t c memo united_states tax_court tonda lynn dickerson petitioner v commissioner of internal revenue respondent docket no filed date p a waitress received from a customer a winning lottery ticket from the prior night’s florida lottery drawing although the ticket’s winning status was at the time apparently unknown to the customer p and members of her family formed a corporation to claim the proceeds p held of the stock members of her family held the remaining stock r alleges p’s family members because they owned of the stock received a gift when p signed the winning ticket as president of the corporation and submitted it to the florida lottery as the corporation’s property p claims it was not a gift because a long-standing enforceable agreement existed among her family that mandated she share the winning proceeds with them or because p and her family members were members of an existing partnership that was the true owner of the ticket former coworkers of p filed suit against p claiming that they had a preexisting agreement with p to share the proceeds of any winning lottery ticket received as a gift or tip from a customer an alabama trial_court sided with the coworkers but that decision was ultimately overturned by the alabama supreme court p argues in the alternative that if a gift did occur then the value_of_the_gift should be discounted held p made a gift of a share of her interest in the winning lottery ticket the discounted taxable value_of_the_gift was dollar_figure david m wooldridge donald eugene johnson gregory p rhodes and ronald a levitt for petitioner horace cump and edwin b cleverdon for respondent memorandum findings_of_fact and opinion wherry judge this case is before the court on a petition for redetermination of a dollar_figure gift_tax deficiency for the tax_year there are two issues first did petitioner make a taxable gift when she contributed a winning lottery ticket to a newly formed corporation in which she owned only of the stock and other family members owned the rest second if petitioner did make a gift what was the value_of_the_gift findings_of_fact some of the facts have been stipulated the stipulations of the parties with accompanying exhibits are incorporated herein by this reference petitioner resided in alabama at the time she filed her petition i she’s got a ticket to ride petitioner is a former waitress of the waffle house in grand bay alabama edward seward was a regular customer coming to the waffle house almost daily mr seward had a reputation of giving away lottery tickets frequently giving tickets to individuals including petitioner and her coworkers as alabama did not have a lottery mr seward would travel to neighboring florida to procure the tickets on date mr seward went to the waffle house and while there handed petitioner an envelope containing a lottery ticket unbeknownst to mr seward at that time the ticket he gave petitioner was one of two winning tickets that had been drawn for the saturday evening date drawing of the florida lotto jackpot the ticket was if paid out over years valued at dollar_figure with a cash payout amount of dollar_figure petitioner was not mr 1the record does not reveal how the lottery ticket’s value was determined we note that the prize awarded was dollar_figure payable per year for years or dollar_figure ie dollar_figure x seward’s waitress on date and the parties agree the winning ticket was a gift not a tip to petitioner petitioner did not open the envelope until shortly after she left work at that time she realized the numbers on her ticket matched the ones a coworker told her had been drawn the day before thinking someone was playing a joke on her she called her father bobby reece and asked him to confirm whether she was indeed holding a winning ticket he did and she was according to petitioner when she realized she held a winning ticket because of her family’s prior existing agreements immediately i knew that i was sharing with my family which brings us to an integral aspect of this case--the alleged reece family agreement ii family values according to petitioner it was well-known that we were in to lotteries the court will take judicial_notice that the florida lottery began on date shortly thereafter mr reece began a tradition of buying lottery tickets using petitioner’s her sister’s and her brother’s birthdays as the number sequence petitioner obtained her first lottery ticket in high school when she and her brother 2apparently respondent did not assert mr seward owed income_tax on the winning lottery ticket or gift_tax for giving the winning lottery ticket to petitioner johnny reece started giving their father money so that he could purchase tickets on their behalf one must be to legally purchase a ticket at trial petitioner stated our family had always talked about if anyone had won any big amount of money in a lottery that we would take care of each other or share in the family similarly mr reece and johnny also testified extensively about the sharing attitude of the reece family and the alleged lottery proceeds sharing_agreement while the court concludes there was a general vague lottery proceeds sharing_agreement this sharing_agreement was never written down and there is no documentation to support its existence or its terms there was never an understanding that each family_member had to buy a certain number of tickets or even buy tickets at all johnny for example stated he does not regularly participate or even think of it just whenever i think about it at a convenience store i might pick up five bucks here and there nothing standard or any kind of pattern in fact from the record it appears that the only family_member who frequently bought lottery tickets was mr reece before the winning ticket at issue here there were never any discussions or consistent course of dealing about specific percentages each family_member would get of any winning ticket when questioned at trial petitioner stated there were no specifics and that they just said that we would share we would take care of each other there is no doubt that the reece family was a very close and sharing family mr reece prepares all of the family members’ tax returns the family gathers at mr and mrs reece’s house almost daily when petitioner first married and moved to mississippi for a short time she would still return to her parents’ house which she characterized as the hub of our family almost every day mr reece once won dollar_figure and took the reece family to dinner and there are more examples of the family’s sharing attitude in mr and mrs reece bought approximately acres of land mr reece took the acreage and plotted it out into four equal lots so that he and mrs reece as well as each child would have a plot on which to build a house or place a mobile home then there is the per_diem mr reece traveled for work receiving a per_diem for food while away he would do his own cooking in order to save money and the per_diem he did not use he divided among his children true to these sharing beliefs after petitioner realized she held the winning ticket she wanted to share it and conversations immediately started taking place among certain members of the reece family about how they were going to split the money but just how could this be accomplished she turned to her father for advice iii inc -ing the deal on monday march after learning on the previous day that his daughter had won the lottery mr reece contacted louisa warren the general counsel for the florida lottery commission ms warren told mr reece don’t sign that ticket period don’t sign the ticket and she further stated that a single entity would have to be formed to claim the prize for the family because of ms warren’s express instructions not to sign the ticket petitioner put the ticket away while her father decided what to do immediately after talking to ms warren mr reece called dwight reid a lawyer he had consulted before that same day mr reid prepared incorporation papers for an s_corporation to be named mill inc mill also on march a meeting of the prospective family stockholders of mill was held and shares of stock in the proposed corporation issued in the following percentages shareholder tonda and james dickerson jointly cynthia reece1 john a lorie a reece jointly larry l jennifer d pierce jointly percentage owned 1cynthia reece is petitioner’s mother 2john a lorie a reece are petitioner’s brother and sister-in-law 3larry l and jennifer d pierce were petitioner’s sister and brother-in-law from the record it is evident that it was mr reece who determined these percentages not petitioner and not the reece family as a group mr reece himself stated that he was the one who worked out the percentages and that he did it at his kitchen table alone while petitioner and her then husband james dickerson were looking at automobiles once he determined the percentages mr reece told mrs reece petitioner and mr dickerson stating at trial that tonda and i and tonda’s husband and my wife were discussing at the table and we were talking about -- i had figured out that i was making at that time big_number something like that dollar_figure a year at my company my income and i took the nine million and a percentage to get around that amount and i said that’s what the kids should get and if they couldn’t live on that i’m sorry the reasons petitioner and mr dickerson received appear twofold so no one person had majority ownership and control and so petitioner 3petitioner and mr dickerson’s marriage had been dissolved by the time of trial could help her husband’s family and mr seward apparently he wanted a new truck the articles of incorporation for mill were signed on thursday march by petitioner mr dickerson and mrs reece on date the articles of incorporation were filed with the alabama secretary of state on date a savings account was opened at mobile county bank in the name of mill with petitioner mr dickerson and mrs reece listed as having signatory power in the account and with two signatures being required to withdraw funds from the account iv eye on the booty the rules of the florida lottery required all tickets valued over dollar_figure to be claimed at the lottery headquarters on friday march petitioner mr dickerson and mr and mrs reece met with florida lottery officials petitioner signed a florida lottery winner claim form claiming the lottery prize in the name of mill as president of the corporation petitioner also signed a winner claim form addendum on behalf of mill making an irreversible election to receive the lottery winnings in annual installments of dollar_figure each with the first annual payment_date being scheduled for date while there petitioner mr dickerson and mr and mrs reece also signed an affidavit stating they knew of the option to receive a lump-sum payout but that mill had elected to receive the prize in annual installments that was not all the affidavit stated it also stated that the florida lottery had been notified of a competing claim to the winning lottery ticket and on march while in tallahassee the family was informed that no payment of the prize funds would be made until the disputed claim was resolved that brings us to the quarrel over the ticket v house of waffling petitioner wanted to share with her family her coworkers at the waffle house wanted her to share with them in fact they thought she was obligated to share with them because they had all agreed to split lottery winnings if any of them won petitioner first explicitly learned of this spat on tuesday march when sandra deno called her claiming that petitioner was a party to a pooling_agreement with other employees at the waffle house ms deno and three other waffle house employees then obtained counsel stephen e clements on or about date but in any event before the prize was awarded mr clements the lawyer representing the four former coworkers waffle house claimants called ms warren and informed her that a dispute existed regarding the proceeds of the lottery ticket and that his clients were entitled to of the proceeds he followed up with a letter dated march and sent by facsimile on date which stated in part we would request that no commitments concerning distribution nor actual distribution of any funds be made to ms dickerson or any person or firm on her behalf until such time as the issue of actual ownership of said ticket can be resolved between the parties on date while petitioner was filing the articles of incorporation for mill with the alabama secretary of state mr clements was initiating a lawsuit on behalf of the waffle house claimants in the circuit_court of mobile county alabama waffle house complaint the waffle house complaint requested among other relief that the court determine that a valid joint_ownership 4respondent initially objected to the introduction of the waffle house complaint on the grounds of materiality relevance and hearsay at trial petitioner orally stipulated that the waffle house complaint was not being offered for the truth of the allegations made by mr clements but was simply being offered for the fact that those assertions and those statements were made in the circuit_court of mobile county on or about the 18th of march thereafter respondent withdrew his objection in addition to objecting to the introduction of the waffle house complaint respondent also objected to numerous other stipulated facts regarding the lawsuit on the grounds of materiality and relevance fed r evid defines relevant evidence as evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence these stipulated facts will be admitted and respondent’s objections are overruled these facts are both relevant and material in determining the value of the lottery ticket on the date petitioner gave it to mill and have proven to be helpful to the court agreement had been entered into between the waffle house claimants and petitioner and asserted that the waffle house claimants were entitled to of the proceeds of the lottery ticket on date the circuit_court of mobile county ordered that all parties refrain from any further efforts to collect or attempt to collect any funds from the state of florida department of lottery which were or might be the subject of the tiff on date after a trial before an advisory jury the circuit_court of mobile county entered an order finding that the waffle house claimants had a valid and enforceable joint_ownership agreement with petitioner and that they were entitled to of the proceeds of the lottery ticket or dollar_figure pursuant to the order of the circuit_court of mobile county alabama to pay this amount less any necessary federal or state tax withholdings into that court the florida lottery commission paid dollar_figure into the circuit_court of mobile county on date mill filed a notice of appeal with the alabama supreme court on date the alabama supreme court reversed the trial_court dickerson v deno so 2d ala the alabama supreme court concluded that while the waffle house claimants had presented sufficient evidence to support a finding that an oral agreement existed the agreement was unenforceable on public policy grounds because it was founded on gambling consideration see ala code sec lexisnexi sec_2002 after the decision of the alabama supreme court was issued mr clements threatened an appeal to the united_states supreme court and also raised the issue of a payout to his clients in exchange for their promise not to talk to the media on date mr seward filed a complaint in the circuit_court of mobile county alleging that petitioner had breached her agreement to share the proceeds with the waffle house claimants and that therefore he was entitled to the full proceeds sometime in date the circuit_court of mobile county entered an order denying his claim mr seward appealed to the alabama supreme court which affirmed the circuit_court on date see seward v dickerson so 2d ala vi looking a gift horse in the mouth petitioner did not file a gift_tax_return for the tax_year until she was asked to by toya sue washington an attorney in the estate_tax division of the internal_revenue_service irs petitioner’s form_709 united_states gift and generation-skipping_transfer_tax return which was received on date reported that no taxable gift had been made the irs disagreed with petitioner and alleged she had made a gift of dollar_figure as a consequence of her transfer of the lottery ticket to mill respondent thereafter issued a notice_of_deficiency dated date determining a gift_tax deficiency of dollar_figure on behalf of petitioner mr reece timely filed a petition with this court trial was held on date in mobile alabama opinion i burden_of_proof in general the commissioner’s determinations are presumed correct and the taxpayer bears the burden of proving that they are incorrect rule a 503_us_79 290_us_111 however if in any court_proceeding a taxpayer introduces credible_evidence with respect to any factual issue relevant to ascertaining the taxpayer’s liability for any_tax imposed by subtitle a or b of the internal_revenue_code and meets certain other requirements the burden with 5respondent apparently determined the amount_of_the_gift was dollar_figure on the basis that the full present_value of the installments due to be paid to the undisputed owner of the lottery ticket was dollar_figure of which is dollar_figure on brief the parties agree that without taking into consideration the dispute over ownership the full present_value of the lottery ticket was dollar_figure we accept this but note that the record does not reveal how dollar_figure was calculated 6unless otherwise indicated all section references are to the internal_revenue_code_of_1986 code as amended and in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure respect to that factual issue shifts to the commissioner sec_7491 in her reply brief petitioner asserts for the first time that sec_7491 shifts the burden_of_proof to respondent petitioner did not assert in her pretrial memorandum or at trial that respondent bears the burden_of_proof generally we will not consider an issue that is raised for the first time on brief estate of aronson v commissioner tcmemo_2003_189 n citing 92_tc_376 aff’d 920_f2d_1196 5th cir additionally by not even raising the issue in her opening brief petitioner has given respondent no opportunity to address this issue petitioner’s attempt to first raise the issue of sec_7491 on reply brief is untimely and prejudicial to respondent see kansky v commissioner tcmemo_2007_40 regardless we do not need to decide who bears the burden_of_proof because the parties have provided sufficient evidence for us to determine both that a gift occurred and the value of that gift and that determination is unaffected by the burden_of_proof see 124_tc_95 trout ranch llc v commissioner tcmemo_2010_283 in a situation in which both parties have satisfied their burden of production by offering some evidence then the party supported by the weight of the evidence will prevail regardless of which party bore the burden of persuasion proof or preponderance therefore a shift in the burden of preponderance has real significance only in the rare event of an evidentiary tie 131_tc_185 quoting 394_f3d_1030 8th cir aff’g t c memo see also 110_tc_189 ndollar_figure holding that the allocation of the burden_of_proof was immaterial because the court’s conclusions were based on the preponderance_of_the_evidence ii whether a taxable gift occurred sec_2501 generally imposes a tax for each calendar_year on the transfer of property by gift during such year by an individual the tax imposed by sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2511 sec_25_2511-1 gift_tax regs provides that a transfer of property to a corporation for less than adequate_consideration represents gifts to the other individual shareholders of the corporation to the extent of their proportionate interests see 130_tc_170 aff’d 601_f3d_763 8th cir 115_tc_376 aff’d 283_f3d_1258 11th cir see also estate of sharp v commissioner tcmemo_1994_636 stating that w hen property is transferred for less than adequate_and_full_consideration the amount by which the value of the property exceeds the value of the consideration shall be deemed a gift the arguments are straightforward respondent contends that petitioner’s transfer of the lottery ticket to mill was an indirect gift to the extent that of the shares of mill were at the time transfer of the lottery ticket took place owned by petitioner’s mother brother sister sister-in-law and brother-in-law petitioner argues that no taxable gift occurred because at the time of the lottery ticket transfer there had previously existed and remained in effect a binding and enforceable contract under alabama state law requiring the transfer or alternatively the family members and petitioner were all members of an existing partnership under federal tax law which was the true owner of the lottery ticket or its proceeds we address each of petitioner’s arguments in turn 7petitioner’s retention of of mill with her then husband resulted in no taxable gift sec_2523 provides where a donor transfers during the calendar_year by gift an interest in property to a donee who at the time of the gift is the donor’s spouse there shall be allowed as a deduction in computing taxable_gifts for the calendar_year an amount with respect to such interest equal to its value 8petitioner contends there are four distinct and alternative arguments as to why no taxable gift occurred there was a pre-existing binding and enforceable agreement among the reece family to share in any lottery tickets acquired by any of them continued a whether a binding and enforceable contract existed under alabama state law state law controls the determination of the nature of the property interest the taxpayer conveyed musgrave v commissioner tcmemo_2000_285 citing 472_us_713 see also 823_f2d_483 11th cir stating that while valuation of an interest in property for federal tax purposes is continued sufficient to form a partnership for federal tax purposes there was a pre-existing agreement among the reece family there was a pre-existing binding agreement among the reece family that provided sufficient terms and specificity to be enforced under state law but the agreement may not have been enforceable under alabama’s anti-gambling statute in this situation tax_court precedent is clear that such an agreement - even though enforcement is barred for some reason - is sufficient to avoid there being a taxable gift under federal tax law there was a pre-existing agreement or understanding among the reece family members although some terms of that agreement might not be sufficiently clear to allow enforcement under state law nevertheless tax_court precedent supports a finding under federal tax law that no taxable transfer occurred if there was an intention to share the proceeds and that intention was implemented while petitioner characterizes these arguments as distinct we believe they can be condensed into two arguments the alleged agreement was enforceable under state law and therefore resulted in no taxable gift and even if not enforceable under state law the alleged agreement resulted in no taxable gift pursuant to federal tax law a question of fact state law determines precisely what property is transferred aff’g tcmemo_1985_595 131_tc_215 stating state law determines the nature of a property interest and federal_law determines the federal taxation of that property interest in order to determine whether a valid contract existed between the reece family members and petitioner we must look to alabama state law if so petitioner did not make a gift by sharing the lottery proceeds with her family pursuant to her contractual obligations the elements of a valid contract in alabama are an agreement consideration two or more contracting parties a legal object and capacity shirley v lin so 2d ala respondent asserts that the elements of agreement consideration and a legal object render the reece family agreement contract too vague and indefinite to enforce petitioner concedes that a material term of the agreement the specified percentages each family_member would get was not stated but argues that the reece family’s history of equally dividing assets and money is evidence of their intention to share citing the division of the family lot in southern alabama into four plots and the equal sharing of mr reece’s leftover per_diem pay as examples whether the terms of an agreement are sufficiently definite for it to constitute an enforceable contract is a question of law to be determined by the court white sands group l l c v prs ii llc so 2d ala the terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy id pincite while ‘the law does not favor but leans against the destruction of contracts because of uncertainty it will if feasible so construe the contract as to carry into effect the reasonable intention of the parties if that can be ascertained ’ but the court ‘cannot set up a contract for the parties’ smith v chickamauga cedar co so 2d ala citations omitted see also cook v brown so 2d ala civ app stating that a trial_court should not attempt to enforce a contract whose terms are so 9petitioner does not attempt to explain why if their intent was to share equally they did not share the proceeds of the winning ticket equally nor does she address the issue of whether if an enforceable agreement to share equally did in fact exist her family made a gift to her by allowing her to hold of the stock instead of an equally divided percentage indefinite uncertain and incomplete that the reasonable intentions of the contracting parties cannot be fairly and reasonably distilled we agree with respondent the terms of the so-called reece family agreement consist solely of offhand statements made throughout the years about sharing and taking care of one another in the event someone came into a substantial amount of money this is not enough there was no requirement that each family_member buy lottery tickets there was no pattern there was no pooling of money there were no predetermined sharing percentages and while both petitioner and mr reece testified that the agreement covered only substantial winnings neither gave any indication as to what substantial was defined as who was party to the agreement was also vague mr reece stated that the agreement included himself and his wife his three children and their spouses yet when asked what would have happened if his son-in-law had bought a winning ticket by himself specifically whether this ticket would have been included in the deal he stated knowing this gentleman i would assume yes it would be in the agreement this testimony is simply further evidence of the very sharing nature of petitioner’s family but a feeling of moral obligation to take care of one’s family and a few statements that one would do so in the hypothetical situation that one won the lottery simply does not rise to the level of an enforceable contract what the family had at best was an unenforceable contract to agree on something if in fact one of them was the recipient of a substantial lottery prizedollar_figure the actions taken by petitioner and mr reece after petitioner realized she had won the lottery also support a finding that all that existed was petitioner’s desire to share her good fortune with her family conversations took place but instead of collaborative discussions mr reece told the family what he had decided should happen not only did petitioner’s sister and brother and their spouses not take an active role in these conversations they did not travel to florida to claim and celebrate their shared winnings petitioner mr dickerson and mrs reece were the only three listed as having signatory power over mill’s bank account and it is curious to this court that the lottery proceeds were not divided equally if the family’s intention was to share equally as indicated by 10at most the family had an agreement to agree it is established that these are not enforceable see clanton v bains oil co so 2d ala see also capmark bank v rgr llc __ so 3d __ wl at ala date stating that a contract that ‘leav es material portions open for future agreement is nugatory and void for indefiniteness’ internal cites omitted petitioner’s reference to how her family shared equally in an dollar_figure dinner and mr reece partitioned land into four equal lots contrary to petitioner’s belief the terms of the alleged reece family agreement are too indefinite uncertain and incomplete for enforcement see eg smith so 2d pincite holding a contract giving one party ‘an unlimited right to determine’ the extent of its performance with respect to the furnishing of logs was too indefinite for legal enforcement hunt v hammonds so 2d ala holding a contract to supply eight acres of land of an uncertain description was void for uncertainty because it did not require one party to supply any certain land ricks v riddle equip inc so 3d ala civ app holding an agreement was too indefinite to constitute an enforceable contract when it did not specify the amount of commission one party would be paid or a method for determining the amount or how long machinery would be stored in a building dollar_figure 11in contrast an enforceable agreement to share was found to exist pursuant to the contract law of the district of columbia in pearsall v alexander a 2d d c in that case unlike this case evidence existed establishing an agreement between two men to share equally in the proceeds of a jointly-purchased winning lottery ticket the two men had been friends for over years and approximately twice a week would get together after work id pincite together they would go to a liquor store and purchase a package which consisted of vodka orange juice two cups and two lottery tickets id pincite if a ticket ever won the continued additionally even if otherwise enforceable the alleged reece family agreement would be rendered void pursuant to alabama’s antigambling statute see barber v jefferson cnty racing ass’n inc so 2d ala stating that i t is ‘the policy of the constitution and laws of alabama to prohibit the vicious system of lottery schemes and the evil practice of gaming in all their protean shapes’ alteration in original ala code sec a provides in part all contracts founded in whole or in part on a gambling consideration are void in dickerson so 2d pincite the case between petitioner and the waffle house claimants the alabama supreme court stated the alleged oral contract in this case was an exchange of promises to share winnings from the parties’ individually owned lottery tickets upon the happening of the uncertain event that the numbers drawn in the florida lottery matched the numbers on one of the tickets held by the five individuals consequently the agreement between the parties was nothing more than an attempt by each of the five lottery-ticket holders to increase his or her odds of winning some portion of the florida lottery continued two would use the proceeds to purchase additional tickets id on the night in question two packages were purchased id after the first package had been purchased one man asked the other are you in on it to which the other replied yes id the second package which included a dollar_figure winning lottery ticket was then purchased a little later that day id the court looking at the longstanding pattern of conduct between the two and the exchanging of promises to share in the proceeds held that there was an enforceable agreement to share id pincite- consequently we conclude that the agreement at issue here was founded on a gambling consideration within the meaning of that phrase in and that it was therefore void see also choksi v shah so 3d ala stating that in dickerson an alleged contract between petitioner and the waffle house claimants to share lottery winnings was unenforceable because it was at its core based on illegal gambling in dickerson so 2d pincite the alabama supreme court differentiated between the waffle house coworkers’ situation and a situation where a ticket had been jointly purchased or held see also gipson v knard so ala situation involving joint owners of a lottery ticket held not to fall within then applicable antigambling statute petitioner uses this distinction to argue the reece family agreement was different stating unlike the alleged agreement with the waffle house claimants petitioner’s contractual agreement or partnership with her family was a joint_ownership agreement in which members of the reece family each ‘jointly owned’ all lottery tickets acquired pursuant to the agreement and or by or for the members of the partnership such an agreement is different as noted by the alabama supreme court than a ‘side agreement between individuals to hedge their bets ’ dickerson v deno so 2d ala sic accordingly under established alabama law the reece family agreement was a valid and enforceable agreement and tonda’s transfer of the lottery ticket to mill inc was not a ‘gift’ of the lottery ticket proceeds we disagree we fail to see how a lottery ticket given to petitioner by a customer at the waffle house where she worked could metamorphose into a lottery ticket owned by petitioner’s entire family petitioner and her family did not pool their money to jointly purchase lottery tickets they did not keep lottery tickets individually purchased or acquired in a place where all family members had access to the tickets there is no evidence that a family_member knew if another member had acquired a lottery ticket there was no agreement as to exactly how the proceeds of any winning ticket would be shared mr reece testified that one reason petitioner and her then husband retained of the stock in mill was that tonda is the one that received the ticket so tonda would get the larger amount this statement directly contradicts petitioner’s assertion that as soon as she received the ticket it was jointly owned by her family in conclusion there was no enforceable contract among the reece family first the terms were too indefinite uncertain and incomplete second the alleged agreement even if otherwise enforceable under contract principles would be rendered void pursuant to the alabama antigambling statute b whether a valid partnership existed under federal tax law whether a valid partnership exists for federal tax purposes is governed by federal_law see 337_us_733 see also 923_f2d_1461 11th cir dollar_figure sec_761 defines the term partnership as sec_761 partnership --for purposes of this subtitle the term partnership includes a syndicate group pool joint_venture or other unincorporated organization through or by means of which any business financial operation or venture is carried on and which is not within the meaning of this title a corporation or a_trust or estate see also sec_7701 the term partnership as defined by the code is broader in scope than the common_law meaning of partnership and may include groups not traditionally considered partnerships sec_1_761-1 income_tax regs sec_301_7701-3 proced admin regs a partnership is created when persons join together their money goods labor or skill for the purpose of carrying on a trade profession or business and when there is community of interest in the profits and losses 327_us_280 generally each partner contributes one or sec_704 entitled family partnerships was enacted in to harmonize the rules governing interests in the so-called family_partnership with those generally applicable to other forms of property or business s rept no 1951_2_cb_458 sec_704 provides a person shall be recognized as a partner if he owns a capital interest in a partnership in which capital is a material_income-producing_factor our conclusion that no partnership exists among the reece family is the same regardless of the applicability of sec_704 because we conclude there has been no showing that capital is a material_income-producing_factor for one court’s discussion of the issues see 310_f2d_412 7th cir see also 447_f2d_547 aff’g 54_tc_40 both of the ingredients of income--capital or services commission v culbertson u s pincite in deciding whether two or more persons have formed a partnership the question is not whether the services or capital contributed by a partner are of sufficient importance to meet some objective standard but whether considering all the facts--the agreement the conduct of the parties in execution of its provisions their statements the testimony of disinterested persons the relationship of the parties their respective abilities and capital contributions the actual control of income and the purposes for which it is used and any other facts throwing light on their true intent--the parties in good_faith and acting with a business_purpose intended to join together in the present conduct of the enterprise id pincite see 42_tc_1067 recognition of a partnership for federal tax purposes also requires that the parties conduct some business activity see 633_f2d_512 7th cir aff’g 72_tc_521 for example it is clear that neither joint_ownership of property nor sharing of expenses by itself creates a partnership for federal tax purposes id sec_1 a income_tax regs sec_301_7701-3 proced admin regs see also marinos v commissioner tcmemo_1989_492 petitioner relies on estate of winkler v commissioner tcmemo_1997_4 to argue that a valid partnership existed mr and mrs winkler had five children all of whom lived relatively close to the winklers’ home where they would gather almost every sunday during because of his health mr winkler had to make frequent trips to medical clinics normally mrs winkler and one of the five children would drive him to his appointments it quickly became a family routine that on trips to or from a clinic whichever family members were in the car would purchase three lotto tickets when they stopped for fuel any family_member who happened to have a dollar bill would contribute toward the purchase of the tickets and the driver would usually go into the store to purchase the tickets after obtaining the tickets the driver would hand them to mr winkler who would inspect them and comment on the numbers mr winkler would then give them to mrs winkler for safekeeping upon returning home mrs winkler would invariably place the tickets in a glass bowl in a china cabinet where the winklers stored most of their important family documents and keepsakes on saturday night or sunday morning mr and mrs winkler would check the numbers on the tickets against those selected during the weekly drawing family members referred to the lotto tickets purchased in the manner described above as family tickets and regarded them as being owned by the entire family the winklers had no specific agreement as to how any potential winnings would be divided among them however the winklers often discussed what they would do with any winnings and each family_member enjoyed describing what he or she would do with his or her separate portion of the winnings in this way the purchase of lotto tickets became a diversion for the family during mr winkler’s illness some of the winkler children occasionally purchased lotto tickets for themselves and considered such tickets to be their separate_property the children always kept lotto tickets purchased for themselves in their separate possession on the other hand when a family_member purchased family tickets he or she always purchased three tickets and always gave them to mrs winkler for storage in the china cabinet one day mrs winkler while with one of her daughters purchased a ticket and put the ticket in the china cabinet that sunday mrs winkler realized the ticket was the winning ticket and immediately called each of her children and asked them to come to her home together the family first met with an accountant and then an attorney to determine what to do with the winning ticket together they decided the percentages each family_member should receive we held that a valid partnership existed in estate of winkler stating that based upon the credible testimony of the taxpayers’ witnesses we find that the winklers engaged in the activity of pooling their money to purchase family lotto tickets we find that they conducted this activity on a regular and consistent basis for more than a year before date thus based upon all of the facts and circumstances of this case we find that the winklers in good_faith and acting with a business_purpose intended to join together in the present conduct of an enterprise we do not find the absence of a partnership_agreement to be fatal to the existence of a partnership prior to the time mrs winkler purchased the winning ticket we also noted that each member_of_the_family was treated at a partner at all times including attending the meetings with the accountant and the attorney and having a say in formulating the agreement petitioner argues that the facts of winkler and the present case have many similarities there are some factual similarities but there are also factual differences which in this case are important to a proper resolution of the issues the winkler family had an established pattern of buying tickets on their way to and from medical clinics in the words of the court they conducted this activity on a regular and consistent basis id the only regular and consistent activity with lottery tickets in the case at hand was mr reece’s purchase of the tickets using his children’s birthdays as the number sequence and for a short_period mr seward’s giving away of tickets each member of the winkler family met with the accountant and the attorney after they discovered they had a winning ticket this did not happen in the reece family in the reece family it was mr reece who ultimately made the decisions not a joint effort among all of the family members petitioner and her family have nothing to rely on other than a family meal offhand statements throughout the years and a familial sense of duty to take care of each otherdollar_figure this is simply not 13we faced a second factual question in estate of winkler--whether mrs winkler was acting on behalf of the partnership when she purchased the ticket courts typically focus on the facts and circumstances surrounding the purchase of a lottery ticket including the intent and understanding of the parties at the time of purchase to determine ownership of the proceeds of the ticket for income_tax purposes see eg 275_f2d_369 1st cir aff’g 32_tc_591 the rule regularly applied in such circumstances is that where a ticket on a lottery is purchased in the name of one or two persons and they agree prior to the drawing to share any winnings each person is taxable only upon his agreed share provided that the nominal owner in fact divides the proceeds in continued enough to find that a partnership existed and that it was the owner of the gifted winning ticket iii value_of_the_gift petitioner having made a gift in when she transferred the lottery ticket to mill we must now determine the amount of the giftdollar_figure the amount of a gift of property is the value of the property at the date of the gift sec_2512 it is the continued accordance with their agreement even though the agreement be void and unenforceable estate of winkler v commissioner tcmemo_1997_4 citing dowling v commissioner t c memo we concluded mrs winkler was acting on behalf of the partnership when she purchased the lottery ticket stating the facts in this case are that mrs winkler did not normally play games of chance and she never purchased lotto tickets other than the family tickets purchased in the presence of other family members she purchased the winning lotto ticket as one of three family tickets on date while she was with her daughter charlotte she took the tickets home and placed them in a glass bowl in the china cupboard as was customary for family tickets even if we concluded there was a partnership among the reece family involving the purchase of lottery tickets petitioner unlike mrs winkler was not acting on behalf of the partnership when she was given a lottery ticket 14the unified_credit available to a transferor in was dollar_figure or an applicable gift_tax_exclusion of dollar_figure of taxable_gifts see sec_2010 before enactment of the economic_growth_and_tax_relief_reconciliation_act_of_2001 pub_l_no 115_stat_38 on date the annual exclusion for gifts in to any one person was dollar_figure pursuant to sec_2503 value of the property passing from the donor that determines the amount_of_the_gift sec_25_2511-2 gift_tax regs the value of the property is the price at which such property would change hands between a willing buyer and a willing seller neither being under any compulsion to buy or to sell and both having a reasonable knowledge of the relevant facts sec_25_2512-1 gift_tax regs in general for federal tax purposes property is valued as of the valuation_date on the basis of facts available on that date without regard to hindsight 131_tc_8 see also 156_f2d_218 2d cir aff’g 4_tc_191 estate of davis v commissioner tcmemo_1993_155 this court has adopted the rule that subsequent events are not considered in fixing fair_market_value except to the extent that they were reasonably foreseeable at the date of valuation 88_tc_38 see also 763_f2d_891 7th cir here the date of valuation is at issue respondent argues the gift was made on date petitioner argues the gift occurred on date in her reply brief petitioner states even if the transfer date was date as respondent argues a hypothetical buyer researching the potential purchase of a dollar_figure million dollar ticket would have discovered at a minimum the claim made by the waffle house claimants we agree with petitionerdollar_figure 15we do note our conclusion that the gift occurred on date the rules of the florida lottery er state until such time as a name is imprinted or placed upon the back of the lottery ticket in the designated area a lottery ticket shall be owned by the physical possessor of such ticket mr reece credibly testified that pursuant to his conversation with ms warren on monday date petitioner placed the lottery ticket unsigned into a zip-lock bag she then placed the zip-lock bag on her person and kept it there for the next few days from the evidence in this case the court concludes she then took the lottery ticket out and signed it on date when she claimed the winning proceeds in the name of mill on the basis of this we hold petitioner by being in physical possession of the lottery ticket with no name imprinted on the back owned it up until the moment on date when she placed the name of mill on the ticket and signed it as president at that time mill owned the ticket and petitioner had made a gift we recognize that in her petition petitioner stated this was a transfer of a dollar_figure lottery ticket to a legally formed family sub-s corporation before it was claimed under the direction of the legal department of the florida lottery our corporate attorney and the irs petitioner at the time she filed her petition was proceeding pro_se and this statement is not necessarily inconsistent with a date transfer date the witnesses in this case were very forthright credible and honest petitioner is unsophisticated in matters concerning federal tax laws relying on others for advice when ms warren instructed mr reece that no one should sign the back of the lottery ticket we have no doubt petitioner followed those instructions and did not sign the ticket until date immediately before it was formally presented to the florida lottery officials respondent asserts that the use of the erroneous date date would allow a whole new set of facts to be used and tend to send us down a slippery slope that would render the mandated date pursuant to irs sic sec_2512 meaningless this might have been true if no evidence of a disagreement over who was entitled to the proceeds of the winning ticket existed before march respondent goes on to state that the new facts as of date was that some unknown claimants’ possible hairdressers attorney notified the florida continued respondent argues that at the most what was reasonably foreseeable was that one disgruntled co-worker might take legal action to obtain a portion of the lottery winnings at this point no legal claims had been made formally or informally to the petitioner respondent then argues that no discount should be applied contrary to respondent’s assertion we cannot overlook that as of march and certainly by march or a hypothetical buyer would have known of the potential cloud on title see estate of sharp v commissioner tcmemo_1994_ the hypothetical buyer would have then investigated the potential cloud on title before purchasing the lottery ticket in that investigation we have no doubt this hypothetical buyer would have determined a lawsuit was likely and would not have paid full value for the disputed portion of the lottery ticket the question now is an appropriate discount continued lottery commission that they had an interest in petitioner’s lottery ticket mr clements called the lottery commission earlier on or before date and it was known by a number of parties that there was a dispute as early as date no knowledgeable reasonable buyer would have considered paying over dollar_figure million for a lottery ticket without investigating the facts and receiving a warranty of good title after learning there was some dispute over ownership of of the ticket proceeds in previous attempts to value claims subject_to lawsuits this court has started with the amount as if there was no contest and then discounted for costs of litigation hazards_of_litigation and time delay in receiving funds see estate of cobb v commissioner tcmemo_1982_571 stating that any purchaser would purchase that interest anticipating the possibility of litigation and would therefore discount the amount to be paid_by both the cost of litigation and litigation hazards the parties agreed in their briefs that the present_value of the ticket proceeds if there were no claims or discounts was dollar_figure for the reasons set forth below we believe an appropriate discount for the of the lottery ticket disputed by the waffle house claimants i sec_67 eighty percent of dollar_figure is dollar_figure applying a discount of gives a value for the disputed portion of the lottery ticket as of the date of gift of dollar_figure fifty-one percent 16we acknowledge that as of march and march12 suit had not yet been formally filed 17we note this value differs from the trial record’s indicated lump-sum cash prize payout value of dollar_figure the record does not explain the difference nevertheless we will accept the parties’ stipulated value as we lack a clean evidentiary basis for a substitution of our own value since we do not know what else is involved in the lump-sum cash payout election of this amount is dollar_figure fifty-one percent of the undisputed is dollar_figure therefore the total gift petitioner made is dollar_figure steven nicholas prepared an expert report for petitioner mr nicholas is a graduate of the university of alabama school of law and has been practicing law since his graduation in in mobile where he specializes in litigation principally commercial and class action litigation mr nicholas works for a law firm that is exclusively a plaintiffs’ firm and earns fees on a contingency basis in this regard he has experience evaluating cases and claims in regard to the acceptance of cases on contingency basis and for settlement purposes this is the first case where mr nicholas has testified as an expert mr nicholas testified that there were two sets of claims waffle house claimants and reece family for the first he discounted by or to of its otherwise fmv for the first and second combined he arrived at a total discount of arriving at a discounted fmv of of undiscounted fmv finally he testified that the costs of litigation would range between and of the total value of the ticket we start with the waffle house claimants mr nicholas testified that the waffle house case was an issue of first impression for the alabama supreme court he was of the opinion that as of date the general consensus was that an agreement between the waffle house claimants was legal--specifically that an agreement to share lottery proceeds was legal even in a state where gambling had been declared illegal we found mr nicholas’ testimony very credible he was knowledgeable regarding both alabama law and the valuation of potential claims we recognize our general_rule not to look past the date of valuation to subsequent events yet petitioner’s loss in the trial_court followed by an appeal and win at the alabama supreme court with two justices dissenting confirms our own litigation tree analysis of just how uncertain the law was at the time the gift occurred we find no sound reason and respondent has not established one to discredit mr nicholas’ opinion that the value of the lottery ticket should be discounted by on the basis of the potential waffle house litigation we choose a discount of because suit had not yet been filed when petitioner made the gift and we believe the lower amount of his range is more appropriate here we note petitioner could have prevailed on either the factual contract claim on the basis that there was no agreement with the other waffle house employees or the legal claim that the contract was illegal we now consider the reece family claims petitioner states mr nicholas asserted that if petitioner had not complied with the reece family agreement more than likely the rest of the reece family group would have prevailed in a lawsuit to enforce the agreement given the state of alabama law in based on the likelihood of success by the other members of the reece family mr nicholas further reduced his opinion of the value of petitioner’s winning ticket to to percent of its value as if undisputed respondent argues based on analysis of the family agreement the agreement is not an enforceable contract under alabama law the gift should not be discounted based on any family members’ ability to sue the petitioner on the basis that they jointly owned the ticket we agree with respondent as discussed supra there was no evidence of an enforceable contract or partnership among the reece family there is also no evidence that anyone other than the reece family even knew of the alleged agreement or that any member_of_the_family would have sued petitioner lastly we address litigation costs mr nicholas testified that the cost of litigation would be of the lottery ticket proceeds again we find mr nicholas’ testimony credible and a discount appropriate we choose because suit had not yet and might never have been filed at the time the gift occurred in conclusion the value of the disputed portion of the lottery ticket should be discounted by the court has considered all of petitioner’s and respondent’s contentions arguments requests and statements to the extent not discussed herein we conclude that they are meritless moot or irrelevant to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index number ---------------------------- -------------------------------------- ----------------------------- ------------------------------ in re 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 b07 plr-159334-04 date date ------------------------------------------------- ------------------------ ------------------------------ ------------------------------------------------- ------------------ --------- ------------------------- ---------------------- legend corporation a b c dear -------------- this letter responds to a letter from you dated date requesting permission for corporation to revoke its election under sec_41 of the internal_revenue_code the represented facts are as follows corporation is an accrual_method taxpayer with each taxable_year ending on a in b corporation elected to utilize the alternative_incremental_research_credit rules under sec_41 to compute the credit_for_increasing_research_activities research_credit before the due_date of its return including extensions for the taxable_year ending on c_corporation submitted a request to revoke its election to determine its research_credit under the alternative_incremental_research_credit rules of sec_41 for qualified_research_expenses paid_or_incurred on or after the taxable_year ending on c and all subsequent years for taxable years beginning after date taxpayers may elect to determine their research_credit under the alternative_incremental_research_credit rules of sec_41 sec_41 provides that any election under sec_41 shall apply for the taxable_year in which made and all succeeding taxable years unless revoked with the consent of the secretary plr-159334-04 based solely on the facts submitted and representations made we grant permission for corporation to revoke its election to determine its research_credit under the alternative_incremental_research_credit rules of sec_41 for qualified_research_expenses paid_or_incurred during the taxable_year ending on c_corporation should compute the research_credit for the taxable_year ending on c and all succeeding taxable years using the general_rule of sec_41 provided that corporation does not make a new election to determine its research_credit under the alternative_incremental_research_credit rules of sec_41 in a later year except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter further we express or imply no opinion concerning expenditures corporation treated as qualified_research_expenses this ruling is directed only to the taxpayer requesting it sec_6110 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 the taxpayer a copy of this letter must be attached to any income_tax return to which it is relevant 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 sincerely s brenda m stewart senior counsel branch passthroughs special industries-


internal_revenue_service department of the treasury number release date index number re washington dc person to contact telephone number refer reply to cc psi b04-plr-168921-02 date may legend grantor date date year trust son independent_trustee law firm cpas a dear this is in response to your letter dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations and sec_2642 of the internal_revenue_code to make an allocation of the generation-skipping_transfer gst_exemption to a transfer to a_trust the facts and representations submitted are summarized as follows on date grantor established trust for the benefit of son and son’s lineal_descendants law firm drafted trust son and independent_trustee serve as trustees of trust plr-168921-02 article i paragraph of trust provides in part that during the lifetime of son the independent_trustee shall from time to time pay to or for the benefit of son and son’s lineal_descendants so much of the net_income and principal of trust in such proportions and amounts as independent_trustee shall determine in his absolute discretion article i paragraph provides that during his lifetime son shall have the power exercisable at any time and from time to time to appoint any part or all of the principal and income of trust to any one or more of his lineal_descendants except that no appointment may be made to son himself his estate his creditors or the creditors of his estate article i paragraph provides that son shall have the power to appoint by specific reference to this special power in his will all or any part of the principal and income of trust to any one or more of grantor’s lineal_descendants except that no appointment may be made to son himself his estate his creditors or the creditors of his estate article i paragraph provides that upon the death of son to the extent that the special powers of appointment were not fully exercised the trustees shall continue to hold administer invest and reinvest the trust property as provided in article ii if son has any then living lineal descendant if son has no then living lineal descendant the trustees shall distribute the trust property to the grantor’s then living lineal_descendants in equal shares per stirpes and not per capita or if there be none to son’s estate article ii provides that at any time that the trustees are directed to hold administer and dispose_of trust property in accordance with article ii the trustees shall divide the trust property into separate equal shares so as to provide one share of each child of son living at such time and one share for the then living lineal_descendants in equal shares of each deceased child of son the share so allocated to each child shall be held in accordance with article ii and the share so allocated to the lineal_descendants of a deceased child of son shall be held in accordance with article iii article ii paragraph provides that during the lifetime of each child with reference to whom a_trust was created the independent_trustee shall from time to time pay to or for the benefit of any one or more of the group consisting of such child and such child’s lineal_descendants so much of the net_income and principal of such trust in such proportions and amounts as the independent_trustee determines in his absolute discretion plr-168921-02 article ii paragraph provides that each child of son is granted the power during his lifetime subsequent to obtaining the age of twenty-one years to appoint any part or all of the principal and income of his trust to one or more of his lineal_descendants except that no appointment may be made to such child himself his estate his creditors or the creditors of his estate article ii paragraph provides that each child shall have the power to appoint by specific reference to this special power in his will all or any part of the principal and income of his trust remaining at the time of his death to one or more of the group consisting of grantor’s lineal_descendants in such manner and at such times as child shall so designate except that such will must be executed ratified or confirmed after said child has attained the age of twenty-one years and except further that no appointment shall be made in trust or otherwise to said child himself his estate his creditors or the creditors of his estate article ii paragraph provides that upon the death of each child to the extent that the special powers of appointment in paragraph sec_2 and were not fully exercised the independent_trustee shall continue to hold the trust property as provided in article iii if such child has any then living lineal descendant if such child has no then living lineal descendant the trust property shall be held in accordance with article ii for the remaining lineal_descendants of son or if there be none the trust property shall be divided among the grantor’s then living lineal_descendants in equal shares per stirpes and not per capita or if there be none the trust property shall be distributed to said deceased child’s estate article iii provides that at any time that the trustees are directed to hold property for the then living lineal_descendants of son in accordance with article iii the trustees shall divide the trust property into separate equal shares so as to provide one share of each child of said deceased child living at such time and one share for the then living lineal_descendants in equal shares per stirpes and not per capita of each deceased child of said deceased child of son the share so allocated to each grandchild shall be held in accordance with article iii and the part of the share payable to any such lineal descendant of a deceased grandchild of son who shall have attained the age of majority shall be paid to him or her absolutely free and clear of any trust the part of the shares so allocated to the lineal_descendants of a deceased grandchild of son shall be held in accordance with article iii article iii paragraph provides that the independent_trustee shall expend or apply so much of the net_income and principal of each trust as the independent_trustee in his sole discretion may deem necessary or advisable for the education support care health and general welfare of the grandchild of son for whom such trust plr-168921-02 was created and such grandchild’s lineal_descendants whether born before or after the date of execution of this trust_indenture article iii paragraph provides that the trust for each grandchild of son shall continue until such grandchild has attained thirty-five years of age or has died without attaining such age and shall then and there cease and terminate as to each grandchild’s trust upon such termination the trustees shall transfer convey deliver and pay over the trust property then constituting such trust to such grandchild absolutely if such grandchild shall be alive at such time if such grandchild shall not be alive at such time then distribution shall be made to the then living lineal_descendants of such grandchild in equal shares per stirpes and not per capita to be theirs absolutely or if there be none such trust property shall be held in accordance with article iii for the then living lineal_descendants of the child of son who was the parent of such deceased grandchild if there is no then living lineal descendant of such parent of such deceased grandchild the trust property shall be held in accordance with article ii for the remaining lineal_descendants of son or if there be none said trust property shall be divided among the grantor’s then living lineal_descendants in equal shares per stirpes and not per capita or if there be none the trust property shall be distributed to said deceased grandchild’s estate absolutely on date grantor contributed dollar_figurea to trust cpas were directed to prepare grantor’s gift_tax_return form_709 for year and to allocate gst_exemption as appropriate cpas timely filed the gift_tax_return and reported the dollar_figurea gift but did not allocate any of grantor’s gst_exemption to the gift law firm did not review the gift_tax_return before it was filed you have requested an extension of time under sec_2642 and sec_301_9100-1 and sec_301_9100-3 to make an allocation of grantor’s gst_exemption for the year transfer to trust sec_2601 imposes a tax on every generation-skipping_transfer gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the gst tax is determined by multiplying the taxable_amount by the applicable_rate sec_2641 provides that the term applicable_rate means with respect to any gst transfer the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer plr-168921-02 under sec_2642 the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer is generally defined as the excess if any of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of the gst_exemption allocated to the trust or to property transferred in a direct_skip and the denominator of which is the value of the property transferred to the trust or involved in the direct_skip sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c - a the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period its value at the time of the close of the estate_tax_inclusion_period and b such allocation shall be effective on and after the date of such transfer or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures plr-168921-02 for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_34_irb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to 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 months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used 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 under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the 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 plr-168921-02 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 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore grantor is granted an extension of time of days from the date of this letter to make an allocations of his available gst_exemption with respect to the year gift of dollar_figurea to trust the allocation will be effective as of the date of the transfer to trust and the gift_tax value of the transfer to trust will be used in determining the amount of gst_exemption to be allocated to trust this allocation should be made on a supplemental form_709 united_states gift and generation-skipping_transfer_tax return and filed with the internal_revenue_service center cincinnati oh a copy of this letter should be attached to the supplemental form_709 a copy is enclosed for this purpose in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer 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 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 this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


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 b02 plr-115123-09 date date legend taxpayer qsub1 qsub2 qsub3 qsub4 qsub5 qsub6 fc1 fc2 fc3 fc4 fc5 fc6 fc7 fc8 fc9 fc10 fc11 fc12 ----------------------------- ---------------------- -------------------------------------- ----------------------- -------------------------------- ----------------------- ----------------------------- ---------------------- ----------------------------- ----------------------- ------------------------ ----------------------- --------------------------- ----------------------- --------------------------------------------- -------------------------------------------- ------------------------------------------- ------------------- ---------------------- -------------------- ------------------------------------------ ----------------------------- --------------------------------------------------------- ----------------------------- ----------------------------------- ---------------------------------- plr-115123-09 fc13 fc14 fc15 fp state v ----------------- ---------------------------- ------------------- ---------------------------- ----------------- country w country x country y country z -------------------------- ---------------- --------- --------------------- b c d e date1 date2 year1 year2 year3 year4 ------ ------ ------- ------- ------------------ ------------------- ------- ------- ------- ------- service provider1 --------------------------------------------- service provider2 ----------------------------------------------------- accounting firm --------------------------------------- dear ------------------- this is in response to a letter dated date submitted by your authorized representative that requested the consent of the commissioner of the internal_revenue_service commissioner for taxpayer to make a retroactive qualified_electing_fund qef election under sec_1295 of the internal_revenue_code code and sec_1_1295-3 with respect to taxpayer’s investment in fc1 the ruling contained in this letter is based upon information and representations submitted on behalf of taxpayer by its authorized representatives and accompanied by a penalties of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of this request_for_ruling such plr-115123-09 material is subject_to verification on examination the information submitted in the request is substantially as set forth below facts taxpayer is a corporation organized under the laws of state v that is a subchapter_s_corporation within the meaning of code sec_1361 taxpayer owns directly and indirectly six corporations that are each a qualified_subchapter_s_subsidiary within the meaning of code sec_1361 and that are disregarded as separate from taxpayer for u s tax purposes specifically taxpayer wholly owns qsub1 which in turn wholly owns qsub2 qsub2 wholly owns each of qsub3 and qsub4 in turn qsub3 wholly owns qsub5 and qsub4 wholly owns qsub6 during year1 through qsub5 taxpayer acquired a b percent interest in fp a partnership formed under the laws of country w also during year1 fp and other investors including taxpayer through qsub6 formed fc1 a company formed under the laws of country x taxpayer’s total ownership_interest in fc1 taking into account its interest through both fp and qsub6 was approximately c percent fc1 owned d percent of fc2 a company formed under the laws of country x fc2 wholly owned fc3 a company formed under the laws of country x which in turn wholly owned fc4 a company formed under the laws of country y on date1 fc3 fully liquidated into fc2 subsequently fc2 was the sole owner of fc4 fc4 directly and indirectly wholly owned the following subsidiaries i fc5 a company formed under the laws of country y ii fc6 a company formed under the laws of country y iii fc7 a company formed under the laws of country y iv fc8 a company formed under the laws of country y v fc9 a company formed under the laws of country y vi fc10 a company formed under the laws of country y vii fc11 a company formed under the laws of country y viii fc12 a company formed under the laws of country z ix fc13 a company formed under the laws of country y x fc14 a company formed under the laws of country y and xi fc15 a company formed under the laws of country y collectively subsidiaries each of the subsidiaries owned real_property which it leased to unrelated persons and upon which it collected rental income the majority of leases entered into by the subsidiaries were so-called triple-net leases whereby the lessee generally was responsible for the maintenance and operation of the property no subsidiary held any assets other than real_property nor earned any income other than rental income in year1 fc2’s ownership of fc4 was diluted by e percent as part of an initial_public_offering on date2 fp and qsub6 sold the remaining portion of their interests in fc4 and indirectly the subsidiaries to an unrelated party plr-115123-09 in accordance with its partnership_agreement fp was required to provide sufficient detail to its u s investors to enable such investors to prepare their u s tax returns including any information required with respect to a foreign_corporation that was a passive_foreign_investment_company within the meaning of code sec_1297 pfic to do this fp retained service provider1 to provide tax and administrative services including the preparation of u s tax-related documents service provider1 was known to be a leader in providing such services to the private equity industry following the takeover of service provider1 by service provider2 in year2 fp retained service provider2 as a tax and administrative service provider fp retained service provider2 on the basis that service provider2 employed experienced tax specialists who were qualified_tax professionals such qualified_tax professionals were responsible for preparing and distributing information regarding the u s tax consequences of an investment in fp and indirectly in fc1 fc2 fc3 fc4 and the subsidiaries collectively fcs service provider2 prepared k-1 equivalents for fp’s investors for the year1 and year2 tax years during the time that service provider2 prepared fp’s k-1 equivalents service provider2 had access to both income statement and balance_sheet information relating to the fcs however service provider2 failed to identify fc1 as a pfic and failed to advise fp or consequently taxpayer of the pfic status of fc1 and the possibility of making a qef election with respect to fc1 it was not until year4 when fp retained accounting firm to prepare its k-1 equivalents and provide relevant u s tax information to its u s investors with respect to its year3 tax_year that it was discovered that fc1 was a pfic taxpayer has submitted an affidavit under penalties of perjury describing the events that led to the failure to make the qef election with respect to fc1 by the election due_date including the role of service provider2 taxpayer represents that service provider2 prepared and distributed fp’s k-1 equivalents which contained the u s tax consequences of an investment in fp and indirectly fc1 taxpayer also submitted an affidavit from an advisor to fp that was responsible for engaging service provider2 corroborating the representations made by taxpayer taxpayer represents that the pfic status of fc1 has not been raised by the irs on audit for any of the taxable years ruling requested taxpayer requests the consent of the commissioner to make a retroactive qef election with respect to fc1 for year1 under sec_1_1295-3 law plr-115123-09 code sec_1295 provides that a pfic will be treated as a qef with respect to a taxpayer if an election by the taxpayer under code sec_1295 applies to such pfic for the taxable_year and the pfic complies with such requirements as the secretary may prescribe for purposes of determining the ordinary_earnings and net capital_gains of such company under code sec_1295 a qef election may be made for any taxable_year at any time on or before the due_date determined with regard to extensions for filing the return for such taxable_year to the extent provided in regulations such an election may be made after such due_date if the taxpayer failed to make an election by the due_date because the taxpayer reasonably believed the company was not a pfic under sec_1_1295-3 a shareholder may request the consent of the commissioner to make a retroactive qef election for a taxable_year if the shareholder reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 granting consent will not prejudice the interests of the united state sec_3 government as provided in sec_1_1295-3 the request is made before a representative of the internal_revenue_service raises upon audit the pfic status of the corporation for any taxable_year of the shareholder and the shareholder satisfies the procedural requirements of sec_1 f the procedural requirements include filing a request for consent to make a retroactive election with and submitting a user_fee to the office of the associate chief_counsel international sec_1_1295-3 additionally affidavits signed under penalties of perjury must be submitted that describe the events that led to the failure to make a qef election by the election due_date the discovery of such failure the engagement and responsibilities of the qualified_tax professional and the extent to which the shareholder relied on such professional sec_1_1295-3 and iii conclusion based on the information submitted and representations made with taxpayer’s ruling_request we conclude that taxpayer has satisfied sec_1_1295-3 accordingly consent is granted to taxpayer to make a retroactive qef election with respect to fc1 for year1 provided that taxpayer complies with the rules under treas plr-115123-09 reg sec_1_1295-3 regarding the time and manner for making the retroactive qef election except as specifically set forth above no opinion is expressed or implied concerning the u s tax consequences of the facts described above under any other provision of the code this private_letter_ruling is directed only to the taxpayer who requested it code sec_6110 provides that it may not be used or cited as precedent a copy of this letter_ruling must be attached to any federal_income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely jeffery g mitchell special counsel international


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc tege eoeg et1-plr-114083-03 date september key firm worker date dear sir or madam this is in reply to a request for a ruling to determine the federal employment_tax status of the above-named worker with respect to services provided for a federal_agency firm from date to the present the federal employment_taxes are those imposed by the federal_insurance_contributions_act fica the federal_unemployment_tax_act futa and the collection of income_tax at source on wages the firm declined to provide information in this case the worker provides services as a general dentist under an award contract contract terms in the contract state that the worker is to provide services on the firm’s behalf to its personnel eligible employees beneficiaries and dependents terms in the contract further state that the worker may not advise recommend or suggest to the firm’s clients to use the worker’s plr-114083-03 services when not performing services for the firm terms in the contract also set the number of hours per week the services are to be provided establish the worker’s eligibility for accrued annual leave sick leave and leave without pay in addition terms in the contract provide that the worker may not bill the firm’s clients for services provided under the contract the contract states that the worker’s services are to be subject_to the day-to-day supervision and control by the firm’s personnel in a manner comparable to the supervision and control exercised over its own personnel and employees engaged in comparable work the contract also states that the term supervision and control is defined as the process by which the worker receives technical guidance direction and approval with regard to an element of work or a series of tasks within the requirement of the contract the worker states that the services are provided on the firm’s premises and that it provides the facilities all materials supplies and equipment including specialty clothing needed in the performance of those services services are provided hours a week and payment for services rendered is on an hourly rate basis mandatory training and meetings are arranged by the firm which also schedules the clients appointments the worker also indicates that similar services are not performed for others and that the relationship can be terminated by either party without incurring liability or penalty sec_3121 of the internal_revenue_code the code defines employee as any individual who under the usual common_law rules applicable in determining the employer-employee relationship has the status of an employee the question of whether an individual is an employee under the common_law rules or an independent_contractor is one of fact to be determined upon consideration of the facts and the application of the law and regulations in a particular case guidance for determining the existence of that status is found in two substantially_similar sections of the applicable employment_tax regulations sec_31_3121_d_-1 relating to the federal_insurance_contributions_act fica and sec_31_3401_c_-1 relating to federal_income_tax withholding sec_31_3121_d_-1 of the regulations provides that generally the relationship of employer-employee exists when the person for whom the services are performed has the right to direct and control the individual who performs the services not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished it is not necessary that the employer actually direct or control the manner in which the services are performed it is sufficient if he or she has the right to do so sec_31_3121_d_-1 of the regulations provides that if the relationship of an employer and employee exists the designation or description of the relationship by the parties as anything other than that of employer and employee is immaterial thus if an plr-114083-03 employer-employee relationship exists it is of no consequence that the employee is designated as partner coadventurer agent or independent_contractor or the like in determining whether an individual is an employee or an independent_contractor under the common_law all evidence of both control and lack of control or autonomy must be considered in doing so one must examine the relationship of the worker and the business relevant facts generally fall into three categories behavioral controls financial controls and the relationship of the parties behavioral controls are evidenced by facts which illustrate whether the service_recipient has a right to direct or control how the worker performs the specific tasks for which he or she is hired facts which illustrate whether there is a right to control how a worker performs a task include the provision of training or instruction financial controls are evidenced by facts which illustrate whether the service_recipient has a right to direct or control the financial aspects of the worker’s activities these factors include whether a worker has made a significant investment has unreimbursed expenses and makes services available to the relevant market the method of payment and the opportunity for profit or loss the relationship of the parties is generally evidenced by the parties’ agreements and actions with respect to each other including facts which show not only how they perceive their own relationship but also how they represent their relationship to others facts which illustrate how the parties perceive their relationship include the intent of the parties as expressed in written contracts the provision of or lack of employee_benefits the right of the parties to terminate the relationship the permanency of the relationship and whether the services performed are part of the service recipient’s regular business activities based on the information submitted it is determined that the services performed by the worker are sufficiently subject_to the direction and control by the firm to establish an employer-employee relationship accordingly it is held that the worker is an employee of the firm and amounts paid for services provided are wages subject_to federal employment_taxes and income_tax_withholding sec_3306 of the code pertaining to the futa provides that service performed in the employ of the united_states government are excepted from the definition of employment this ruling is applicable to any individuals engaged by the firm under similar plr-114083-03 circumstances the firm is responsible for advising all of the affected workers of the results of this ruling this ruling is directed only to the taxpayer s to whom it is addressed sec_6110 of the code provides that it may not be used or cited as precedent sincerely will e mcleod chief employment_tax branch division counsel associate chief_counsel tax exempt and government entities enclosure copy of ruling letter for purposes


id office uilc cca_2011012810504638 ---------------------------- number release date from ---------------------- sent friday date am to -------------------- cc ---------------------------------------------- subject re advice regarding injured_spouse coordination -------- - the irm provides allocation instructions for the child_tax_credit on the form_8379 injured_spouse allocation when the taxpayers live in a community_property_state the child_tax_credit should be allocated equally in accordance with irm sec_21 which provides that i n community_property states all joint amounts are divided equally with the exception of eitc you also mentioned that you use the same proposed allocation for the recovery rebate credit and the making_work_pay_credit the recovery rebate credit should be allocated between the spouses since sec_6428 states in part that half of such refund_or_credit shall be treated as having been made or allowed to each individual filing such return the irm provides additional guidance on the allocation of the recovery rebate credit in sec_21 there is no language in code sec_36 first-time_homebuyer credit or 36a making_work_pay_credit that seems to require a certain allocation of these credits between spouses on the form_8379 the irm provides that the taxpayer may allocate the first-time_homebuyer credit as they determine see irm sec_21 the irm also provides guidance on the allocation of the making_work_pay_credit in sec_21 when a taxpayer resides in a community_property_state both the first-time_homebuyer credit and making_work_pay_credit should be calculated based on the community_property_laws for that state see irm sec_21 based on the provisions in the irm your determination about the allocation of the first-time_homebuyer credit in a community_property_state seems correct the making_work_pay_credit would have a similar allocation if the income is community_property then the credit generated by the income should also be community_property and probably allocated assuming that is what the state’s community_property_laws provide although the irm provides guidance on allocation of the child_tax_credit recovery rebate credit the making_work_pay_credit and the first-time_homebuyer credit we do think that portions of these irm provisions are somewhat confusing and we are concerned that this could cause inconsistencies in processing these requests we are coordinating with ------to discuss whether revisions to these portions of the irm would be appropriate to help clarify any confusion and inconsistencies in credit allocations on the form please let me know if you have any questions about this advice sincerely -------------------- ---------- ----------- -------------------