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 tege eb qp4 plr-138187-15 date date legend decedent --------------------------- trust --------------------------------- ------- state ---------- financial -------------------------------- institution a ------ financial -------------- institution b financial --------- institution c financial --------------------------------- institution d ---------------------------------- --------------------------- individual e ---------------------------------- ---------- individual f --------------------- individual g ------------------------ individual h -------------- individual i ------------------- ira x ---------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------- date ------------------------ date --------------------------- date --------------------------- dear ------------------- this letter is in response to your request received on date as supplemented by correspondence dated date submitted by your authorized representative in which you request rulings regarding the proper applicable distribution period under sec_401 of the internal_revenue_code for payments from an ira the following facts and representations have been submitted under penalties of perjury in support of the rulings requested decedent died at age on date decedent maintained three iras one each with financial_institution a financial_institution b and financial_institution c the sole named beneficiary of each of those iras was trust trust is a_trust created under decedent’s will trust is irrevocable and is valid under the laws of state financial_institution d is the trustee of trust a copy of decedent’s will containing the terms of trust was provided to financial_institution d on or about date on or about date after decedent’s death financial_institution d as trustee of trust combined the three iras maintained with financial_institution a financial_institution b and financial_institution c into ira x which is an inherited ira for the benefit of trust with financial_institution d as custodian individual e is the child of decedent individual f and individual g are the children of individual e individual h and individual i are the siblings of decedent under the terms of trust the trustee is to distribute all net_income of trust to individual e the trustee also has discretion to make distributions of principal to individual e or individual e’s issue for health education support or maintenance financial_institution d as trustee has made discretionary distributions to individual e trust will terminate when individual e attains fifty years of age at which time the trustee will distribute the plr-138187-15 remaining income and principal to individual e if individual e dies prior to attaining age fifty trust will terminate and will be distributed to the children of individual e however if a beneficiary is under age twenty-one at the time he or she becomes entitled to receive his or her share the trustee retains possession of the share in trust until the beneficiary attains age twenty-one if the beneficiary dies before attaining age twenty- one the beneficiary’s share is paid to the beneficiary’s personal_representatives if individual e and all her issue are deceased at any time prior to final distribution of assets from trust the trustee shall distribute the remaining assets to individual h and individual i if individual e all her issue individual h and individual i are deceased prior to final distribution of assets from trust the trustee shall distribute the remaining assets to various charitable organizations since decedent’s death trust has taken distributions from ira x that comply with the minimum distribution_requirements that would apply if the applicable distribution period is based on individual e’s life expectancy based on the foregoing you request rulings that the beneficiaries of trust and not trust itself are treated as having been designated as beneficiaries of ira x for purposes of determining the applicable distribution period under sec_401 and the applicable distribution period for calculating the required minimum distributions from ira x is based on individual e’s life expectancy with respect to your ruling requests sec_408 provides with respect to iras that under regulations prescribed by the secretary rules similar to the rules of sec_401 and the incidental death_benefit requirements of sec_401 shall apply to the distribution of the entire_interest of an individual for whose benefit the ira is maintained sec_1_408-8 q a-1 a provides that an ira is subject_to the required_minimum_distribution rules provided in sec_401 in order to satisfy sec_401 the rules of sec_1_401_a_9_-1 through a -9 must be applied except as otherwise provided in that section sec_1_408-8 q a-1 b provides that for purposes of applying the required_minimum_distribution rules in sec_1_401_a_9_-1 through a -9 the ira trustee custodian or issuer is treated as the plan_administrator and the ira owner is substituted for the employee sec_1_408-8 q a-3 provides that in the case of distributions from an ira the term required_beginning_date means april of the calendar_year following the calendar_year in which the individual attains age ½ plr-138187-15 sec_401 provides that the entire_interest of an employee i must be distributed to such employee not later than the required_beginning_date or ii must be distributed beginning not later than the required_beginning_date over the life of such employee or over the lives of such employee and a designated_beneficiary or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated_beneficiary sec_401 provides that when an employee dies before distributions have begun under subparagraph a ii the entire portion of such interest will be distributed within years after the death of such employee sec_401 provides an exception to sec_401 under which if any portion of an employee’s benefit is payable to a designated_beneficiary the portion will be distributed over the life of such designated_beneficiary or over a period not extending beyond the life expectancy of such beneficiary provided such distributions begin no later than year after the employee’s death or such later date as the secretary may prescribe by regulations sec_401 provides that required_beginning_date means april of the calendar_year following the later of i the calendar_year in which the employee turns age ½ or ii the calendar_year in which the employee retires sec_401 provides that designated_beneficiary means any individual designated as a beneficiary by the employee sec_1_401_a_9_-4 q a-1 provides in relevant part that a designated_beneficiary is an individual who is designated as a beneficiary under the plan an individual may be designated as a beneficiary under the plan either by the terms of the plan or if the plan so provides by an affirmative election by the employee or the employee's surviving_spouse specifying the beneficiary a designated_beneficiary need not be specified by name in the plan in order to be a designated_beneficiary so long as the individual who is to be the beneficiary is identifiable under the plan the member of a class of beneficiaries capable of contraction or expansion will be treated as being identifiable if it is possible to identify the class member with the shortest life expectancy however the passing of an employee's interest to an individual under a will or otherwise under applicable state law will not make that individual a designated_beneficiary under sec_401 unless that individual is designated as a beneficiary under the plan sec_1_401_a_9_-4 q a-3 provides that only individuals may be designated beneficiaries for purposes of sec_401 a person who is not an individual such as the employee's estate may not be a designated_beneficiary if a person other than an individual is designated as a beneficiary of an employee's benefit the employee will plr-138187-15 be treated as having no designated_beneficiary for purposes of sec_401 even if there are also individuals designated as beneficiaries sec_1_401_a_9_-4 q a-5 provides that beneficiaries of a_trust with respect to the trust's interest in an employee's benefit and not the trust itself will be treated as having been designated as beneficiaries for purposes of determining the applicable distribution period if certain requirements are met the requirements are that the trust is a valid trust under state law the trust is irrevocable or will by its terms become irrevocable upon the death of the employee the beneficiaries of the trust who are beneficiaries with respect to the trust’s interest in employee’s benefit are identifiable from the trust instrument and certain documentation has been provided to the plan_administrator sec_1_401_a_9_-4 q a-6 provides that in order to satisfy the fourth requirement of sec_1_401_a_9_-4 q a-5 the trustee of the trust must provide certain documentation such as a copy of the actual trust document of the trust that is the named beneficiary by october of the calendar_year immediately following the calendar_year in which the employee died however sec_1_401_a_9_-1 q a-2 c provides in effect that this requirement will be considered satisfied if the documentation is provided to the plan_administrator by date sec_1_401_a_9_-5 q a-1 provides that the amount required to be distributed for each calendar_year is equal to the amount of the account divided by the applicable distribution period sec_1_401_a_9_-5 q a-5 provides that if an employee dies before distributions have begun the applicable distribution period is based on the life expectancy of the designated_beneficiary sec_1_401_a_9_-5 q a-7 a provides that if an employee has more than one individual that is a designated_beneficiary the designated_beneficiary with the shortest life expectancy will be the designated_beneficiary for purposes of determining the applicable distribution period sec_1_401_a_9_-5 q a-7 b provides that a contingent beneficiary one whose entitlement to an employee’s benefit after the employee’s death is a contingent right is considered a beneficiary for purposes of determining the designated_beneficiary with the shortest life expectancy and whether a person other than an individual is a beneficiary except as provided in sec_1_401_a_9_-5 q a-7 c sec_1_401_a_9_-5 q a-7 c provides that for purposes of determining the beneficiary with the shortest life expectancy or whether a person other than an individual is a beneficiary a person will not be considered a beneficiary merely because that person could become the successor to the interest of one of the employee’s beneficiaries after that beneficiary’s death however this exception does not apply to a plr-138187-15 person who has any right including a contingent right to an employee’s benefit beyond being a mere potential successor to the interest of one of the employee’s beneficiaries upon that beneficiary’s death for example if the first beneficiary has a right to all income with respect to an employee's individual_account during that beneficiary's life and a second beneficiary has a right to the principal but only after the death of the first income_beneficiary any portion of the principal distributed during the life of the first income_beneficiary to be held in trust until that first beneficiary's death both beneficiaries must be taken into account in determining the beneficiary with the shortest life expectancy and whether only individuals are beneficiaries in regard to the first ruling_request based on your representation the trust meets the four requirements of sec_1_401_a_9_-4 q a-5 and therefore the beneficiaries of trust are treated as designated beneficiaries of ira x for purposes of determining the applicable distribution period under sec_401 in regard to the second ruling_request individual e individual f and individual g are the only beneficiaries taken into account for purposes of determining the applicable distribution period individual e is taken into account as a designated_beneficiary because she is entitled to all net_income of trust while she is alive and is entitled to a distribution of the entire trust if she attains age individual f and individual g are also taken into account as designated beneficiaries because the trustee has the discretion to make distributions of principal to them during individual e’s lifetime for their health education support or maintenance in addition to their contingent_interest in the remainder of the trust if individual e dies before receiving full distribution of the trust at age all other potential recipients of the funds in the trust are mere successor beneficiaries within the meaning of the regulations individual e has the shortest life expectancy of the three designated beneficiaries taken into account in determining the applicable distribution period accordingly the applicable distribution period for calculating the required minimum distributions from ira x is based on individual e’s life expectancy this ruling expresses no opinion on the property rights of the parties under state law and only provides a ruling on the impact of federal tax law on the specific facts presented this ruling is based on the assumption that the three iras maintained with financial_institution a financial_institution b and financial_institution c were properly combined into ira x the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party while this office has not verified any of the material plr-138187-15 submitted in support of the request for rulings it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter additionally no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited by others as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely yours anne bolling acting assistant to the branch chief qualified_plans branch office of associate chief_counsel tax exempt government entities


t c summary opinion united_states tax_court brenda t farris petitioner v commissioner of internal revenue respondent docket no 2251-00s filed date brenda t farris pro_se veena luthra for respondent powell special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed ’ the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue - - respondent determined a deficiency of dollar_figure in petitioner's federal_income_tax the issue is whether petitioner is entitled to a deduction for gambling_losses petitioner resided in quinton virginia when the petition in this case was filed the facts may be summarized as follows during petitioner played the virginia state lottery and won two amounts dollar_figure and dollar_figure that were reported to the internal_revenue_service petitioner is not in the trade_or_business of gambling or playing the lottery on her return petitioner did not report any income from the lottery petitioner did not itemize deductions and claimed the so-called standard_deduction for head_of_household in the amount of dollar_figure in the notice_of_deficiency respondent determined that petitioner had additional income in the amount reported by the lottery dollar_figure petitioner admits that she won the dollar_figure and indeed admits that she additionally won as much as dollar_figure a month that was not reported by the lottery but she did not know the exact amount of her total winnings for the year petitioner did not report the additional winnings because she believed that since they were not reported to the internal_revenue_service they were not taxable discussion sec_61 defines gross_income to mean all income from whatever source derived lottery winnings whether reported or not by the lottery operator are includable in gross_income paul v commissioner tcmemo_1992_582 as we understand petitioner's position is that she incurred losses from her gambling activities during and when considered with other itemized_deductions she did not claim on her return the amount would have been greater than the standard_deduction of dollar_figure that she claimed petitioner claims that she donated to goodwill industries tangible_personal_property that she estimates had a fair_market_value of dollar_figure and that she is entitled toa charitable deduction in that amount the record shows that petitioner also paid dollar_figure in state income taxes in the case of an individual sec_62 defines adjusted_gross_income as gross_income less certain deductions including deductions attributable to a trade_or_business carried on by the taxpayer sec_62 if petitioner's gambling activity constituted a trade_or_business her gambling_losses would be deductible from gross_income in arriving at adjusted_gross_income on schedule c profit or loss from business see id if petitioner's gambling activity did not constitute a trade_or_business her gambling_losses would be deductible as an itemized_deduction in arriving at taxable_income on schedule a itemized_deductions sec_63 but regardless whether or not the activity constituted a trade_or_business sec_165 provides that losses from wagering transactions shall be allowed only to q4e- the extent of the gains from such transactions see also sec_1_165-10 income_tax regs petitioner does not claim to be in the trade_or_business of gambling and we are therefore faced with the question whether she is entitled to claim itemized_deductions on a schedule a while we are convinced that petitioner purchased lottery tickets that did not pay off there are some obstacles in her path first we have no idea as to the dollar amount of those tickets petitioner appeared at trial with a paper bag full of tickets however she did not know how many losing tickets were in the bag she had not counted them and the court eschews that responsibility we did however examine some of the tickets and there appears to be an unsettling number of tickets from certain days even though petitioner testified that she played the lottery almost daily it seems as if the tickets had been picked up on a random basis rather than daily equally important even if we were to assume that the amount of losing tickets was as petitioner alleges between dollar_figure shown in the petition and dollar_figure at trial we are still faced with the problem that petitioner admits that she won considerably more money than that which was reported to the internal_revenue_service while respondent did not move to increase the deficiency the additional_amount of unreported lottery winnings and the amount contained in the notice_of_deficiency dollar_figure - - certainly exceeds dollar_figure which is the difference between the standard_deduction dollar_figure and the maximum itemized_deductions dollar_figure that petitioner could have claimed dollar_figure gambling_losses dollar_figure charitable_contribution and dollar_figure state income taxes accordingly respondent’s determination is sustained reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


internal_revenue_service number release date index number -------------- ------------------------ ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc intl plr-142556-09 date date a ------------------------------------------------------------------------------ ------------------- tax years year year dear--------------- --------------- -------- ------- this is in reply to a letter dated date requesting an extension of time under sec_301_9100-3 for a to elect the provisions of revproc_2002_23 2002_1_cb_744 for tax years the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations submitted by a and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process a is a u s resident who established a canadian registered retirement savings_plan rrsp in year a became a u s resident in year a was not aware nor was he advised by his previous tax advisor that he had to make an election pursuant to paragraph of article xviii of the u s -canada income_tax treaty on form_8891 to plr-142556-09 defer u s tax on income accrued in his rrsp until his current tax preparer recently discovered the failure_to_file form_8891 a states that the internal_revenue_service has not communicated with him in any way regarding his rrsp sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301 -1 b provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation the election provided in revproc_2002_23 is a regulatory election within the meaning of sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant a an extension of time provided that a satisfies the standards set forth in sec_301_9100-3 based on the facts and circumstances of this case we conclude that a satisfies the standards of sec_301_9100-3 accordingly a is granted an extension of time until days from the date of this ruling letter to elect the provisions of revproc_2002_23 for tax years pursuant to section dollar_figure of revproc_2002_23 the election once made cannot be revoked except with the consent of the commissioner a must file form_8891 for and all subsequent tax years until the tax_year in which a final distribution is made from the rrsp as provided in sec_301_9100-1 the granting of an extension of time is not a determination that a is otherwise eligible to make the above-described election no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented plr-142556-09 a copy of this ruling letter should be associated with a’s amended tax returns for tax years this ruling is directed only to the taxpayer who has requested it sec_6110 provides that it may not be used or cited as precedent sincerely _______________ m grace fleeman senior technical reviewer cc intl br1 enclosure


internal_revenue_service department of the treasury washington dc number release date index number third party communication none date of communication not applicable -------------------------------------- ------------------------------------------------------ ------------------------------------------ person to contact -------------------- id no ---------------- telephone number -------------------- refer reply to cc psi b04 plr-133314-14 date february trust decedent bank year year year year year date date company llc spouse child child grandchild grandchild grandchild great-grandchild great-grandchild great-grandchild great-grandchild great-grandchild great-grandchild great-grandchild great-grandchild case court -------------------------------------------- ----------------------- ----------------------- ----- -- ------ ------ ------ ------ ------------------ ------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------ --------------- ------------------------- --------------------- --------------------------------------- ------------------------ ---------------------- ---------- -------------- ----------------------- --------------------- --------------------------------- -------------------- ------------------- --------------------- ------------------------------- --------------------------------------- ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ---------------------------------------------------------- ----------------------------------------------------------------------- plr-133314-14 state a b c d e f dear -------------- ---------- ------------ --- -------- --- -------------- -------------- this letter responds to your authorized representative’s letter dated date requesting rulings on the income gift and generation-skipping_transfer gst tax consequences of compliance with a court-approved settlement agreement facts and representations the facts and representations submitted are summarized as follows decedent died in year a year prior to date decedent’s will established a testamentary_trust trust for the benefit of decedent’s relatives decedent’s spouse spouse and their issue trust was funded primarily with stock in company in year trust exchanged its shares in company for an interest in llc great-grandchild and bank serve as trustees trustees of trust under clause i item four of decedent’s will trust will terminate twenty years after the death of the last to survive of spouse child child grandchild grandchild and grandchild clause ii a provides for the distribution at least annually of specific amounts of trust income to certain named beneficiaries for their lifetimes but not to exceed the duration of trust clause ii b limits the total amount of these distributions to one-third of the income of trust clause ii c and provide the manner in which the remaining trust income is to be distributed to spouse child and child during their lifetimes clause ii c directs that after the death of spouse child and child trust income is to be distributed equally to the widow of child if there is one decedent’s living grandchildren and the issue of any deceased grandchildren of decedent per stirpes clause ii c provides that upon the death of decedent’s last surviving grandchild the income of trust is to be distributed equally to decedent’s living great-grandchildren and the issue of any deceased great-grandchildren of decedent per stirpes plr-133314-14 under clause iii upon termination of trust the assets of trust are to be distributed to the then income beneficiaries of trust item five annuls any bequest made to a beneficiary of decedent’s will who objects to the probate of decedent’s will or in any way directly or indirectly contests the will or any provision of the will or the distribution of decedent’s estate under the will item five provides further that it is the will of decedent that any such beneficiary be absolutely barred and cut off from any share in decedent’s estate no-contest provision there are currently eight income beneficiaries of trust decedent’s only surviving grandchild grandchild receives one-third of the income the three children of grandchild great-grandchildren and each receive one-ninth of the income and the four children of grandchild great-grandchildren and each receive one-twelfth of the income great-grandchild and great-grandchild filed a number of objections to trust’s annual accountings petitions and joinders in case in year sec_3 and and have indicated that they will file objections to future accountings in case objectors’ claims objectors’ claims allege that trustees have breached their duty_of impartiality and their fiduciary duties great-grandchild and great-grandchild a daughter of grandchild responded by filing claims in case alleging that certain of objectors’ claims violate the no-contest provision in decedent’s will no-contest claims the probate commissioner ruled that the objectors’ claims did violate the no-contest provision the litigation in case has been intensive has created divisions within the decedent’s family and has been expensive the parties have been represented by separate counsel and have incurred substantial legal fees and costs on date the parties entered into an agreement to resolve case settlement agreement on date court issued an order order approving settlement agreement under the terms of settlement agreement and order if the internal_revenue_service issues a favorable private_letter_ruling on all of the rulings requested below the following will occur the interest of great-grandchild and great-grandchild in trust including the interests of their issue if any will be completely terminated in exchange for a distribution of dollar_figurea to each from trust to fund the distributions from trust to great-grandchild and great-grandchild llc will distribute dollar_figuree to its members of which dollar_figuref will go to trust great-grandchild and great-grandchild will dismiss with prejudice the objectors’ claims and great-grandchild and great-grandchild will dismiss the no-contest claims until the death of grandchild the income of trust will be distributed b percent to grandchild c percent each to great-grandchild or his issue in the event of his death great-grandchild or his issue in the event of his death great-grandchild or her issue in the event of her death and d percent each to great-grandchild or his issue in the event of his death and great-grandchild or her plr-133314-14 issue in the event of her death following the death of grandchild all distributions to a beneficiary by trust shall be determined under the terms of trust assuming for this purpose that both great-grandchild and great-grandchild are deceased and not survived by issue it is represented that no additions actual or constructive have been made to trust since date you have requested the following rulings after implementation of settlement agreement trust will continue to be exempt from the gst tax provisions of chapter and distributions of dollar_figurea from trust to great-grandchild and great-grandchild distributions of trust income to the other beneficiaries and distributions of trust corpus made upon termination of trust made in compliance with settlement agreement are not subject_to gst tax the dollar_figurea distributions from trust to great-grandchild and great-grandchild made in compliance with settlement agreement do not result in gifts for federal gift_tax purposes by the other beneficiaries of trust the dollar_figuree distribution from llc to trust made in compliance with settlement agreement is not income within the meaning of sec_643 the dollar_figurea distributions from trust to great-grandchild and great-grandchild are not includible in the income of great-grandchild and great-grandchild under sec_662 ruling sec_2601 of the internal_revenue_code imposes a tax on every generation-skipping_transfer made after date sec_2611 provides that the term generation-skipping_transfer means a taxable_distribution a taxable_termination and a direct_skip under a of the tax_reform_act_of_1986 the act the gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the gst tax does not apply to a transfer under a_trust that was irrevocable on date except to the extent the transfer is made out of corpus added to the trust by an actual or constructive_addition after date plr-133314-14 sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under sec_26_2601-1 will not cause the trust to lose its exempt status in general these rules are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a court-approved settlement of a bona_fide issue regarding the administration of the trust or the construction of terms of the governing instrument will not cause an exempt trust to be subject_to the provisions of chapter if -- the settlement is the product of arm’s length negotiations and the settlement is within the range of reasonable outcomes under the governing instrument and applicable state law addressing the issues resolved by the settlement a settlement that results in a compromise between the positions of the litigating parties and reflects the parties’ assessments of the relative strengths of their positions is a settlement that is within the range of reasonable outcomes sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee’s distribution settlement or construction that does not satisfy paragraphs b i a b or c of this section by judicial reformation or by nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in a beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer furthermore a modification that is administrative in nature that only indirectly increases the amount transferred for example by lowering administrative costs or income taxes will not be considered a shift in a beneficial_interest in a_trust in this case trust is exempt from gst tax because trust was irrevocable prior to date and it is represented that no additions actual or constructive have been made to trust on or after date the facts provided and representations made indicate that settlement agreement represents a compromise between the positions of the litigating parties and reflects the parties’ assessment of the relative strengths of their positions settlement agreement is a product of arm’s length negotiations and is within the range of reasonable outcomes under the terms of trust and applicable law plr-133314-14 upon implementation of settlement agreement the interests of great-grandchild and great-grandchild in trust will terminate the partial_termination of trust will accelerate the distribution of a portion of the corpus of trust to these beneficiaries the partial_termination will not shift a beneficial_interest in trust to a beneficiary who occupies a lower generation than the person or persons who held the interest before the division moreover implementation of settlement agreement does not extend the time for vesting of any beneficial_interest in trust beyond the period provided for in the original trust agreement accordingly based upon the facts submitted and the representations made we rule that after implementation of settlement agreement trust will continue to be exempt from the gst tax provisions of chapter and that distributions of dollar_figurea from trust to great-grandchild and great-grandchild distributions of trust income to the other beneficiaries and distributions of trust corpus made upon termination of trust made in compliance with settlement agreement are not subject_to gst tax ruling sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident sec_2511 provides that subject_to certain limitations the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether property transferred is real or personal tangible or intangible sec_25_2511-1 of the gift_tax regulations provides that any transaction in which an interest in property is gratuitously passed or conferred upon another regardless of the means or device employed constitutes a gift subject_to tax sec_25_2511-1 provides that the gift_tax is not applicable to a transfer for a full and adequate_consideration in money or money’s worth or to ordinary business transactions sec_25_2512-8 provides that a sale exchange or other transfer of property made in the ordinary course of business a transaction which is bona_fide at arm’s length and free from any donative_intent will be considered as made for an adequate_and_full_consideration in money or money’s worth whether an agreement settling a dispute is effective for gift_tax purposes depends on whether the settlement is based on a valid enforceable claim asserted by the parties and to the extent feasible produces an economically fair result see 674_f2d_761 9th cir citing 387_us_456 thus state law must be examined to ascertain the legitimacy of plr-133314-14 each party’s claim if it is determined that each party has a valid claim the service must determine that the distribution under the settlement reflects the result that would apply under state law if there is a difference it is necessary to consider whether the difference may be justified because of the uncertainty of the result if the question were litigated as discussed above settlement agreement represents the resolution of bona_fide controversies among the parties all interested parties who hold or may hold an interest in trust have been represented in the proceedings that culminated in order approving settlement agreement further based on the facts as presented the terms of settlement agreement are the product of arm’s length negotiations among all of the interested parties court approved settlement agreement settlement agreement reflects the rights of the parties under the applicable state law that would be applied by the highest court of state and under federal_law accordingly based on the facts submitted and representations made we rule that the dollar_figurea distributions from trust to great-grandchild and great-grandchild made in compliance with settlement agreement do not result in gifts for federal gift_tax purposes by the other beneficiaries of trust ruling sec_643 defines the term distributable_net_income as the taxable_income of the estate_or_trust computed with certain modifications sec_643 and the regulations thereunder exclude from the computation of distributable_net_income with respect to trusts that qualify under subpart b those items of gross_income constituting extraordinary dividends which the fiduciary acting in good_faith does not pay or credit to any beneficiary by reason of his determination that such dividends are allocable to corpus under the terms of the governing instrument and applicable local law sec_643 and the regulations thereunder provide that for purposes of subparts a b c and d the term income when not preceded by the words taxable distributable net undistributed net or gross means the amount of the income of the estate_or_trust for the taxable_year determined under the terms of the governing instrument and applicable local law items of gross_income constituting extraordinary dividends or taxable stock_dividends which the fiduciary acting in good_faith determines to be allocable to corpus under the terms of the governing instrument and applicable local law shall not be considered income in this case court determined that the governing instrument and state law would characterize the dollar_figuref distribution from llc to trust as a return of corpus as such the dollar_figuref distribution from llc to trust pursuant to settlement agreement meets the definition of an extraordinary_dividend under sec_643 and is not considered income within the plr-133314-14 meaning of that section accordingly based on the facts submitted and the representations made we rule that the dollar_figuref distribution from llc to trust is an extraordinary_dividend excluded from the definition of income within the meaning of sec_643 ruling sec_61 provides generally that except as otherwise provided by law gross_income includes all income from whatever source derived including gains derived from dealings in property sec_661 provides that in any taxable_year a deduction is allowed in computing the taxable_income of a_trust other than a_trust to which subpart b applies for the sum of the amount of income for such taxable_year required to be distributed currently and any other_amounts_properly_paid_or_credited_or_required_to_be_distributed for such taxable_year but such deduction shall not exceed the distributable_net_income of the estate_or_trust sec_1_661_a_-2 of the income_tax regulations provides that gain_or_loss is realized by the trust or estate or the other beneficiaries by reason of a distribution_of_property in_kind if the distribution is in satisfaction of a right to receive a distribution of a specific dollar amount of specific property other than that distributed or of income as defined under sec_643 and the applicable regulations if income is required to be distributed currently sec_662 provides that there shall be included in the gross_income of a beneficiary to whom an amount specified in sec_661 is paid credited or required to be distributed by an estate_or_trust described in sec_661 the sum of the following amounts the amount of income_for_the_taxable_year_required_to_be_distributed_currently to such beneficiary whether distributed or not and all other_amounts properly paid credited or required to be distributed to such beneficiary for the taxable_year sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized over the adjusted_basis provided in sec_1011 for determining gain and the loss is the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized under sec_1001 the entire amount of gain_or_loss must be recognized except as otherwise provided sec_1_1001-1 provides that except as otherwise provided in subtitle a the gain_or_loss realized from the exchange of property for cash or for other_property differing materially either in_kind or in extent is treated as income or loss sustained in this case the distributions of dollar_figurea to great-grandchild and great-grandchild are extraordinary distributions and are excluded from the definition of income under plr-133314-14 sec_643 these distributions are not part of trust’s distributable_net_income and therefore are not includible in the income of great-grandchild or great-grandchild under sec_662 accordingly based on the facts submitted and the representations made we rule that the distributions of dollar_figurea from trust to great-grandchild and great-grandchild are not includible in the income of great-grandchild and great-grandchild under sec_662 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 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court a-valey engineers inc petitioner v commissioner of internal revenue respondent docket no 17863-09l filed date shelley c dugan for petitioner harry j negro for respondent memorandum findings_of_fact and opinion goeke judge the petition in this case was filed in response to a notice_of_determination concerning collection action sustaining a final notice_of_intent_to_levy with respect to income_tax and accuracy-related_penalties for tax years ending date through the issues for decision are whether petitioner was entitled to challenge assessed accuracy-related_penalties at its collection_due_process cdp hearing we hold petitioner was not whether a settlement officer abused his discretion in rejecting petitioner’s request for abatement of interest we hold that he did not and whether either settlement officer1 assigned to this case abused his or her discretion in rejecting petitioner’s proposed offers-in-compromise we hold that the settlement officers did not findings_of_fact at the time its petition was filed petitioner was a pennsylvania corporation which had its principal_place_of_business in pennsylvania lothar budike sr is the president of petitioner and he and his wife alexandra budike own of the company stock petitioner reports its federal_income_tax on a fiscal_year ending september after an audit respondent determined deficiencies in petitioner’s income_tax for the taxable years ending date through respondent also determined accuracy-related_penalties for those tax years on date petitioner filed a petition with the tax_court at docket no disputing the 1as described infra two settlement officers were assigned to this case at different times deficiencies and penalties on date the court entered a stipulated decision under which petitioner was liable for deficiencies totaling dollar_figure and accuracy-related_penalties totaling dollar_figure on date a letter final notice--notice of intent to levy and notice of your right to a hearing was sent to petitioner for the unpaid tax_liabilities for the taxable years ending date through in response petitioner timely submitted a form request for a collection_due_process or equivalent_hearing on the form petitioner stated that it should not be responsible for interest and penalties on date a cdp hearing was held with the first settlement officer during the cdp hearing petitioner raised the issues of penalty abatement and interest abatement the settlement officer advised petitioner that he could not consider penalty and interest abatement because petitioner had signed a stipulated decision for the years at issue petitioner also inquired about an offer-in- compromise the settlement officer explained the process and requested that petitioner submit a form_656 offer_in_compromise oic if interested in pursuing an oic a few weeks after the cdp hearing the settlement officer received petitioner’s oic the oic proposed to settle petitioner’s outstanding liabilities for dollar_figure and petitioner made a dollar_figure payment toward the dollar_figure when it submitted the oic petitioner also submitted a form 433-b collection information statement for businesses business checking account statements for the period january through date and a copy of a form_1120 u s_corporation income_tax return for the taxable_year ending date which was signed by mr budike on date on date the settlement officer advised petitioner that the oic would not be accepted because petitioner’s form_1120 submitted with the oic showed loans to shareholders of dollar_figure as of date and dollar_figure as of date the form_1120 showed no loans from shareholders to the corporation at either the beginning or end of the taxable_year in addition petitioner’s returns for the periods ending date and reported loans to shareholders of dollar_figure and dollar_figure respectively petitioner’s representative asserted that the tax returns were in error and that mr and mrs budike were actually lending petitioner money petitioner provided the settlement officer with a letter from its accountant which stated that the loans to shareholder sec_2petitioner’s oic stated that the bases for the oic were both doubt as to collectibility and effective tax_administration with regard to the effective tax_administration claim petitioner stated that payment of the tax_liability would result in an economic hardship for mr and mrs budike reported on petitioner’s federal_income_tax returns for the taxable years and did not accurately reflect petitioner’s financial position mr budike also submitted a letter which asserted that petitioner owed mr and mrs budike money on date the settlement officer mailed petitioner a notice_of_determination concerning collection action under section and or which rejected petitioner’s oic and sustained respondent’s collection action in full on date petitioner filed a petition for lien or levy action under sec_6320 and sec_6330 the petition alleges that respondent erred because he did not abate penalties respondent erred because he did not abate interest and respondent abused his discretion in not approving petitioner’s oic respondent later acknowledged that the settlement officer had incorrectly determined that petitioner could not raise the interest abatement claim during the cdp hearing as a result on date respondent filed a motion to remand the case for a new cdp hearing on the interest abatement issue on date we issued an order granting respondent’s motion 3unless otherwise indicated all section references are to the internal_revenue_code in effect at all relevant times on date the settlement officer met with petitioner to consider the interest abatement issue petitioner requested that interest and penalties for the taxable years ending date through be abated in full petitioner stated that the revenue_agent assigned to the audit of petitioner’s returns was biased against petitioner and that he overstated income and denied expenses because of this bias petitioner also made various claims that the appeals officer assigned to the income_tax deficiency case sought to cover up improper actions taken by the revenue_agent and repeatedly delayed the appeals process however the settlement officer determined that delays during the prior appeals process were the fault of petitioner after considering the information petitioner provided the settlement officer determined that there was no delay attributable to the actions of respondent’s officers or employees on date the settlement officer issued a supplemental notice_of_determination concerning collection action under sec_6320 and or supplemental notice_of_determination denying petitioner’s request for interest abatement the settlement officer’s supplemental 4petitioner alleged numerous illegal activities undertaken by the revenue_agent in connection with the investigation into petitioner’s tax returns notice_of_determination specifically discussed interest abatement under sec_6404 on date petitioner submitted a second oic proposing to settle its outstanding liabilities for dollar_figure on grounds of doubt as to collectibility and effective tax_administration as with the first oic petitioner also submitted a form 433-b business checking account statements for the period january through date and a copy of an income_tax return on form_1120 for the taxable_year ending date signed by mr budike on date the form_1120 submitted with the second oic second form_1120 was different from the form_1120 submitted with the first oic first form_1120 while both forms showed loans to shareholders of dollar_figure as of date the second form_1120 showed no loans to shareholders at the end of the 5over a 12-month_period petitioner fully paid the dollar_figure proposed oic 6as with the first oic the effective tax_administration ground for the second oic was based on petitioner’s claim that payment of the tax_liability would result in an economic hardship for mr and mrs budike 7the relationship between the two forms for the taxable_year ending date is somewhat complex while petitioner’s representatives believed the first form_1120 was filed with the internal_revenue_service irs petitioner never actually filed the first form_1120 but only sent it to the first settlement officer with the first oic the second form_1120 was the only form_1120 for the taxable_year ending date which was actually filed with and processed by the irs taxable_year and loans from shareholders of dollar_figure at the end of the taxable_year although petitioner’s second oic was submitted before the case was remanded to the appeals_office on date petitioner’s second oic was not considered at the second cdp hearing on date after the case was restored to our general docket following the second cdp hearing petitioner filed a motion requesting that the court remand this case to the appeals_office for consideration of petitioner’s second oic respondent did not object to petitioner’s motion and we granted petitioner’s motion to remand on date a different settlement officer was assigned to consider the second oic on remand this settlement officer scheduled a cdp hearing for date and requested the following be provided by petitioner and mr and mrs budike substantiation of all loans made to and or received from petitioner’s shareholders copies of bank statements for all business and personal accounts for the period date through date an income and expense statement for the 8the second form_1120 did not show any loans from shareholders at the beginning of the taxable_year ending date 9the only issue considered at the second cdp hearing was petitioner’s request for abatement of interest period date through date copies of petitioner’s amended forms a copy of petitioner’s form_1120 for the taxable_year ending date a list of all of petitioner’s real_property and a list of all of petitioner’s accounts_receivable petitioner’s representative sent a letter stating that petitioner had already provided all required_documentation with the submission of the second oic at the cdp hearing on date the settlement officer advised petitioner’s representative that petitioner had not provided the documents and information requested petitioner’s representative again stated that sufficient information had already been provided with the submission of the second oic on date the appeals_office issued a supplemental notice_of_determination rejecting petitioner’s second oic on grounds of doubt as to collectibility because the settlement officer could not fully evaluate the merits of the oic because petitioner did not provide the requested information the supplemental notice_of_determination also stated that your request for consideration of the oic under effective tax_administration can not be considered because the liability is owed by a corporation the case returned to our general docket and a trial was held on date opinion i abatement of penalties petitioner asserts that respondent erred by not abating the accuracy-related_penalties assessed for the taxable years ending date through petitioner’s only argument is that it was entitled to challenge the underlying penalty liabilities in a cdp hearing sec_6330 generally provides that the commissioner cannot proceed with the collection_of_taxes by way of a levy on a taxpayer’s property until the taxpayer has been given notice of and the opportunity for an administrative review of the matter and if dissatisfied with judicial review of the administrative determination 114_tc_604 a taxpayer may challenge the existence or amount of an underlying liability in a cdp hearing under sec_6330 if the taxpayer did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability sec_6330 sego v commissioner t c pincite the term underlying tax_liability includes penalties assessed under the deficiency procedures see 115_tc_329 respondent argues that petitioner had an opportunity to challenge the penalties in the prior tax_court case which resulted in entry of a stipulated decision as a result respondent asserts that petitioner was not entitled to challenge the existence or amounts of the accuracy-related_penalties in the cdp hearing petitioner claims respondent’s argument is disingenuous because petitioner did not know and could not have known the amount of interest and penalties that would be assessed as the case was years old and that many of the delays and setbacks were due to and the fault of the irs we find petitioner’s argument unconvincing plainly petitioner had the opportunity to dispute its liability for the accuracy-related_penalties during the prior tax_court case but chose to agree to a stipulated decision petitioner was therefore not entitled to challenge the existence or amount of the penalties during any later cdp hearing see katz v commissioner t c pincite if a taxpayer has been issued a notice_of_deficiency or had the opportunity to litigate the underlying tax_liability the taxpayer is precluded from challenging the existence or amount of the underlying tax_liability ii abatement of interest petitioner asserts that respondent erred by not abating interest assessed for the taxable years ending date through considering the facts of this case we find that there was no abuse_of_discretion in denying petitioner’s request for abatement of interest the commissioner is permitted to abate the assessment of interest on any deficiency attributable to any unreasonable error or delay by an officer_or_employee of the irs in performing a ministerial or managerial actdollar_figure sec_6404 a ministerial_act is a procedural or mechanical act that does not involve the exercise of judgment or discretion by the commissioner sec_301_6404-2 proced admin regs a managerial act is an administrative act that occurs during the processing of a taxpayer’s case involving the temporary or permanent loss of records or the exercise of judgment or discretion relating to management of personnel sec_301_6404-2 proced admin regs congress did not intend the interest abatement statute to be used routinely rather interest abatement is granted ‘where failure to abate interest would be widely perceived as grossly unfair ’ 113_tc_145 quoting h_r rept no pincite 1986_3_cb_1 and s rept no pincite 1986_3_cb_1 this court has jurisdiction under sec_6404 to review the commissioner’s decision as to whether taxpayers are entitled to abatement of interest for the relevant tax years 10such a determination under sec_6404 may be made in a sec_6330 cdp hearing gray v commissioner t c slip op pincite date we note that as was the case in gray the settlement officer’s supplemental notice_of_determination specifically discussed interest abatement under sec_6404 in denying petitioner’s request for interest abatement gray v commissioner t c slip op pincite date our jurisdiction to review denials of sec_6404 interest abatement requests made in sec_6330 proceedings is well established to prevail a taxpayer must prove that the commissioner abused his discretion by exercising it arbitrarily capriciously or without sound basis in fact or law 112_tc_19 in reviewing for abuse_of_discretion we generally consider only the arguments issues and other matters that were raised at the hearing or otherwise brought to the attention of the appeals_office 129_tc_107 tinnerman v commissioner tcmemo_2010_150 aff’d 448_fedappx_73 d c cir during the date cdp hearing on the first remand petitioner argued that abatement of interest was warranted because of various improper actions taken by the revenue_agent and the appeals officer assigned to petitioner’s deficiency case which caused delaysdollar_figure after considering petitioner’s arguments the settlement officer determined that delays during the prior appeals process were the fault of petitioner and denied petitioner’s request for abatement of interest 11respondent denied petitioner’s allegations at trial and the revenue agent’s case activity record indicated that delays during the appeals process were the fault of petitioner considering the record we do not believe that petitioner has proved that any ministerial or managerial error occurred or that respondent otherwise abused his discretion in denying petitioner’s request for abatement of interest petitioner has accused irs employees of a multitude of illegal delay-causing activities but has provided no evidence that such activities actually occurred we therefore find respondent did not abuse his discretion in denying petitioner’s request for abatement of interest iii rejection of petitioner’s oics a taxpayer may raise collection alternatives such as an oic at a cdp hearing and the commissioner is authorized to compromise any civil case arising under the internal revenue laws sec_6330 sec_7122 sec_301_7122-1 proced admin regs sets forth three grounds for the compromise of a liability doubt as to liability doubt as to collectibility or promotion of effective tax_administration the only ground for us to consider is doubt as to collectibilitydollar_figure 12as discussed supra petitioner is not entitled to challenge the underlying liabilities because petitioner previously entered into a stipulated decision regarding them in addition petitioner has failed to argue or present sufficient evidence to prevail on grounds of effective tax_administration we thus do not reach the issue not addressed by the parties regarding whether a corporation may be entitled to an oic on effective tax_administration grounds in general the decision to accept or reject an offer as well as the terms and conditions agreed to are left to the discretion of the commissioner sec_301 a c proced admin regs the commissioner will usually compromise a liability only if the liability exceeds the taxpayer’s reasonable collection potential 137_tc_123 we do not conduct an independent review of what the commissioner determines to be an acceptable offer 125_tc_301 aff’d 469_f3d_27 1st cir rather when we review a determination to reject an oic we will reject the determination only if it was arbitrary capricious or without sound basis in fact or law id petitioner asserts that both settlement officers abused their discretion by using a erroneous invalid tax_return to make their evaluations and determinations delaying review of the second oic and requesting additional information from petitioner before considering the second oic petitioner’s first and third arguments both relate to the first form_1120 which reported that mr and mrs budike owed dollar_figure to petitioner as a result of loans made to shareholders we will therefore consider those arguments together after first addressing petitioner’s second argument a delay in the processing and review of petitioner’s second oic petitioner claims respondent acted arbitrarily and maliciously because he refused to process and review the second oic timely even though he had it in his possession petitioner also argues that the second oic should be deemed to be accepted by respondent because of the delay regarding deemed acceptance of the second oic by respondent petitioner mistakenly cites section b of the proposed tax relief act of which would have amended sec_7122 to provide any offer-in-compromise submitted under this section shall be deemed to be accepted by the secretary if such offer is not rejected by the secretary before the date which i sec_24 months after the date of the submission of such offer months for offers-in-compromise submitted after the date which i sec_5 years after the date of the enactment of this subsection s 109th cong sec b this proposed statute led petitioner to incorrectly believe that the second oic should have been accepted or rejected within_12_months a version of s sec b was enacted in the tax_increase_prevention_and_reconciliation_act_of_2005 pub_l_no sec_509 sec_120 stat pincitethis section does not exist in the final public law however the enacted statute allows for a 24-month period for the secretary to reject an oic providing any offer-in-compromise submitted under this section shall be deemed to be accepted by the secretary if such offer is not rejected by the secretary before the date which i sec_24 months after the date of the submission of such offer for purposes of the preceding sentence any period during which any_tax liability which is the subject of such offer-in-compromise is in dispute in any judicial proceeding shall not be taken into account in determining the expiration of the 24-month period id petitioner submitted its second oic on date and it was rejected on date therefore the second oic was properly rejected within months of the date on which it was submitted and petitioner’s argument fails see sec_7122 we therefore find the second oic was not deemed to be accepted by respondent we also reject petitioner’s related claim that respondent arbitrarily and maliciously delayed consideration of the second oic while petitioner did submit the second oic before the date cdp hearing it provided no evidence that it sought to raise the second oic during that hearingdollar_figure shortly thereafter the 14indeed petitioner’s date motion to remand for consideration of the second oic states that on date appeals met with petitioner to consider the interest abatement issue and that on date petitioner called the irs to find out what happened to the second offer-in-compromise case was restored to our general docket until the second remand on date during which time respondent was unable to consider the second oic we also note that respondent did not object to petitioner’s motion to remand for consideration of the second oic and promptly held a cdp hearing regarding the second oic after the motion was granted considering these facts we find that respondent did not arbitrarily and maliciously delay consideration of the second oic b alleged loans to shareholders petitioner claims the second settlement officer requested additional information from petitioner before the third cdp hearing solely because the first form_1120 submitted with the first oic but not filed with the irs showed outstanding loans to shareholders totaling dollar_figure as of date similarly petitioner faults the first settlement officer for rejecting the first oic on account of the loans to shareholders reflected on the first form_1120 because the first form_1120 was never filed with the irs petitioner asserts that the settlement officers were so determined to punish the taxpayer and prove that it did something wrong that they knowingly willfully and malicious used and relied on an erroneous invalid tax_return and not the official tax_return logged into the irs computer system to make their final evaluations and determinations petitioner also asserts that the second settlement officer made a blanket request for information which would have no impact on the case resolution petitioner claims such actions were in violation of internal_revenue_manual protocol we disagree with petitioner although it is true that the first form_1120 was never filed with the irs as petitioner’s tax_return it was submitted with petitioner’s first oic that form_1120 as well as the forms for the taxable years ending date and which were filed with and processed by the irs all reported outstanding loans to shareholders in excess of dollar_figure in addition the second form_1120 which was filed with the irs reported loans to shareholders of dollar_figure as of date the settlement officers encountered evidence in the administrative record that outstanding loans to petitioner’s shareholders may have existed at the time the first and second oics were filed as a result both settlement officers requested information from petitioner which was not available to the settlement officers internallydollar_figure 15internal revenue manual irm pt date states that a thorough verification of the taxpayer’s collection information statement form 433-a and or form 433-b involves reviewing continued the first settlement officer was told by petitioner’s representatives that the outstanding loans to shareholders reported on petitioner’s tax returns were incorrect petitioner also supplied that settlement officer with a letter from its accountant which stated that the filed tax returns were incorrect as well as a letter from mr budike which stated that petitioner actually owed mr and mrs budike money in spite of the letters the settlement officer rejected petitioner’s first oic as a result of the outstanding loans to shareholders reported on the first form_1120 and other prior filed tax returns continued taxpayer submitted documentation and information available from internal sources as a general_rule additional documentation should not be requested when the information is readily available from internal sources or it would not change the recommendation in addition irm pt date states that if not present in the file when assigned for investigation and internal sources are not available or indicate a discrepancy appropriate documentation should be requested from the taxpayer either verbal or written to verify the information on the collection information statement a request for additional information and verification should be based on the taxpayer’s circumstances and the information must be necessary to make an informed decision on the acceptability of the taxpayer’s oic do not make a blanket request for information that would have no impact on the case resolution do not request any information that is available internally the second settlement officer requested the following information from petitioner and mr and mrs budike to substantiate petitioner’s claims regarding the loans to shareholders as stated on the second form_1120 substantiation of all loans made to and or received from petitioner’s shareholders copies of bank statements for all business and personal accounts for the period date through date an income and expense statement for the period date through date copies of petitioner’s amended forms a copy of petitioner’s form_1120 for the taxable_year ending date a list of all of petitioner’s real_property and a list of all of petitioner’s accounts_receivable when petitioner refused to submit the requested information the settlement officer rejected the second oic both settlement officers encountered multiple pieces of evidence in the administrative record which stated that outstanding loans to shareholders payable to petitioner existed including the first form_1120 additional information relevant to the shareholder loan issue was then requested and both oics were rejected when petitioner failed to provide satisfactory evidence that no loans to shareholders existed the information requested of petitioner was not available to the settlement officers internally indeed many of the internally available records stated that loans to shareholders existed and no blanket request from petitioner was made we therefore find the respondent’s determinations were not arbitrary capricious or without sound basis in fact or law iv conclusion we hold that petitioner was not entitled to challenge assessed accuracy- related penalties at its cdp hearing we further hold that respondent did not abuse his discretion in rejecting petitioner’s request for an abatement of interest or in rejecting petitioner’s proposed oics we therefore sustain respondent’s determinations in reaching our holdings herein we have considered all arguments made and to the extent not mentioned above we conclude they are moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent


date cor-115897-00 internal_revenue_service number info release date uil the honorable john boehner u s house of representatives washington d c dear mr boehner thank you for your letter of date signed by you and a number of your colleagues encouraging the internal_revenue_service to immediately readjust the business standard mileage rate to reflect the recent increase in gasoline prices you note that the increased cost has particularly burdened self-employed taxpayers who use automobiles for business purposes gasoline prices we realize increased gasoline prices are an economic burden however the cost of gasoline is only one part of the business standard mileage rate which includes fixed and operating automobile costs these costs include depreciation or lease payments maintenance and repairs insurance and license and registration fees in addition to gasoline and oil less than one-third of the cents per mile rate comes from the cost of gasoline and oil thus an immediate adjustment in the rate taking into account the recent increase in gasoline prices might not be significant setting the business standard mileage rate the rate is a national average amount determined by an annual study performed by an independent_contractor who is an expert in the cost analysis of business use of automobiles the contractor uses recent data from each state on the component costs of operating the most popular automobiles the contractor then combines this data to achieve a national composite cents-per-mile rate advantages of using the business standard mileage rate reducing a taxpayer’s record-keeping burden is the principal advantage of using the rate gasoline prices rise and fall during the year but taxpayers may continue to use the same rate without having to keep records of actual expenses although rising gasoline prices can be a disadvantage for taxpayers who use the rate falling prices can work to their advantage for example although gasoline prices fell in for all of and through date taxpayers were able to use the rate that reflected the earlier higher prices taxpayer’s options to deduct the ordinary and necessary expenses of using an automobile for business purposes a taxpayer must substantiate the cost date place and business_purpose of each use of the automobile by adequate_records for the cost the taxpayer has two options substantiate actual cost by keeping records or by other_sufficient_evidence use the business standard mileage rate using the rate gives approximate not actual costs taxpayers can deduct the actual business_expenses of using a personally-owned automobile and this may be advantageous when automobile costs are rising publication travel entertainment gift and car expenses contains further information on how taxpayers should substantiate expenses i have enclosed the relevant pages from that publication i am sending a similar letter to your colleagues i hope this information is helpful please call me at or robert a berkovsky at if you have any questions sincerely charles o rossotti enclosure


internal_revenue_service number release date index number --------------- --------------------------- ------------------------------------------------- ------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-127751-06 date date --------------- -------- ----------------------- ------------------------ ------- ------- ------- ------- ------- ---------------------- legend legend x ein ---------------- state d1 d2 a year year year year d3 dear ---------------- plr-127751-06 this responds to the letter dated date and related correspondence submitted on behalf of x requesting relief under ' f of the internal_revenue_code acode for an inadvertent termination of s election facts the information submitted states that x was incorporated under the laws of state on d1 x elected to be treated as an s_corporation for federal tax purposes effective d2 at the time of the election x has dollar_figurea in accumulated_earnings_and_profits ce p for each of the consecutive years of year year and year x had passive_investment_income in excess of percent of its yearly gross_receipts after the death of the sole shareholder of x in year the tax professionals of x became aware that x’s s election had been terminated x represented that all relevant returns have been filed and taxes paid including the tax under sec_1375 consistent with the treatment of x as an s_corporation law and analysis sec_1361 defines an s_corporation as a small_business_corporation for sec_1362 provides that an election under sec_1362 shall be except as otherwise provided in sec_1362 sec_1362 provides that which an election under sec_1362 is in effect for the taxable_year terminated whenever the corporation has accumulated_earnings_and_profits at the close of each of three consecutive taxable years and has gross_receipts for each of the taxable years more than percent of which are passive_investment_income the termination is effective on and after the first date of the first taxable_year beginning after the third consecutive taxable_year referred to in sec_1362 sec_1362 the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consent or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the termination steps were taken - a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to this subsection agrees to make such adjustments consistent with the treatment of the corporation as sec_1362 provides that if an election under sec_1362 by any plr-127751-06 an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such termination such corporation shall be treated as an s_corporation during the period specified by the secretary sec_1368 provides rules for determining the source of distributions made by an s_corporation having accumulated_earnings_and_profits with respect to its stock sec_1368 and sec_1_1368-1 provide that an s_corporation may with the consent of all its affected_shareholders elect to distribute earnings_and_profits first part of its accumulated_earnings_and_profits through a deemed_dividend if an s_corporation makes the election provided in sec_1_1368-1 the s_corporation will be considered to have made the election under sec_1368 and sec_1_1368-1 to distribute earnings_and_profits first sec_1_1368-1 provides that an s_corporation may elect to distribute all or sec_1375 imposes a tax on the income of an s_corporation that has accumulated_earnings_and_profits at the close of a taxable_year and that has gross_receipts more than percent of which are passive_investment_income within the meaning of sec_1362 conclusion based solely upon the representations made and the information submitted we conclude that x’s s election terminated on d3 we further conclude that the termination of x’s s election was an inadvertent termination within the meaning of sec_1362 pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation on and after d3 unless x’s s election is otherwise terminated under sec_1362 and provided that the following conditions are met within days from the date of this letter x shall file an amended income_tax except as specifically ruled upon above no opinion is expressed as to the return for year electing pursuant to sec_1_1368-1 to make a deemed_dividend of dollar_figurea also within days from the date of this letter the year income_tax return of the sole shareholder of x must be amended to reflect the changes made to the year income_tax return of x if these conditions are not met then this ruling is null and void federal_income_tax consequences of the facts described above under any other provision of the code the code provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer who requested it sec_6110 of plr-127751-06 in accordance with the power_of_attorney on file with this office copies of this letter_ruling will be sent to your authorized representatives sincerely enclosures david r haglund senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries copy of this letter copy for ' purpose-s