule b directs that a decision on such a motion shall be rendered if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits if any show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law petitioner’s motion for summary_judgment asked for an order adjudicating that a taxpayer’s receipt of a w-2 form does not without more preclude deductibility of legitimate business_expenses presented on a schedule c form petitioner asserted that respondent’s disallowance of his claimed expenditures was premised on this concept as an initial observation we note that presenting the issue in this abstract manner amounts to little more than a request for an advisory opinion as to federal tax law this court does not issue advisory opinions in a hypothetical context the court’s rulings are restricted to actual cases and controversies moreover petitioner’s motion was and is properly rejected because regardless of the accuracy of the principle he seeks to establish the purposes of summary_judgment would not be served by a ruling thereon trial having already occurred would not be avoided more importantly even an order in petitioner’s favor would in no way expedite resolution of this case substantiation would still be required for any allowable expenses the notice_of_deficiency expressly provides that the schedule c deductions for and were disallowed since you failed to establish that the disallowed portion of the claimed deductions were paid and if paid qualified as ordinary and necessary business_expenses or that the expenditures were made for the purposes designated because the substantiation issue under the actual facts of this case would remain before us nothing could be gained toward disposition by granting petitioner’s motion we affirm our earlier denial reopening the record for the submission of additional evidence is a matter within the discretion of the trial_court 401_us_321 114_tc_276 the standard for doing so may be summarized as follows a court will not grant a motion to reopen the record unless among other requirements the evidence relied on is not merely cumulative or impeaching the evidence is material to the issues involved and the evidence probably would change the outcome of the case butler v commissioner supra pincite petitioner’s motion to reopen the record seeks to have the court admit his bank and credit card statements for through these proffered items fall short of the foregoing standard even if admitted the documents would not alter the outcome in this case the years of financial statements in the court notes that prior to the trial of this case we contacted counsel for petitioner and respondent by conference calls and implored the parties to acknowledge and obey the court’s standing_pretrial_order and the tax_court rules_of_practice and procedure these items require the parties to stipulate facts and documents not reasonably in dispute and to exchange before trial documents to be introduced as evidence in addition the trial of this case was delayed for an hour to afford petitioner an eleventh hour opportunity to provide documents to respondent this effort resulted in petitioner’s two exhibits’ described supra in text being admitted at trial despite respondent’s objections petitioner’s name reflect hundreds of transactions a large percentage of which appear personal in nature and petitioner has not suggested any way of identifying those which allegedly represent business_expenses the admission of these materials would therefore do little if anything to provide the requisite substantiation for petitioner’s expenditures furthermore even if the statements offered support for the disputed deductions we would deny their admission on grounds of prejudice to respondent by submitting the documents after trial petitioner deprived respondent of any opportunity to examine or question them during the proceeding given the background in this case we cannot countenance such tardiness we again affirm our previous denial b petitioner’s argument that the notice_of_deficiency is time barred in his opening brief petitioner puts forward the argument that the notice_of_deficiency is time barred because his representative lacked authority to extend the statute_of_limitations for assessment this issue was not mentioned in the petition in petitioner’s trial memorandum or at trial it is well settled that a matter raised for the first time on brief will not be considered when to do so would prejudice the opposing party 96_tc_858 affd 959_f2d_16 2d cir 64_tc_989 such prejudice arises when the opposing party would be prevented from presenting evidence that might have been offered if the issue had been timely raised or the opposing party would otherwise be surprised and placed at a disadvantage dileo v commissioner supra pincite markwardt v commissioner supra pincite it is also the rule_of this court that claims related to the statute_of_limitations are affirmative defenses that must be pleaded or proved at trial and upon which the taxpayer bears the burden_of_proof rule sec_39 sec_142 92_tc_776 we conclude that the foregoing principles render consideration of petitioner’s argument inappropriate here at minimum the posture in which this issue has arisen deprived respondent of the opportunity to introduce evidence concerning petitioner’s agreement to extend the statute and the authority of his representative additionally petitioner has submitted no materials to support his allegations he has merely indicated that he is attempting to obtain such proof through an foia suit against respondent we surmise from the grounds recited in his motion to extend the time for filing answering briefs that he would seek to proffer evidence and argument on this matter using his reply brief as the vehicle which would again raise complications related to reopening the record in these circumstances our rules do not support addressing the merits of petitioner’s statute_of_limitations claim c petitioner’s estoppel argument in both his trial memorandum and his brief petitioner frames one of the issues as follows whether respondent is estopped from asserting that petitioner has failed adequately to support the disallowed deductions his argument on brief under the heading estoppel then reads in its entirety federal courts including administrative courts of limited jurisdiction are courts of equity respondent’s audit changes taken as a whole essentially shift petitioner’s deductions from schedule c to schedule a based on a premise contrary to the course of dealing of the parties over a period approaching ten years one which has previously been litigated and established ie that respondent acknowledges that petitioner is entitled to schedule c deductions as an aspect of his professional activities respondent’s position initially appeared grounded in the untenable premise that if you get a w- you can’t use a schedule c that position morphed at trial into this is just a substantiation case it is less than clear from the foregoing statements whether petitioner’s argument rests on equitable_estoppel collateral we note that respondent disputes the merits of petitioner’s argument in respondent’s opposition to petitioner’s motion to extend the time to file briefs respondent also attaches to the opposition copies of three forms power_of_attorney and declaration of representative and a copy of the disputed form_872 consent to extend the time to assess tax which together reflect a proper extension of the statute estoppel or some combination of the two for completeness we shall summarize why neither doctrine is applicable here equitable_estoppel is a judicial doctrine that operates to preclude a party from denying its own acts or representations that induced another to act to his or her detriment 120_tc_109 98_tc_695 in tax contexts equitable_estoppel will be applied against the government only with the utmost caution and restraint and upon the establishment of prerequisite elements a false representation or wrongful misleading silence by the party against whom the estoppel is claimed an error in a statement of fact and not in an opinion or statement of law ignorance of the true facts by the taxpayer reasonable reliance by the taxpayer on the acts or statements of the one against whom estoppel is claimed and adverse effects suffered by the taxpayer from the acts or statements of the one against whom estoppel is claimed wilkins v commissioner supra pincite 104_tc_13 affd 140_f3d_240 4th cir see also 439_f2d_1365 2d cir here the record fails to show the existence of any of the required elements for equitable_estoppel petitioner does not identify nor do we perceive any particular statements or conduct by respondent that could reasonably be interpreted as false statements or misleading silence with respect to petitioner’s entitlement to his claimed deductions on the contrary the course of events beginning in the audit and ultimately reflected in the reasons for disallowance expressed in the notice_of_deficiency emphasized the need for substantiation collateral_estoppel exists for the dual purpose of protecting litigants from the burden of relitigating an identical issue and of promoting judicial economy by preventing unnecessary or redundant litigation 91_tc_273 see also 440_us_147 439_us_322 in general the doctrine_of collateral_estoppel also referred to as issue preclusion forecloses relitigation of issues actually litigated and necessarily decided in a prior suit parklane hosiery co v shore supra pincite n meier v commissioner supra pincite 90_tc_162 affd 904_f2d_525 9th cir this court expanding upon three factors identified by the supreme court in montana v united_states supra pincite has set forth five prerequisites necessary for the application in factual contexts of collateral_estoppel the issue in the second suit must be identical in all respects with the one decided in the first suit there must be a final judgment rendered by a court of competent jurisdiction collateral_estoppel may be invoked against parties and their privies to the prior judgment the parties must actually have litigated the issues and the resolution of these issues must have been essential to the prior decision the controlling facts and applicable legal rules must remain unchanged from those in the prior litigation peck v commissioner supra pincite citations omitted these prerequisites are not met in the instant case no legal proceeding has ever addressed much less established that petitioner is entitled to the schedule c deductions claimed for and while petitioner has litigated a previous tax_year resulting in megibow v commissioner tcmemo_1998_ with respect to that proceeding provides neither a legal nor a factual basis for applying collateral_estoppel here from a legal standpoint income taxes are levied on an annual basis such that each year represents a new liability and a separate cause of action 333_us_591 fla peach corp v commissioner t c pincite given this principle collateral_estoppel would not operate to establish entitlement to deductions in one year based merely on an allowance of similar deductions in a different year or years see barmes v commissioner tcmemo_2001_155 rejecting attempts to apply collateral_estoppel to depreciation_deductions based on a prior litigated tax_year affd aftr 2d ustc par big_number 7th cir see also 519_f2d_1280 10th cir rejecting an attempt to apply collateral_estoppel even though the exact issue was raised in a prior tax_court proceeding but because the commissioner abandoned the issue during the litigation no judicial determination or findings were made affg 60_tc_368 from a factual standpoint petitioner’s entitlement to schedule c expenses comparable to those claimed here was with one exception not litigated in megibow v commissioner tcmemo_1998_455 as to the one exception this court sustained respondent’s denial of deductions claimed by petitioner for business-related legal fees id accordingly the case at bar presents no grounds for applying either equitable or collateral_estoppel ii deficiencies and penalties a burden_of_proof as a general_rule determinations by the commissioner are presumed correct and the taxpayer bears the burden of proving otherwise rule a sec_7491 may operate however in specified circumstances to place the burden on the commissioner sec_7491 is applicable to court proceedings that arise in connection with examinations commencing after date and reads in pertinent part sec_7491 burden_of_proof a burden shifts where taxpayer produces credible_evidence -- general_rule --if in any court_proceeding a taxpayer introduces credible_evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer for any_tax imposed by subtitle a or b the secretary shall have the burden_of_proof with respect to such issue limitations --paragraph shall apply with respect to an issue only if-- a the taxpayer has complied with the requirements under this title to substantiate any item b the taxpayer has maintained all records required under this title and has cooperated with reasonable requests by the secretary for witnesses information documents meetings and interviews c penalties --notwithstanding any other provision of this title the secretary shall have the burden of production in any court_proceeding with respect to the liability of any individual for any penalty addition_to_tax or additional_amount imposed by this title see also internal_revenue_service restructuring reform act of publaw_105_206 sec c 112_stat_727 regarding effective date sec_7491 is applicable here in that the examinations in this case began after the statute’s effective date with respect to the income adjustments at issue petitioner has not met the prerequisites of sec_7491 for placing the burden on respondent the record reflects a failure on petitioner’s part to substantiate items to show that he maintained adequate books_and_records and to cooperate with respondent with respect to the accuracy-related_penalty the commissioner satisfies the sec_7491 burden of production by coming forward with sufficient evidence indicating that it is appropriate to impose the relevant penalty but need not introduce evidence regarding reasonable_cause substantial_authority or similar provisions 116_tc_438 rather it is the taxpayer’s responsibility to raise those issues id because as will be more fully detailed infra respondent here has introduced sufficient evidence to render the sec_6662 penalty at least facially applicable the burden rests on petitioner to show why it should not be applied b business_expense deductions deductions are a matter of legislative grace and a taxpayer seeking a deduction must be able to point to an applicable statute and show that he comes within its terms 292_us_435 see also rule a as a general_rule sec_162 authorizes a deduction for all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business an expense is ordinary for purposes of this section if it is normal or customary within a particular trade business or industry 308_us_488 an expense is necessary if it is appropriate and helpful for the development of the business 320_us_467 the breadth of sec_162 is tempered by the requirement that any amount claimed as a business_expense must be substantiated and taxpayers are required to maintain records sufficient therefor sec_6001 65_tc_87 affd 540_f2d_821 5th cir sec_1_6001-1 income_tax regs when a taxpayer adequately establishes that he or she paid_or_incurred a deductible expense but does not establish the precise amount we may in some circumstances estimate the allowable deduction bearing heavily against the taxpayer whose inexactitude is of his or her own making 39_f2d_540 2d cir there must however be sufficient evidence in the record to provide a basis upon which an estimate may be made and to permit us to conclude that a deductible expense rather than a nondeductible personal_expense was incurred in at least the amount allowed 245_f2d_559 5th cir 85_tc_731 furthermore business_expenses described in sec_274 are subject_to rules of substantiation that supersede the doctrine_of cohan v commissioner supra 50_tc_823 affd 412_f2d_201 2d cir sec_1_274-5t temporary income_tax regs fed reg date sec_274 provides that no deduction shall be allowed for among other things traveling expenses entertainment_expenses meal expenses gifts and expenses with respect to listed_property as defined in sec_280f and including passenger automobiles computer equipment and cellular telephones unless the taxpayer substantiates by adequate_records or by sufficient evidence corroborating the taxpayer’s own statement the amount of the expenditure or use the time and place of the expenditure or use or date and description of the gift the business_purpose of the expenditure or use and in the case of entertainment or gifts the business relationship to the taxpayer of the recipients or persons entertained sec_274 in seeking to establish petitioner’s entitlement to deduct the business_expenses disallowed by respondent petitioner’s counsel at trial introduced two exhibits and then pointed out that petitioner’s returns were signed under penalty of perjury as to the exhibits they merely represent the contents of administrative files received by mr bentley in response to foia requests and are bereft of any materials that would adequately substantiate the claimed deductions although the exhibits do show that certain information with respect to the expenses was given to respondent this information falls far short of meeting the heightened substantiation requirements of sec_274 where applicable or of enabling us to make any reasonable estimate under cohan v commissioner supra accordingly we reject petitioner’s claim on brief that evidence of substantiation was provided to respondent prior to january of we likewise give little weight to petitioner’s statement on brief that evidence of substantiation tendered after january of would not have been considered by respondent petitioner has at no time shown either an ability or a willingness to provide additional relevant material he neither testified at trial nor offered any pertinent substantiating exhibits moreover the only other information tendered to the court through petitioner’s tardy motion to reopen the record would even if accepted and as previously explained have failed to demonstrate entitlement to any further deductions the materials do not tie any specific expense to a particular for-profit business or investment endeavor with respect to petitioner’s reliance at trial on having filed returns signed under penalty of perjury petitioner apparently reiterates this position on brief as follows petitioner duly filed his and income_tax returns which were signed under penalty of perjury by petitioner timely filed pursuant to united_states_code sec_7502 through the united_states mails and received in evidence respondent failed to demonstrate that any request for substantiation of the deductions thereupon taken was made of petitioner the deductions were therein not properly disallowed as unsubstantiated and the additions to tax assessed for the said years accordingly improper as a threshold matter we dispute any suggestion by petitioner that substantiation was not sought by respondent for the expenses claimed on the and returns as revealed in the exhibits introduced by petitioner and detailed more fully in our above factual discussion of the administrative process substantiation was a focus of respondent’s examination for all three of the years in issue more importantly and contrary to petitioner’s assertion it is axiomatic that neither tax returns themselves nor the execution of such forms under penalty of perjury establishes the truth of items recited therein 103_tc_428 71_tc_633 62_tc_834 petitioner’s reliance on his tax returns is entirely misplaced thus in absence of any evidence reflecting the propriety of the business_expense deductions claimed by petitioner we sustain their disallowance for lack of substantiation c sec_6662 penalty subsection a of sec_6662 imposes an accuracy-related_penalty in the amount of percent of any underpayment that is attributable to causes specified in subsection b subsection b of sec_6662 then provides that among the causes justifying imposition of the penalty is negligence or disregard of rules or regulations negligence is defined in sec_6662 as any failure to make a reasonable attempt to comply with the provisions of this title and disregard as any careless reckless or intentional disregard caselaw similarly states that ‘negligence is a lack of due care or the failure to do what a reasonable and ordinarily prudent person would do under the circumstances ’ 89_tc_849 quoting marcello v commissioner 380_f2d_499 5th cir affg on this issue 43_tc_168 and t c memo affd 904_f2d_1011 5th cir affd 501_us_868 pursuant to regulations ‘negligence’ also includes any failure by the taxpayer to keep adequate books_and_records or to substantiate items properly sec_1_6662-3 income_tax regs an exception to the sec_6662 penalty is set forth in sec_6664 and reads no penalty shall be imposed under this part with respect to any portion of an underpayment if it is shown that there was a reasonable_cause for such portion and that the taxpayer acted in good_faith with respect to such portion regulations interpreting sec_6664 state the determination of whether a taxpayer acted with reasonable_cause and in good_faith is made on a case- by-case basis taking into account all pertinent facts and circumstances generally the most important factor is the extent of the taxpayer’s effort to assess the taxpayer’s proper tax_liability sec_1_6664-4 income_tax regs reliance upon the advice of an expert tax preparer may but does not necessarily demonstrate reasonable_cause and good_faith in the context of the sec_6662 penalty id see also 469_us_241 freytag v commissioner supra pincite such reliance is not an absolute defense but it is a factor to be considered freytag v commissioner supra pincite in order for this factor to be given dispositive weight the taxpayer claiming reliance on a professional must show at minimum that the preparer was supplied with correct information and the incorrect return was a result of the preparer’s error see eg 68_f3d_868 5th cir affg tcmemo_1993_634 101_tc_225 affd 64_f3d_1406 9th cir 70_tc_158 59_tc_473 as previously indicated sec_7491 places the burden of production on the commissioner the notice_of_deficiency issued to petitioner generally asserted applicability of the sec_6662 penalty on account of negligence or disregard substantial_understatement and or substantial_valuation_misstatement see sec_6662 respondent at trial and on brief has addressed only negligence or disregard of rules or regulations as the basis for the penalty and we shall do likewise we conclude that respondent has met the sec_7491 burden of production with respect to the negligence_penalty the evidence adduced in this case reveals that petitioner has failed to keep adequate books_and_records and properly to substantiate reported items petitioner in turn has not shown that he acted with reasonable_cause and in good_faith as to the claimed items his argument on brief with regard to the penalties reads as follows petitioner has done everything he reasonably could be expected to do to pay his taxes when due tender security for over of the claimed additions to taxes dreamed up by respondent under any theory and petitioner’s efforts at cooperation offers of settlement coupled with tendered funds have been refracted or ignored at every turn including those within the context of these proceedings such that the history can be viewed ultimately as a denial of petitioner’s procedural due process rights petitioner is entitled to minimize his income taxes under the internal_revenue_code this picture is belied by the record in this case contrary to petitioner’s suggestions of cooperation and forthcoming behavior his history before the internal_revenue_service and this court is replete with instances where petitioner or the representative acting on his behalf has delayed ignored or otherwise hindered repeatedly offered opportunities for communication and exchange of pertinent information conversely the record is devoid of any evidence reflecting offers of settlement or payment nor would such offers bear in any event on whether petitioner was negligent at the point in time when he filed his federal_income_tax return and underpaid his taxes on these facts petitioner’s intimations of a denial of due process are not well taken finally petitioner is entitled to minimize income taxes only to the extent consistent with law see 338_us_451 he clearly overstepped that boundary here and has not shown a reasonable basis for doing so the court sustains respondent’s imposition of the sec_6662 penalty to reflect the foregoing decision will be entered for respondent


internal_revenue_service national_office technical_advice_memorandum date number release date third party contact none index uil no case mis no tam-163061-01 cc psi b8 director area small_business self-employed operating division taxpayer name taxpayer address taxpayer identification no quarters involved date of conference issues are the tractors described below highway vehicles for purposes of sec_4041 and sec_4051 of the internal_revenue_code and highway motor vehicles for purposes of sec_4481 are the sand dump trucks described below highway vehicles for purposes of sec_4041 and sec_4051 and highway motor vehicles for purposes of sec_4481 conclusions the tractors described below are highway vehicles for purposes of sec_4041 and sec_4051 and highway motor vehicles for purposes of sec_4481 the sand dump trucks described below are highway vehicles for purposes of sec_4041 and sec_4051 and highway motor vehicles for purposes of sec_4481 facts taxpayer purchases from a tractor manufacturer tractors that are structurally of the kind chiefly used for highway transportation in combination with a trailer or semitrailer taxpayer orders the tractors with features that meet taxpayer’s design specifications and taxpayer further equips the tractors itself for its use in the oilfield servicing industry specifically as completed the tractors have a rear axle ratio of which is higher than is typical for generic interstate cargo-transporting tractors the tam-163061-01 higher ratio provides more power for startup the ability to climb steeper grades and greater traction but limits the vehicle’s maximum speed to miles per hour mph a larger engine cooling system than is typical for generic interstate cargo-transporting tractors and a fifth wheel that is higher than is typical for generic interstate cargo- transporting tractors the frames may also be reinforced and equipment may be added or positioned to facilitate acceptance of job site machinery taxpayer finishes the tractors by installing or having installed machinery and equipment on the tractor chassis that assists in performing one of six job site functions as follows winch tractor taxpayer installs or has installed machinery and equipment including a power take off pto winch rolling headboard and mounts and controls this type of tractor is designed to tow trailers to job sites and then use the winch mounted on the tractor at a job site to rig up various pieces of equipment and retrieve vehicles and equipment that are stranded crane tractor taxpayer installs or has installed machinery and equipment including a pto hydraulic crane with articulating boom and hydraulic pump this type of tractor is designed to tow trailers to job sites and then move equipment at the job site compressor tractor taxpayer installs or has installed machinery and equipment including a pto compressor over speed shutdown1 on the road engine and mounts and controls this type of tractor is designed to tow trailers to job sites and then use high pressure high volume air-starting capability equipment mounted on the tractor to air-start large diesel deck engines mounted on the trailer towed by the tractor hydraulic start tractor taxpayer installs or has installed machinery and equipment including a pto hydraulic components over speed shutdown on the road engine and mounts and controls this type of tractor is designed to tow trailers to job sites and then use hydraulic starting capacity equipment mounted on the tractor to start large diesel deck engines mounted on the trailer that is towed by the tractor acid pump tractor taxpayer installs or has installed machinery and equipment including a pto compressor over speed shutdown on the road engine and mounts and controls this type of tractor is designed to tow tank-trailers to job sites and then use the equipment mounted on the tractor to pump acid from the tank-trailer that it towed or from on-site tanks into oil_and_gas wells blower tractor taxpayer installs or has installed machinery and equipment including a pto blower over speed shutdown on the road engine and mounts and a shutdown system monitors control devices and shuts down the engine when out-of-limit parameters are reached tam-163061-01 controls this type of tractor is designed to tow trailers to job sites and then use the low pressure high volume air equipment installed on the tractor for transferring dry bulk products such as cement and sand from the trailer it has towed to well site storage bins it is expected that the tractors will be used in tandem with specific trailers or semitrailers but the tractors are capable of towing any trailer or semitrailer that fits with its fifth wheel coupling device a tractor’s fifth wheel may be easily replaced taxpayer also purchases sand dump trucks which are designed to deliver sand to blenders at oilfield job sites the truck has two compartments so that it can transport different types of sand the body interior is designed to create a weather tight environment to prevent transfer of material between the partitions or create void space in corners the sand delivered by the truck is blown into the compartments a sand hauling bed device calibrates the sand for dumping into a blender or hopper at the well site tailgates are geared for metering sand into a hopper the sand is delivered into a blender or hopper through pneumatic lines that provide for proper gravity feed and sand flow the truck has a tare weight of big_number pounds and a gross vehicle weight rating of big_number pounds is not overwidth overheight or overweight for public highway use purposes and can transport its load over the public highway without a special permit it is designed to be capable of but not limited to transporting its load on maintained gravel dirt or blacktop roads taxpayer has provided the tractor and truck manufacturers with exemption certificates stating that the vehicles are being purchased for use in the manufacture of nonhighway vehicles it does not pay the heavy vehicle use_tax and it has filed claims for refund for diesel_fuel used in the vehicles based on its position that the tractors and trucks are not highway vehicles law and analysis sec_4051 imposes an excise_tax on the first_retail_sale of the following enumerated articles automobile truck chassis and bodies truck trailer and semitrailer chassis and bodies and tractors of the kind chiefly used for highway transportation in combination with a trailer or semitrailer sec_4081 imposes an excise_tax certain removals entries or sales of diesel_fuel sec_4481 imposes excise_tax on the use of highway motor vehicles and sec_4482 states that the term highway vehicle means any motor_vehicle which is a highway vehicle sec_6427 provides that if diesel_fuel on which tax has been imposed by sec_4041 or sec_4081 is used by any person in a nontaxable_use then a refund is allowable to the ultimate_purchaser of such fuel in an amount equal to the amount of tax imposed on the fuel under sec_4041 or sec_4081 nontaxable_use includes uses that are not use as tam-163061-01 a fuel in a diesel-powered highway vehicle sec_145_4051-1 of the temporary excise_tax regulations under the highway revenue act of pub l provides that a chassis or body is taxable under sec_4051 only if such chassis or body is sold as a component part of a highway vehicle as defined in paragraph d of sec_48_4061_a_-1 of the manufacturers and retailers excise_tax regulations which is an automobile truck truck trailer or semitrailer or a tractor of the kind chiefly used for highway transportation in combination with a trailer or semitrailer sec_145_4051-1 defines a tractor as a highway vehicle primarily designed to tow a vehicle such as a trailer or semitrailer but does not carry cargo on the same chassis as the engine a vehicle equipped with air brakes and or towing package will be presumed to be primarily designed as a tractor sec_145 e ii provides a list of equipment that will cause an incomplete chassis cab to be presumed to be designed as a tractor sec_145_4051-1 defines a truck as a highway vehicle that is primarily designed to transport its load on the same chassis as the engine even if it is also equipped to tow a vehicle such as a trailer or semitrailer sec_41_4482_a_-1 states that the term highway_motor_vehicle means any vehicle that is both propelled by means of its own motor and is a highway vehicle as defined in sec_48_4061_a_-1 sec_48_4061_a_-1 includes as a part of a taxable truck chassis or body equipment that is installed on a taxable chassis or body and that contributes to the highway transportation function of the chassis or body further the regulation includes loading and unloading equipment as an example of machinery and equipment that contributes to the highway transportation function of a chassis or body sec_48_4061_a_-1 provides that amounts charged for equipment installed on a taxable chassis or body are not part of the taxable sales_price if a such equipment does not contribute to the highway function of the chassis or body and b the reasonableness of the charge is supported by adequate_records sec_48_4061_a_-1 defines a highway vehicle as any self-propelled vehicle or any trailer or semitrailer designed to perform a function of transporting a load over public highways whether or not also designed to perform other functions but does not include a vehicle described in sec_48_4061_a_-1 of the regulations the term transporting includes towing a vehicle does not include the vehicle's load sec_48_4061_a_-1 the mobile_machinery exception provides that a self-propelled vehicle or trailer or semitrailer is not a highway vehicle if a it consists of a chassis to which there has been permanently mounted by welding bolting riveting or other means machinery or equipment to perform a construction manufacturing tam-163061-01 processing farming mining drilling timbering or operation similar to any of the foregoing enumerated operations if the operation of the machinery or equipment is unrelated to transportation on or off the public highways the mobile_machinery a test b the chassis has been specially designed to serve only as a mobile carriage and mount and a power source where applicable for the particular machinery or equipment involved whether or not such machinery or equipment is in operation the mobile_machinery b test and c by reason of such special design such chassis could not without substantial structural modification be used as a component of a vehicle designed to perform a function of transporting any load other than that particular machinery or equipment or similar machinery or equipment requiring such a specially designed chassis the mobile_machinery c test sec_48_4061_a_-1 the offhighway vehicle exception provides that a self-propelled vehicle or trailer or semitrailer is not a highway vehicle if it is a specially designed for the primary function of transporting a particular type of load other than over the public highway in connection with a construction manufacturing processing farming mining drilling timbering or operation similar to any of the foregoing enumerated operations the offhighway vehicle a test and b if by reason of such special design the use of such vehicle to transport such load over the public highways is substantially limited or substantially impaired the offhighway vehicle b test for purposes of applying subsection b account may be taken of whether the vehicle may be driven at regular highway speeds requires a special permit for regular highway use is overweight overheight or overwidth for regular highway use and any other relevant considerations solely for purposes of determinations under this paragraph where there is affixed to the vehicle equipment used for loading unloading storing vending handling processing preserving or otherwise caring for a load transported by the vehicle over the public highways the functions are related to the transportation of a load over the public highways even though the functions may be performed off the public highways revrul_77_301 1977_2_cb_365 holds that certain truck chassis that are manufactured into vehicles specially designed to transport and apply liquid or dry fertilizer on farms are not highway vehicles the chassis initially had standard truck frames and cabs were equipped with standard highway truck wheels and tires but also had nonstandard axles brakes and transmissions they were initially of a type classified as a highway chassis subsequently the chassis were modified by shortening the frames altering the steering linkage and installing ptos hydraulic pumps and air compressors the fuel and carburetor air systems were modified so as to perform more efficiently under dusty conditions in addition the standard truck wheels were replaced with larger wheels to accommodate x dollar_figure front and x dollar_figure rear high flotation off-highway tires the vehicles were completed by mounting oversize sreader bodies in the chassis the completed vehicles were over inches in width as opposed to inches or less which is typical for highway vehicles had maximum unloaded speeds of mph and were not equipped to unload liquid or dry chemicals other than by means of an elaborate spreader system that made a 60-foot tam-163061-01 wide swath the ruling holds that the vehicles are offhighway vehicles for purposes of sec_48_4061_a_-1 the completed vehicles produced by the company have features indicating they are specially designed for the primary function of transporting and spreading agricultural chemicals on the farm and because of such special design the use of the vehicles on public highways is substantially limited revrul_79_191 1979_1_cb_338 holds that an explosives handling vehicle with a payload capacity of big_number pounds comprised of a truck chassis a body designed to transport liquid and solid components in separate compartments and elaborate mixing and other job site equipment for use at a blasting site is a highway vehicle however the ruling concludes that the cost of the mixing equipment and other job site equipment is excludable from the tax_base as the nontaxable load on the sale of the vehicle revrul_79_192 1979_1_cb_340 holds that certain street sweeping vehicles that have varying sweeping and traveling speeds and can travel at normal city speeds when in transit to and from the job and dump sites are highway vehicles but that vacuum equipment water hoses and certain other components of street sweeper vehicles are items that primarily perform the non-transportation function of street cleaning and are excludable from the tax_base the ruling holds that an article contributes to the highway transportation or load-carrying function of a vehicle for purposes of the regulations only if it contributes as much or more to the highway transportation function as to the nontransportation function the ruling states that this means an item that contributes primarily to the nonhighway transportation function of a vehicle is not taxable revrul_79_296 1979_2_cb_370 holds that a truck-tractor and low-bed semitrailer that are used to transport military equipment on and off the highway and that are oversize overweight and require special permits and or escort vehicles for use on most state highways are highway vehicles subject_to taxes imposed by sec_4041 sec_4061 and sec_4481 the truck-tractor and low-bed semitrailer are used in combination for transporting battle tanks personnel carriers construction equipment semimobile power plants and other heavy loads over the highway from railheads ports or depots to user maintenance areas the units are also used off the highway over rough terrain sand soft soils etc in evacuating disabled battle tanks and similar vehicles from and delivering high density cargo into remote combat and field support areas the truck- tractor and low-bed semitrailer are necessarily constructed to exceed highway size limits in order to accommodate their intended load because of this oversize the operation of the combination over the highways in most states requires either special permits or escort vehicles or both the truck-tractor is capable of a maximum speed of miles per hour with a heavy load the ruling holds that the offhighway vehicle exception contained in sec_48_4061_a_-1 does not apply as the truck-tractor and semitrailer in this case are designed to carry the military equipment both over the highway and over rough terrain with neither function being primary thus the vehicles are not specially designed for the primary function of transporting this type of load other tam-163061-01 than over the public highway for purposes of the offhighway vehicle a test further although the vehicles have characteristics that impair their use on the highway in that they are oversize and require a special permit and or escort vehicles those characteristics are necessary in order to enable the vehicles to carry their intended load and thus the vehicles do not meet the offhighway b test revrul_79_308 1979_2_cb_372 holds that a mixer-feeder truck body that has a width of inches that can sustain highway speeds of to mph and that is used to transport and mix feed for dairy and beef cattle is a highway vehicle revrul_80_353 1980_2_cb_309 type chassis holds that the mobile_machinery exception is not applicable to a three-axled truck chassis on which three tanks or compartments were mounted that was designed for and used for transporting cement and water mixing the cement at the job site and pumping it into oil wells the chassis was comprised of heavy duty high tensile steel frames that had been reinforced standard running gear special drive trains was used on and off the highway and was capable of traveling pincite mph the ruling holds that the vehicle is a highway vehicle because it failed the mobile_machinery a test because the machinery mounted on the chassis is used to transport cement and water to the job site and therefore its operation is not unrelated to transportation no discussion was considered necessary as to whether the vehicle was within the offhighway vehicle exception revrul_95_40 1995_1_cb_195 holds that certain industrial vacuum loader vehicles are taxable highway vehicles the vehicles are comprised of a self-loading truck comprised of a highway-type chassis industrial vacuum equipment and a collector body the chassis for the vacuum loader is usually modified to facilitate the installation of the collector body and other equipment including a change in the cab-to- axle length reinforcement by fishplating replacement of the standard drive shaft and relocation or addition of cross-members but this does not prevent the vehicle from being driven at regular highway speeds nor does it result in the vehicle being overweight overheight or overwidth for regular highway use the vacuum equipment is used to retrieve either wet or dry debris at a clean-up site and load debris into the body and the debris is then either driven to a dump site or transferred to another transport vehicle for removal the vehicle has installed on it components of industrial vacuum equipment for use at the job site and is considerably more expensive and transports a smaller load than a single function transporter such as a dump truck the ruling holds that vacuum loaders are highway vehicles and fail to meet the mobile_machinery exception because the large collector bodies mounted on the chassis are designed to transport cargo vacuum loaders are designed as multi-functional vehicles that not only retrieve waste from clean-up sites but also to carry a substantial cargo from the clean-up site on and off the public highways to the cargo’s disposal site accordingly the chassis do not serve only as a carriage and mount for machinery and equipment unrelated to transportation on or off the public highways that is the chassis was not limited to job site non-transportation use the ruling recognizes that although a vacuum loader is not the least expensive method to transport a load over the tam-163061-01 highway its use is often the most efficient way to clean up a site and remove the debris the ruling also holds that vacuum loaders do not meet the exception for certain vehicles designed for off-highway transportation provided in sec_48_4061_a_-1 specifically vacuum loaders are produced from highway-type chassis and are not designed for the primary function of carrying a particular load other than over the public highway nor is a vacuum loader’s ability to carry a load over the public highways substantially limited or substantially impaired a tractors each of the six types of tractors at issue is a tractor of the kind chiefly used for highway transportation in combination with a trailer or semitrailer however taxpayer argues that the tractors as equipped are not highway vehicles because they are described in sec_48_4061_a_-1 as mobile_machinery vehicles or in sec_48 a - d ii as offhighway vehicles we disagree sec_48_4061_a_-1 defines a highway vehicle as any self-propelled vehicle or trailer or semitrailer designed to perform a function of transporting a load over the public highway whether or not also designed to perform other functions sec_48_4061_a_-1 excepts from the definition of highway vehicle certain specially designed mobile_machinery vehicles and certain vehicles specially designed for offhighway transportation with respect to the mobile_machinery exception although the tractors meet the mobile_machinery a test they do not qualify for the mobile_machinery exception because they do not meet the mobile_machinery b and c tests specifically each of the six types of tractors are self-propelled vehicles that consist of a chassis to which there has been permanently mounted machinery or equipment to perform a mining drilling or similar operation unrelated to transportation on or off the public highways thus the a test is met however the tractor chassis have not been specially designed to serve only as a mobile carriage mount and power source for the particular machinery or equipment involved as required by the b test to the contrary each of the six types of tractors is designed to tow a trailer or semitrailer each has a fifth wheel engine capacity in excess of that needed to transport its chassis a braking system designed to tow a trailer and is denominated by the manufacturer and taxpayer as a tractor the mobile_machinery exception is limited to vehicles whose load only consists of permanently installed machinery on the chassis of the vehicle not tractors designed to tow trailers or semitrailers with regard to the c test the tractors can 2the mobile_machinery exception provides tax-favored treatment as nonhighway vehicles to a narrow class of vehicles that may be designed only or primarily to use the highway that is they may have no or few offhighway design characteristics otherwise they might qualify under the offhighway vehicle exception the rationale for the exception is that vehicles designed only as mounts for mobile_machinery will spend tam-163061-01 without any structural modification transport trailers and semitrailers thus the three mobile_machinery tests are not all met accordingly the tractors do not qualify for the mobile_machinery exception with respect to the offhighway vehicle exception the tractors meet neither the offhighway a or b test to meet the offhighway vehicle exception a vehicle must be specially designed for the primary function of transporting a particular load other than over the public highway and by reason of that special design be substantially limited or substantially impaired in its use of the public highway the offhighway vehicle exception typically applies to oversized vehicles that is vehicles designed to transport a load whose special design features for example overwidth or overheight make them unsuitable for transporting their load over the public highway these vehicles such as oversized dump trucks transport a removable load but transport that load off the highway such as at mines or quarries as provided in the regulations an offhighway vehicle is excepted from taxation even if it is designed to use the public highway as long as its special offhighway design is for the primary function of transporting its load other than over the public highway and substantially limits or impairs public highway use with regard to the offhighway vehicle a test the tractors in question incorporate highway-type tractor chassis that meet all federal and state requirements including weight and size requirements and braking lighting and other safety requirements to transport a load over the public highways further several design features that taxpayer claims indicate a special offhighway transportation design are not related to a transportation purpose at all and others appear to be related only partly to a transportation purpose specifically installation of machinery and equipment such as a crane winch compressor pump or blower on a tractor chassis is not probative as to either a highway or an offhighway transportation purpose the machinery is designed to function while the vehicle is performing at a job site while stationary not while it is transporting its load either on or off the highway the offhighway vehicle exception focuses on where a vehicle transports not whether or where it performs a job site function similarly the installation of a pto a large engine cooling system and the reinforcement of the frame are all intended to facilitate stationary job site performance not to facilitate transportation either over or off the highway thus inclusion of these most of their time off the public highway at a job site however the regulations provide that for a vehicle to be described within the mobile_machinery exception the chassis must be specially designed to serve only as a mobile carriage mount and power source for the particular machinery or equipment involved thus even a vehicle that is primarily designed to transport mobile_machinery does not qualify as a mobile_machinery vehicle if it is also designed to transport cargo or tow a trailer because the exception applies to vehicles that may not be excepted from taxation as offhighway vehicles the mobile_machinery exception requires a higher degree of dedication in design that is it requires exclusive dedication as a mobile_machinery vehicle than does the offhighway vehicle exception tam-163061-01 features is not supportive of a special design for offhighway transportation a high rear axle ratio provides more power for startup which is a highway transportation function transportation on steep grades which is both a highway and offhighway transportation function and greater traction which serves an offhighway transportation function in transporting loads on offhighway terrain but also serves a highway transportation in transporting heavy loads a high fifth wheel provides greater clearance between the tires and the trailer or semitrailer when transporting a heavy load and may also provide greater ground clearance on rough terrain a design feature that may facilitate offhighway transportation in any event the offhighway features do not rise to the level of a special design for a primary function of offhighway transportation given the totality of the tractors’ highway transportation design features many vehicles such as sport utility vehicles 4-wheel drive vehicles and dump trucks have some offhighway design features but are still designed to function primarily as highway vehicles with regard to the offhighway b test the use of the tractors to transport their load over the public highways is not substantially limited or substantially impaired the tractors may be driven at regular highway speeds do not require a special permit for regular highway use and are not overweight overheight or overwidth for regular highway use thus the tractors do not meet the mobile_machinery b test neither of the two offhighway vehicle tests is met accordingly the tractors do not qualify for the offhighway vehicle exception taxpayer makes two arguments in favor of excepted treatment as offhighway vehicles the tractors are specially designed to perform job site functions related to the provision of oilfield services and work in tandem with trailers that perform functions related to the provision of oilfield services at oilfield sites and the tractors’ design prevents their economically efficient use to transport generic cargo to loading dock warehouses over the interstate highway system because they are limited to a lower speed transport expensive job site equipment and are heavier than other tractors because they also perform job site functions further due to their job site function they log big_number miles per year whereas generic interstate cargo-transporting tractors log big_number miles per year with regard to the first argument the offhighway vehicle exception focuses on where a vehicle is designed to transport its load and whether the offhighway design impairs highway transportation capability rather than whether or where the vehicle performs nontransportation job site functions thus performance of job site functions is not relevant to qualification for the offhighway vehicle exception further the equipment affixed to the winch acid pump and blower tractors is used for unloading handling or processing a load transported by the tractor over the public highways thus under the regulations the functions are related to the transportation of a load over the public highways even though the functions may be performed off the public highways tam-163061-01 with regard to the second argument the public highway includes all public roads so that local transporters that cannot or do not use interstate highways or are of a type that travel fewer miles than interstate transporters are highway vehicles classification as a highway vehicle applies to local transporters unless they are specially designed to transport their load other than over the public highway there is no limitation of tax to vehicles that transport their load over interstate highways or transport the greatest load in terms of weight or volume for the lowest possible price see revrul_79_191 explosives handling vehicles with substantial job site functions are highway vehicles revrul_79_192 street sweeping vehicles that have varying sweeping and traveling speeds and can travel at normal city speeds when in transit to and from the job and dump sites are highway vehicles revrul_79_296 oversize truck-tractor and low-bed semitrailer that are used to transport military equipment on and off the highway and that travel a maximum speed of miles per hour are highway vehicles revrul_79_308 a vehicle equipped with a mixer-feeder truck body that has a width of inches that can sustain highway speeds of to mph and that is used to transport and mix feed for dairy and beef cattle is a highway vehicle revrul_80_353 multi-tank vehicle designed for transporting cement and water mixing the cement at the job site and pumping it into oil wells is a highway vehicle notwithstanding a maximum speed of mph and revrul_95_40 industrial vacuum loader vehicles with substantial job site function are highway vehicles compare with revrul_77_301 design was primarily for offhighway transportation and substantial impairment was present many commodities are more expensive to transport per weight or volume than commodities such as bulk dirt or bricks because of the nature of their cargo for example certain cargo needs refrigeration or more careful preservation because it is more efficient to transport several types of loads in a single vehicle or because vehicles have both load transporting and job site functions however this does not constitute support for the notion that the higher cost to transport a load is because the vehicles have been specially designed for the primary function of transporting their load other than over the public highway the cost to transport and where transportation occurs are separate concepts thus the vehicles that transport a load that is more expensive to transport for reasons other than a special design for a primary offhighway purpose are not entitled to exception from the general classification of highway vehicles the contrary to taxpayer’s assertions characterization as a highway vehicle does not create a harsh result as to dual use vehicles bearing in mind the congressional intent that vehicles that use the highway bear the burden of these highway_trust_fund sec_9503 taxes the cost of all mobile_machinery installed on a vehicle is excluded from the sec_4051 tax_base on the sale of the vehicle a low-mileage vehicle will pay proportionately lower fuel tax and fuel used to operate mobile_machinery that comes from a separate fuel tank is not subject_to highway fuel tax and sec_4483 provides an exemption from the highway use_tax for vehicles that are used on the public highway no more than big_number miles per year tam-163061-01 instant tractors are more costly transporters not because of where they transport their load but because they are designed to transport some job site machinery and because at the completion or near completion of the transportation function they will perform job site functions and unload off the highway see generally revrul_79_296 impairment characteristics were necessary in order to enable the vehicles to carry their intended load not for offhighway purpose b sand dump trucks taxpayer argues that the sand dump trucks are not highway vehicles because they are described in sec_48_4061_a_-1 as mobile_machinery vehicles or in sec_48_4061_a_-1 as offhighway vehicles we disagree with respect to the mobile_machinery exception the sand dump trucks do not meet any of the three mobile_machinery tests they are self-propelled vehicles that consist of a chassis to which there has been permanently mounted a body designed to transport a load thus as in revrul_95_40 and revrul_80_353 the machinery mounted on the chassis is related to transportation on the public highways with regard to the b test the sand dump trucks are designed to transport a load and with regard to the c test the sand dump trucks can without any structural modification transport cargo thus none of the three mobile_machinery tests is met accordingly the sand dump trucks do not qualify for the mobile_machinery exception with respect to the offhighway vehicle exception the sand dump trucks meet neither the offhighway a or b tests with regard to the offhighway vehicle a test the vehicles have been built on highway-type truck chassis that meet all federal and state requirements including weight and size requirements braking lighting and other safety requirements to transport a load over the public highways the vehicle is denominated by taxpayer as a conventional cab standard service dump truck that is designed to meet but is not limited to typical oilfield conditions thus like most dump trucks it is a highway transporter that has offhighway transportation and loading and unloading capability inclusion of loading and unloading equipment for a specific commodity off the highway does not evidence an offhighway transportation function cargo is loaded and unloaded off the highway and the regulations include loading and unloading equipment as an example of machinery and equipment that contributes to the highway transportation function of a chassis or body sec_48_4061_a_-1 as described in revrul_79_191 explosives handling vehicles with separate compartments are highway vehicles and revrul_80_353 multi-tank vehicle designed for transporting cement and water is a highway vehicle the presence of several compartments or dedication to specific types of cargo does not evidence that a vehicle is designed for offhighway transportation with regard to the offhighway b test the use of the sand dump trucks to transport their load over the public highways is not substantially limited or substantially impaired the vehicles may be driven at regular highway speeds do not require a tam-163061-01 special permit for regular highway use and are not overweight overheight or overwidth for regular highway use thus the sand dump trucks do not meet the offhighway vehicle b test thus neither of the two offhighway vehicle tests is met accordingly the sand dump trucks do not qualify for the offhighway vehicle exception taxpayer makes two arguments in favor of excepted treatment for the sand dump truck the sand is dumped at offhighway oilfield sites and the sealed walls weather tight environment greater expense in loading because the sand must be blown into each compartment rather than dumped and greater expense in unloading because the unloading must be calibrated through pneumatic lines which provide for proper gravity feed and sand flow make transportation of the intended commodities particular types of sand much less economical than a simple dump truck in terms and loading transporting and unloading sand with regard to the first argument cargo transporters unload their cargo off the highway as described in the above revenue rulings numerous cargo transporters transport their cargo to and from industrial sites and some of these also perform job site functions see revrul_79_191 with regard to the second argument that the sand dump truck at issue cannot transport the same volume of sand for the same price as a generic dump truck is not because the sand dump truck is an offhighway transporter but because it transports several types of loads because those loads need special handling in transit and more elaborate unloading at the job site and because it may have some job site equipment the greater cost of transporting sand to oilfield job sites than for a generic dump truck is because of the inclusion of some job site machinery which is excluded from the sec_4051 tax_base and the specific handling needs of the cargo transported not because the truck has been designed primarily as an offhighway vehicle many industrial dump trucks have special hydraulic or other types of devices for loading or unloading the trucks and have some features so that the vehicles can load transport or dump the load on uneven terrain as many dump trucks do they are nonetheless highway vehicles see 699_f2d_264 n 5th cir in which the fifth circuit upheld a jury’s finding that sand dump trucks used in the oilfield servicing industry were taxable highway vehicles caveats a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 provides that it may not be used or cited as precedent in accordance with sec_6110 names addresses and other identifying numbers have been deleted


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date aug contact person identification_number telephone number sk lie employer_identification_number this is in reference to a letter requesting advance approval of your grant procedures under sec_4945 of the internal_revenue_code the information submitted indicates that grants will be administered and supervised by b b is exempt from federal_income_tax under sec_501 of the internal_revenue_code and has been classified as other than a private_foundation under sec_509 and sec_170 your scholarship program is called c under the terms of an agreement you will make annual contributions to b to fund scholarships for the benefit of eligible d’s students b will prepare and furnish application forms receive all applications determine the recipients and amount to be awarded notify the recipients of the award confirm enrollment in an educational_institution make payment of the award and supervise and investigate the use of the grant funds by the recipients in their educational programs recipients are determined solely by b utilizing selection criteria whereby each candidate is evaluated based on the following scholastic aptitude as measured by performance on the scholastic aptitude test scholastic performance measured by rank in class counselor appraisal and interests activities and leadership contributions in addition financial need is taken into consideration the c program does not involve scholarships granted to children of employees of a particular company the requirements of sec_170 of the code the recipient will not be restricted in scholarships will only be awarded to students that plan to enroll in an institution that meets his her course of study sec_4945 of the code provides for the imposition of taxes on each taxable_expenditure of a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of sec_4945 sec_4945 of the code provides that sec_4945 shall not apply to an individual grant awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance by the secretary if it is demonstrated to the satisfaction of the secretary that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_institution described in sec_170 because your scholarships are not employer-related grants the provisions of revproc_76_47 c b are not applicable based upon the information submitted and assuming your program will be conducted as proposed with a view to providing objectivity and nondiscrimination in the awarding of scholarship grants we rule that your grants to b for the awarding of scholarship grants comply with the requirements of sec_4945 of the code expenditures made in accordance with these procedures will not constitute taxable_expenditures within the meaning of sec_4945 of the code and as such are eligible for the exclusion from income provided for in sec_117 of the code to the extent that such grants are actually used for qualified_tuition_and_related_expenses within the meaning of sec_117 of the code this ruling is conditioned on the understanding that there will be no material changes in the facts upon which it is based it is further conditioned on the understanding that no grants will be awarded to your organization’s creators officers directors trustees or members of the selection committee or for a purpose inconsistent with the purposes described in sec_170 of the code the approval of your grant-making procedures is a one time approval of your system of standards and procedures for selecting recipients of grants that meet the requirements of sec_4945 of the code thus approval will apply to succeeding grant programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request with your organization’s permanent records we are informing the ohio te_ge office of this action please keep a copy of this ruling this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely s joseph chasin manager exempt_organizations technical group


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 b03 plr-120924-12 date date x ----------------------------------------------------------------------------------------------------------------------------- state ---------- y d1 d2 ---- ------- -------------------- dear ------------ this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated in state on d1 and made an election to be treated as an s_corporation x represents that one of its shareholders became an ineligible s_corporation shareholder as of d2 and therefore terminated inadvertently x’s s_corporation_election x represents that the termination was not motivated by tax_avoidance or retroactive tax planning x represents that from d2 onward x and its eligible shareholders have filed all federal_income_tax returns consistent with x’s s_corporation_election x and its shareholders have agreed to make any adjustments that the commissioner may require consistent with the treatment of x as an s_corporation plr-120924-12 law and analysis sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1361 defines a small_business_corporation as a domestic_corporation that is not an ineligible_corporation and that does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a non-resident alien as a shareholder and d have more than one class of stock sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides in part that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in the termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the termination steps were taken so that the corporation for which the termination occurred is a small_business_corporation and the corporation for which the termination occurred and each person who was a shareholder in the corporation at any time during the period specified pursuant to sec_1362 agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the termination the corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely on the representations made and the information submitted that x’s s_corporation_election may have terminated because x may have had an ineligible shareholder we conclude that if x’s s_corporation_election was terminated such a termination was inadvertent within the meaning of sec_1362 therefore pursuant to the provisions of sec_1362 x will be treated as an s_corporation from d2 and thereafter provided x is otherwise eligible to be an s_corporation and provided that the election was not otherwise terminated under sec_1362 plr-120924-12 except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file a copy of this letter is being sent to x’s authorized representative sincerely richard probst senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------------------------ ---------------- --------------------------- ----------------------------------- re --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------------------------- telephone number ---------------------- refer reply to cc psi b04 plr-122149-15 date date legend decedent spouse co-trustees date 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 but the estate did not file a form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election spouse died on date plr-122149-15 co-trustees of decedent’s trust represent that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of the decedent’s death including any taxable_gifts made during his lifetime decedent made no taxable_gifts co-trustees request 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-122149-15 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 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 reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make 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 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 plr-122149-15 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 co-trustees represent 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 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 provides that it may not be used or cited as precedent plr-122149-15 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 lorraine e gardner senior counsel office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes