t c memo united_states tax_court ilija branka mitic petitioners v commissioner of internal revenue respondent docket no filed date tlija mitic pro_se paul k webb for respondent memorandum findings_of_fact and opinion chiechi judge respondent determined the following defi- ciencies in and accuracy-related_penalties under sec_6662 on petitioners’ federal_income_tax ‘a111 section references are to the internal_revenue_code in effect for the years at issue all rule references are to the tax_court rules_of_practice and procedure year deficiency accuracy-related_penalty dollar_figure dollar_figure big_number big_number the issues remaining for decision are are petitioners entitled to a medical_expense_deduction for in excess of that allowed by respondent we hold that they are not are petitioners entitled to the casualty_loss deduction that they claimed for with respect to property damage resulting from an automobile accident we hold that they are not are petitioners entitled to the depreciation deduction that they claimed for with respect to a geo automobile we hold that they are not are petitioners liable for each of the years at issue for the accuracy-related_penalty under sec_6662 we hold that they are findings_of_fact some of the facts have been stipulated and are so found at all relevant times including at the time the petition was filed petitioners ilija mitic mr mitic and branka mitic ms mitic resided in a house petitioners’ residence located pincite glenborough drive mountain view california claimed medical_expense_deduction since at least ms mitic has suffered from various - - allergies asthma and related medical problems a typewritten letter regarding ms mitic from james d wolfe m d dr wolfe that was dated date date letter stated to whom it may concern mrs branka mitic has perennial rhinitis and nasal polyposis she has been found to be allergic to dust and would benefit from removal of the carpet in the bedroom an individual whose identity is not disclosed by the record added the letter s by hand to the typewritten word bedroom in the date letter sometime in ms mitic decided to attempt to conduct a home decorating consulting activity known as branka’s interior design branka’s design the theory behind branka’s design was to purchase furniture and other decorator items for petitioners’ residence so that that residence could be used as a showroom for prospective customers of branka’s design during and ms mitic purchased tens of thousands of dollars’ worth of various items of furniture and other decorator items that were placed in petitioners’ residence in addition during the period from around mid-september to date petitioners paid to have all of the carpeting removed from their residence -inch by -inch red oak select grade hardwood flooring installed in all areas of that residence except the hallways kitchen and bathrooms and the interior of their residence repainted after installation - of the hardwood flooring petitioners rented and resided in an apartment while the foregoing work was being done in their residence in order to prevent exposure of ms mitic to the dust paint and other pollutants that were generated by that work petitioners did not have their residence appraised either before or after the carpeting was removed from and the hardwood floors were installed in their residence and the interior of that residence was repainted on date ms mitic purchased for a total price of dollar_figure a chinese rug measuring approximately feet by feet and a persian rug measuring approximately feet by feet petitioners placed those rugs on the hardwood floor in their residence claimed casualty_loss deduction on date while driving on vacation in mr mitic’s mercedes-benz sel mr mitic’s mercedes to lake tahoe california petitioners were involved in an automobile accident petitioners’ automobile accident at the time of petitioners’ automobile accident mr mitic’s mercedes which he had purchased in for dollar_figure had relatively low mileage e big_number miles had been exceptionally well maintained and was insured by state farm mutual automobile insurance co state farm as a result of petitioners’ automobile accident mr mitic’s mercedes was totaled ie damaged beyond reasonable repair sometime shortly after petitioners’ automobile accident petitioners retained an attorney ismael d perez mr perez to represent them in dealing with state farm regarding their prop- erty damage claim with respect to mr mitic’s mercedes automo- bile damage claim ina letter dated date mr perez demanded dollar_figure from state farm to settle that claim by letter dated date state farm offered to settle the automobile damage claim for dollar_figure plus taxes and appropriate fees settlement offer by letter dated date mr perez rejected and asked state farm to reconsider that settle- ment offer by letters dated december and state farm renewed its offer to settle the automobile damage claim for dollar_figure plus taxes and appropriate fees thereafter negotiations between state farm and mr perez regarding the automobile damage claim continued until at least date by letters dated january and mr perez asked state farm to remit to petitioners the full amount of state farm’s settlement offer in order to mitigate the damages relating to the automobile damage claim those letters indicated that such a request was not intended to release state farm from liability or to waive petitioners’ right to pursue that claim in court in response state farm sent a letter to mr perez dated -- - date that letter stated in pertinent part we believe the actual cash_value of the involved mercedes is dollar_figure to this figure we add sales_tax dollar_figure pro-rated license fees dollar_figure and subtract the deductible dollar_figure this gives us a figure of dollar_figure we will continue to handle the claim pursuant to the california code of regulations title sic chapter subchapter section by letter dated date mr perez asked state farm to issue a check payable to petitioners in the total amount of dollar_figure and stated that petitioners will continue to keep the claim open to determine if they are entitled to more by check dated date state farm sent petitioners dollar_figure in settlement of the automobile damage claim by letter dated date mr perez notified state farm that petitioners were unable to purchase an automobile that was comparable to mr mitic’s mercedes for the amount of state farm’s settlement offer and asked state farm to reopen the automobile damage claim by letter dated date state farm in- formed mr perez that based on further investigation the settlement amount of dollar_figure base selling_price plus sales_tax and pro-rated dmv fees which we paid for your clients’ car is fair and reasonable at no time in and during the negotiations between state farm and mr perez with respect to the automobile damage - claim did state farm deny liability for that claim although it did dispute that it was liable as the insurer of mr mitic’s mercedes for the amount demanded by mr perez on behalf of petitioners the november--date edition of kelley blue_book suggested a retail value of dollar_figure for a mercedes-benz sel with under big_number miles claimed depreciation deduction petitioners purchased a geo automobile geo from their son in return for a check dated date that they issued to him on date title to that automobile was registered in the names of mr mitic and ms mitic peti- tioners kept no mileage log calendar or other documentation regarding their use of the geo in petitioners’ returns for the years at issue petitioners filed a joint form_1040 u s individual_income_tax_return joint_return for each of the years and in each of those joint returns mr mitic listed his occupation as accountant in the joint_return ms mitic listed her occupation as accountant and in the joint_return she listed her occupation as s e interior design mr mitic signed the and joint returns on date and date respectively ms mitic signed the joint_return on date in schedule a itemized_deductions of the joint_return petitioners claimed a deduction totaling dollar_figure for medical and dental expenses that deduction consisted of dollar_figure for physicians and medicines dollar_figure for the removal of carpeting from and the installation of hardwood flooring in petitioners’ residence dollar_figure for repainting the interior of petitioners’ residence after the hardwood floor- ing was installed and dollar_figure for renting an apartment in which petitioners lived while they had the foregoing work done in their residence in the joint_return petitioners claimed depreciation_deductions with respect to a toyota automobile toyota and claimed depreciation_deductions and other deductions with respect to mr mitic’s mercedes and another automobile in schedule a of the joint_return petitioners claimed a casualty_loss deduction of dollar_figure with respect to mr mitic’s mercedes as required petitioners filed form_4684 casualties and thefts form with the joint_return in section b of form_4684 business and income-producing property part i casualty or theft gain_or_loss petitioners indicated that the cost or adjusted_basis of mr mitic’s mercedes was dollar_figure the record does not disclose when ms mitic signed the joint_return --- - that the insurance or other reimbursement with respect to that automobile was dollar_figure that they had no gain froma casualty or theft that the fair_market_value before the casualty or theft of mr mitic’s mercedes was dollar_figure that the fair_market_value of that automobile after the casualty or theft was zero and that the amount of the casualty_loss with respect to mr mitic’s mercedes was dollar_figure the amount of dollar_figure that petitioners indicated in form_4684 was the insur- ance or other reimbursement with respect to that vehicle repre- sented petitioners’ estimate of the amount to be paid_by state farm in settlement of the automobile damage claim in the joint_return petitioners claimed a depreciation deduction for the entire year with respect to the geo that they had purchased from their son in date petitioners also claimed in the joint_return depreciation_deductions with respect to the toyota and another automobile notice_of_deficiency in the notice_of_deficiency notice issued to petitioners for the years at issue respondent inter alia disallowed for the entire medical_expense_deduction except for dollar_figure for physicians and medicines that petitioners claimed in the joint_return petitioners’ claimed medical_expense_deduction at issue and for a the casualty_loss deduction with respect to mr mitic’s mercedes and b the -- - claimed depreciation deduction with respect to the geo respon- dent also determined in the notice that petitioners are liable for each of the years at issue for the accuracy-related_penalty under sec_6662 opinion petitioners bear the burden of proving that the determina-- tions in the notice are erroneous see rule a 290_us_111 claimed medical_expense_deduction petitioners claimed in the joint_return a medical_expense_deduction for inter alia expenditures incurred in removing carpeting from installing hardwood flooring in and repainting the interior of petitioners’ residence and renting an apartment in which they resided while that work was being done respondent disallowed the deduction claimed for those expendi- tures sec_213 allows a deduction for expenses paid during the taxable_year and not_compensated_for_by_insurance_or_otherwise for medical_care of a taxpayer his spouse or a dependent to the extent that those expenses exceed percent of the taxpayer’s srach petitioner and respondent signed the first stipulation of settled issues filed in this case however only mr mitic and not ms mitic appeared at trial and signed the stipulation of facts which respondent also executed consequently respon- dent filed a motion to dismiss for lack of prosecution as to ms mitic respondent’s motion which the court took under advise- ment see infra note adjusted_gross_income see sec_213 as pertinent here sec_213 a defines the term medical_care to mean amounts paid for the cure mitigation treatment or prevention of disease or for the purpose of affecting any structure or function of the body sec_1_213-1 income_tax regs provides that deductions for expenditures_for medical_care allowable under sec_213 will be confined strict- ly to expenses_incurred primarily for the prevention or allevia- tion of a physical or mental defect or illness an expenditure that is merely beneficial to the general health of an individ- ual such as an expenditure for a vacation is not an expenditure for medical_care id capital expenditures generally are not deductible see sec_263 and the regulations thereunder however an expenditure which otherwise qualifies as a medical expense under sec_213 shall not be disqual- ified merely because it is a capital_expenditure for purposes of sec_213 and this paragraph a capital_expenditure made by the taxpayer may qualify as a medical expense if it has as its primary purpose the medical_care as defined in subdivisions i and of this subparagraph of the taxpayer his spouse or his dependent thus a capital_expenditure which is related only to the sick person and is not related to permanent improvement or betterment of property if it otherwise qualifies as an expenditure for medical_care shall be deductible moreover a capital expen- diture for permanent improvement or betterment of property which would not ordinarily be for the purpose of medical_care within the meaning of this paragraph may nevertheless qualify as a medical expense to the extent that the expenditure exceeds the increase in the value of the related property if the particular expen- diture is related directly to medical_care such a situation could arise for example where a taxpayer is advised by a physician to install an elevator in his residence so that the taxpayer’s wife who is afflicted with heart disease will not be required to climb stairs if the cost of installing the elevator is dollar_figure and the increase in the value of the residence is determined to be only dollar_figure the difference of dollar_figure which is the amount in excess of the value enhancement is deductible as a medical expense if however by reason of this expenditure it is determined that the value of the residence has not been increased the entire cost of installing the elevator would qualify as a medical expense sec_1_213-1 income_tax regs sec_213 provides that amounts which are not lavish_or_extravagant under the circumstances that are paid for lodging while away from home primarily for and essential to medical_care referred to in sec_213 a are to be treated as amounts paid for medical_care if -- a the medical_care referred to in sec_213 a is provided by a physician in a licensed hospital or in a medical_care fa- cility which is related to or the equivalent of a licensed hospital and b there is no significant element of per- sonal pleasure recreation_or_vacation in the travel away from home the amount taken into account under the preceding sentence shall not exceed dollar_figure for each night for each individual mr mitic contends that petitioners took deductions for medical expenditures in the past which were not challenged by irs and have been allowed consequently according to mr mitic this court should allow petitioners’ claimed medical_expense_deduction at issue for we disagree this court is not bound by the actions or inactions of respondent with respect to medical expense deductions claimed by petitioners for years prior to mr mitic also contends that petitioners are entitled to petitioners’ claimed medical_expense_deduction at issue for because the expenditures in question were approved and recommended by dr james wolfe as expenditures from which ms mitic would benefit medically and were reasonable and medically related to wife’s ms mitic’s chronic asthma condi- tion those contentions are not supported by the record in this case even if they were on the record before us we find that mr mitic has failed to prove that the expenditures in question gualify under sec_213 and the regulations thereunder as deductible expenses for the medical_care of ms mitic we consider first the rental expense incurred by petitioners while the carpeting was removed from and the hardwood flooring was installed in petitioners’ residence and the interior of that residence was repainted on the record before us we find that mr mitic has failed to show that dr wolfe approved and recom-- mended that rental expense and that it qualifies as an expense paid for medical_care under sec_213 see sec_213 we turn now to the remaining expenditures in question consisting of the amounts paid_by petitioners to have the carpet-- ing removed and hardwood flooring installed throughout their residence and the interior of that residence repainted on the instant record we reject mr mitic’s contentions that all of those expenditures were approved and recommended by dr wolfe as expenditures from which ms mitic would benefit medically and were medically related to ms mitic’s asthmatic condition to support his contention regarding dr wolfe mr mitic apparently relies on the date letter from dr wolfe we find mr mitic’s reliance on that letter to be misplaced the date letter was prepared over years before the expenditures in question were incurred we find that letter to have very little if any probative value regarding why petition-- ers decided to remove carpeting from and install hardwood flooring in their residence and have that residence repainted in this connection during and ms mitic purchased tens of thousands of dollars’ worth of various items of furni- ture rugs and other decorator items that were placed in peti- tioners’ residence she purchased those items in an effort to begin an interior design activity that was based on the theory that petitioners’ residence was to be used as a showcase for prospective customers of that design activity on the record before us we believe that it is more reasonable to conclude that the expenditures relating to the removal of carpeting installa- tion of hardwood flooring and painting throughout petitioners’ residence were incurred primarily to accomplish ms mitic’s -- - objective of converting petitioners’ residence into a showcase to be used in her interior design activity rather than primarily for the prevention or alleviation of a physical illness of ms mitic within the meaning of sec_1_213-1 income_tax regs moreover removal of carpeting and installation of hardwood flooring throughout petitioners’ residence and repainting of that residence were not approved and recommended by dr wolfe in the date letter as mr mitic contends as expenditures that would benefit medically ms mitic in fact the date letter as typewritten merely stated that ms mitic has been found to be allergic to dust and would benefit from removal of the carpet in the bedroom furthermore we find that ms mitic’s purchase in early date of a chinese rug and a persian rug for dollar_figure which were placed on the newly installed hardwood flooring of petitioners’ residence belies mr mitic’s contentions that the carpeting was removed from and hardwood flooring was installed in petitioners’ residence and the inte- rior of that residence was repainted because dr wolfe approved and recommended that that work be done and that the expendi- although the date letter is a typewritten letter the letter s was added by hand to the word bedroom in that letter we are not persuaded by the date letter that dr wolfe who did not testify at trial stated in the date letter that ms mitic would benefit from removal of the carpeting in bedrooms other than ms mitic’s bedroom or in other rooms in petitioners’ residence -- - tures for that work were medically related to ms mitic’s asth- matic condition based on our examination of the entire record in this case we find that mr mitic has failed to prove that petitioners’ claimed medical_expense_deduction at issue for was for expenses for medical_care of ms mitic under sec_213 and the regulations thereunder we further find on that record that mr mitic has failed to show error in respondent’s determination disallowing that deduction consequently we sustain that determination claimed casualty_loss deduction in the joint_return petitioners claimed a casualty_loss deduction of dollar_figure with respect to mr mitic’s mercedes assuming arguendo that we had found that petitioners’ claimed medical_expense_deduction at issue for as it relates to petitioners’ expenditures_for removing carpeting and install- ing hardwood flooring throughout petitioners’ residence and painting the interior of that residence was for expenses for medical_care under sec_213 and the regulations thereunder we find on the instant record that petitioners nonetheless are not entitled to deduct those expenditures under sec_213 that is because on the instant record we find that mr mitic has failed to establish that those expenditures which we find to be capital expenditures_for the permanent improvement or betterment of petitioners’ residence satisfy the requirements of sec_1 e income_tax regs relating to capital expenditures otherwise qualifying as medical_expenses under sec_213 and the regulations thereunder in this connection mr mitic admitted at trial that no appraisal was made of petitioners’ residence either before or after petitioners had the carpeting removed from and hardwood flooring installed in that residence and had it repainted which was totaled in petitioners’ automobile accident that occurred in early date petitioners calculated that claimed casualty_loss deduction by subtracting their dollar_figure estimate of the amount of insurance to be paid_by state farm from dollar_figure the amount that they paid to purchase that automobile respondent disallowed petitioners’ claimed casualty_loss deduc- tion for sec_165 allows a deduction for any loss sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise a loss is treated as sustained during the taxable_year in which the loss occurs as evidenced by closed and com-- ‘the amount of any deductible casualty_loss sustained gener- ally is equal to the lesser_of the amount equal to the fair_market_value of the property in question immediately before the casualty reduced by the fair_market_value of that property immediately after the casualty or the amount of the adjusted_basis of the property prescribed in sec_1_1011-1 income_tax regs for determining the loss from the sale or other disposi- tion of the property involved see sec_1_165-7 income_tax regs however if property used in a trade_or_business or held_for_the_production_of_income is totally destroyed by casualty and if the fair_market_value of such property immediately before the casualty is less than the adjusted_basis of such property prescribed in sec_1_1011-1 income_tax regs the amount of the adjusted_basis of such property is to be treated as the amount of the loss for purposes of sec_165 see id moreover in the case of a personal_casualty_loss ie a casualty_loss of an individual of property not connected with a trade_or_business or a transaction entered into for profit the amount of such loss otherwise properly calculated under sec_165 and the regulations thereunder is deductible for the taxable_year only to the extent such loss assuming there are no personal casualty gains exceeds percent of the individual taxpayer’s adjusted_gross_income see sec_165 a -- - pleted transactions and as fixed by identifiable events occurring in such taxable_year see sec_1_165-1 income_tax regs if a casualty occurs that may result ina loss and in the year of such casualty there exists a claim for reimbursement with respect to which there is a reasonable_prospect_of_recovery for purposes of sec_165 no portion of the loss with respect to which reimbursement may be received is sustained until it can be ascertained with reasonable certainty whether or not such reim-- bursement will be received see sec_1_165-1 income_tax regs whether a reasonable_prospect_of_recovery exists with respect to a claim for reimbursement of a loss is a question of fact that must be determined upon an examination of all the facts and circumstances see id whether or not reimbursement of a loss will be received may be ascertained with reasonable cer- tainty by for example a settlement of the claim an adjudica- tion of the claim or an abandonment of the claim see id mr mitic contends that respondent erred in disallowing petitioners’ claimed casualty_loss deduction for according to mr mitic petitioners’ position in the joint_return with respect to the claimed casualty_loss deduction was required by form_4684 and the instructions for that form ’ we disagree ‘as we understand it mr mitic alternatively argues that if we were to find that petitioners are not entitled to the claimed casualty_loss deduction for they would be entitled to a casualty_loss deduction for that is calculated by subtract-- continued as for form_4684 it was petitioners who took the position in that form which they filed with the joint_return that mr mitic’s mercedes was property used in a trade_or_business or for income-producing purposes consequently it was they who de- cided to report the casualty_loss with respect to that automobile in section b business and income-producing property of form_4684 furthermore in completing part i casualty or theft gain_or_loss in section b of form_4684 it was petitioners who decided to report as the cost or adjusted_basis of mr mitic’s mercedes the original purchase_price dollar_figure of that automo- bile they took that position even though they had depreciated mr mitic’s mercedes in prior years and consequently the ad- justed basis of that automobile as depreciated by petitioners would have been less than its original cost it was also peti- continued ing the amount of insurance dollar_figure actually paid to them by state farm in early date with respect to mr mitic’s mercedes from the amount dollar_figure that petitioners paid to purchase that vehicle we have no jurisdiction over petitioners’ taxable_year both the notice issued by respondent and the petition filed by petitioners relate only to petitioners’ taxable years and saxcept for mr mitic’s general and conclusory testimony on which we are unwilling to rely the record contains no evidence establishing that in mr mitic’s mercedes was property used in a trade_or_business or in a transaction entered into for profit nor does the record establish that the loss if any sustained with respect to that vehicle was incurred_in_a_trade_or_business or in a transaction entered into for profit to the contrary mr mitic stipulated that petitioners were traveling to lake tahoe on vacation at the time petitioners’ automobile accident occurred - - tioners who decided to report as insurance or other reimburse- ment in part i of section b of form_4684 an estimate of dollar_figure and not the settlement amount of dollar_figure plus taxes and appropri- ate fees that state farm offered to petitioners at the end of in settlement of the automobile damage claim as for the instructions for form_4684 we take judicial_notice of those instructions which are not part of the record in this case those instructions explicitly state that if the taxpayer 1s not sure whether part of the claimed casualty_loss will be reimbursed the taxpayer may not deduct that part until the tax_year when it is reasonably certain that it will not be reimbursed the instructions for form_4684 thus are totally consistent with sec_1_165-1 income_tax regs in addition those instructions explicitly state that in reporting in part i of section b of form_4684 the cost or adjusted_basis of property used in a trade_or_business or for income-producing purposes it is necessary to deduct depreciation allowed_or_allowable we conclude that mr mitic’s contention that petitioners’ position in the joint_return with respect to their claimed casualty_loss deduction was reguired by form_4684 and the in- structions for that form is without merit we shall now determine on the basis of the instant record and the applicable law whether petitioners are entitled to the --- - casualty_loss deduction that they claimed in the joint_return the record establishes that shortly after petitioners’ automobile accident in early date petitioners hired mr perez an attorney to represent them and he submitted the automobile damage claim to state farm on their behalf with respect to mr mitic’s mercedes at no time in and during the negotiations between state farm and mr perez with respect to the automobile damage claim did state farm deny liability for that claim although it did dispute that it was liable as the insurer of mr mitic’s mercedes for the amount demanded by mr perez on behalf of petitioners in fact at the end of date state farm offered to settle the automobile damage claim for dollar_figure plus taxes and appropriate fees on the record before us we find that in petitioners had a reasonable_prospect_of_recovery with respect to the automo- bile damage claim and that they could not have ascertained with reasonable certainty in that year whether they would receive the entire amount of that claim we further find on the instant record that although petitioners knew with reasonable certainty in that they would collect some insurance with respect to the automobile damage claim they did not know with reasonable certainty the amount thereof see 184_f2d_835 5th cir affg a memorandum opinion of this court dated date 65_tc_351 - sec_1_165-1 income_tax regs based on our examination of the entire record before us we find that mr mitic has failed to establish that under sec_1_165-1 and income_tax regs petitioners sustained any loss in with respect to mr mitic’s mercedes we further find on that record that mr mitic has failed to show that petitioners are entitled to the casualty_loss deduction claimed in the joint_return consequently we sustain respondent’s determination disallowing that claimed deduction claimed depreciation deduction in the joint_return petitioners claimed a depreciation deduction for the entire year with respect to the geo that petitioners acquired from their son in date respondent disallowed that deduction mr mitic makes no argument on brief with respect to the depreciation deduction that petitioners claimed for with respect to the geo sec_167 allows a deduction for depreciation with respect to property used in a trade_or_business or held_for_the_production_of_income based on our examination of the entire record before us we find that mr mitic has failed to establish that during petitioners used the geo in a trade_or_business or held it for the production_of_income ’ we further find on mr mitic conceded at trial that petitioners kept no mile- age log calendar or other documentation to show that the geo continued - - that record that mr mitic has failed to prove that petitioners are entitled to the depreciation deduction claimed with respect to the geo in the joint_return consequently we sustain respondent’s determination disallowing that deduction accuracy-related_penalty under sec_6662 a respondent determined that petitioners are liable for each of the years at issue for the accuracy-related_penalty under sec_6662 mr mitic makes no argument on brief regarding those penalties sec_6662 imposes an accuracy-related_penalty equal to percent of the underpayment_of_tax resulting from a substan-- tial understatement of income_tax an understatement is equal to the excess of the amount of tax required to be shown in the tax_return over the amount of tax shown in the tax_return see sec_6662 d a and is substantial in the case of an individual if it exceeds the greater of percent of the tax required to be shown or dollar_figure see sec_6662 a the accuracy-related_penalty under sec_6662 does not continued was used during in a trade_or_business or held_for_the_production_of_income in this connection the record establishes that petitioners also claimed in the joint_return deprecia-- tion deductions with respect to at least two other automobiles we find it incredible that petitioners used the geo as well as those two other vehicles during in one or more trades_or_businesses or held them for the production_of_income especially in light of mr mitic’s testimony that ms mitic was too ill to work during -- - apply to any portion of an underpayment if it is shown that there was reasonable_cause for such portion and that the taxpayer acted in good_faith see sec c the determination of whether a taxpayer acted with reasonable_cause and in good_faith depends on the pertinent facts and circumstances including the taxpayer’s efforts to assess his or her proper tax_liability the knowledge and experience of the taxpayer and the reliance on the advice of a professional such as an accountant see sec_1_6664-4 b income_tax regs based on our examination of the entire record before us we find that mr mitic who listed his occupation in both the and joint returns as accountant has failed to establish that petitioners are not liable for the years at issue for the accuracy-related_penalties under sec_6662 we have considered all of the arguments of mr mitic that are not discussed herein and we find them to be without merit and or irrelevant to reflect the foregoing and the concessions of the parties the amount of the accuracy-related_penalty for which petitioners are liable for each of the years at issue shall be determined in the rule_155_computations by taking into account the concessions of the parties in the first stipulation of settled issues filed in this case after rule_155_computations have been submitted we shall grant respondent’s motion and enter a decision with respect to continued decision will be entered under rule continued ms mitic in the same amounts as the amounts reflected in the decision entered with respect to mr mitic


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 it a plr-112851-04 date date --------- ------------------ ------------------------------------------------------- legend legend city state program dear --------------- this letter responds to your ruling_request submitted on behalf of the city by a letter dated date as supplemented on date date and date your request relates to whether the city is required to file information returns for payments made under the program described below background the city is a municipal government incorporated under the laws of state the city implemented the program to reduce the financial hardship that can occur when a property owner is ordered to remove dead or dying trees which are identified by the city as posing an immediate threat to public health and safety the program has two different systems of assistance one for owner-occupants hereinafter residents and one for investors of rental property hereinafter investors under the program the city classifies dead or dying trees and issues a removal order residents must submit proof of ownership of the property and total household_income to the city in order to obtain assistance investors must submit proof of ownership of the property and total household_income of their tenants subsequently residents and investors solicit bids from contractors to remove the trees and the city plr-112851-04 selects a contractor among the solicited bids upon inspection of the completed work the city makes payment directly to the contractor the amount of assistance is determined by the total household_income level of the residents or the tenants of investors payments made to residents are grants while in the case of payments made to investors the city imposes a lien on the rental property for some or all of the amount of assistance provided when the investor sells or changes the title of the property the assistance is repaid and the lien is removed law and analysis sec_6041 of the internal_revenue_code hereinafter the code requires all persons engaged in a trade_or_business and making payment in the course of such trade_or_business to another person of rent salaries wages premiums annuities compensations remunerations emoluments or other fixed or determinable gains profits and income of dollar_figure or more in any taxable_year to file an information_return with the internal_revenue_service hereinafter the service and to furnish an information statement to the payee sec_1_6041-1 of the income_tax regulations hereinafter the regulations provides that payments are fixed when they are paid in amounts definitely predetermined income is determinable whenever there is a basis of calculation by which the amount to be paid may be ascertained sec_1_6041-1 requires a payor to report sec_6041 amounts on form_1099 payments that are not fixed or determinable are not subject_to information reporting under sec_6041 the payments of compensation and other_amounts required to be reported under sec_6041 are those includible in gross_income under sec_61 accordingly in order to decide whether the city is required to furnish an information_return to the property owners it is necessary to examine whether the payments are includible in gross_income sec_61 of the code and the regulations thereunder define gross_income to mean all income from whatever source derived see also section dollar_figure -1 a of the regulations however sec_1_61-6 provides that certain gains or losses realized on the sale_or_exchange of property including involuntary_conversions under sec_1033 are not recognized or included in gross_income at the time of the transaction the gain_or_loss from such sale_or_exchange is generally recognized at some later date sec_1033 provides that if property as a result of its destruction in whole or in part theft seizure or requisition or condemnation or threat or imminence thereof is compulsorily or involuntarily converted into property similar_or_related_in_service_or_use plr-112851-04 to the property so converted no gain shall be recognized sec_1033 provides in part that if such property is converted into money and the taxpayer timely purchases other_property similar_or_related_in_service_or_use to the property so converted then at the election of the taxpayer the gain shall be recognized only to the extent that the amount_realized on such conversion exceeds the cost of such other_property sec_1033 requires a broad construction to effectuate its purposes see 514_f2d_484 2nd cir 306_f2d_207 8th cir amounts realized from an involuntary_conversion have been held to include severance_damages damages to property remaining after condemnation and moving_expenses e r hitchcock co f 2d pincite in this case the property owners received the costs of the tree removal services solely as a result of the city’s order to remove the dead or dying trees but for the conversion the property owners would not have realized the payments from the city accordingly we conclude that the payments are amounts realized from an involuntary_conversion within the meaning of sec_1033 as explained above gains profits and income under sec_6041 are reportable to the extent that they are fixed and determinable at the time the payment is made see sec_6041 of the code when sec_1033 applies the extent to which gain must be recognized in the year of disposition is contingent on the sec_1033 election taxpayers can make this election up to two years after the year in which the any portion of the gain is realized because the city does not posses the information necessary to determine what portion if any of the assistance payments are income to the property owners the payments are not fixed or determinable under sec_6041 and the city is not required to file information returns with the service or to furnish information statements to the property owners with respect to the payments we express no opinion regarding whether all or any portion of the payments would be excluded from gross_income in the year of receipt without regard to sec_1033 the city’s direct payments to contractors raise an additional issue sec_1_6041-1 the middleman rules of the regulations provides e payment made on behalf of another person-- in general a person that makes a payment in the course of its trade_or_business on behalf of another person is the payor that must make a return of information under this section with respect to that payment if the payment is described in paragraph a of this section and under all the facts and circumstances that person- plr-112851-04 i performs management or oversight functions in connection with the payment this would exclude for example a person who performs mere administrative or ministerial functions such as writing checks at another's direction or ii has a significant economic_interest in the payment ie an economic_interest that would be compromised if the payment were not made such as by creation of a mechanic's lien on property to which the payment relates or a loss of collateral under the facts provided it appears that the city exercises management or oversight functions with respect to payments made to contractors on behalf of the property owners the city selects a contractor and inspects the work performed by the contractor prior to making payment see sec_1_6041-1 of the regulations accordingly if the city makes a direct payment to a contractor pursuant to the program the city is required to file an information_return with the service and to furnish an information statement to the contractor payments to contractors would be reported on form 1099-misc with the amount reported in box as nonemployee compensation conclusion for these reasons we conclude that the city is not subject_to the information reporting requirements of sec_6041 with respect to the payments distributed to the property owners under the program but that information reporting is required with respect to direct payments to contractors unless the recipient is a corporation or other specified entity payment to which is exempt under sec_1_6041-3 of the regulations this document may not be used or cited as precedent see sec_6110 of the code ______________________ john aramburu senior counsel branch associate chief_counsel income_tax accounting sincerely


t c memo united_states tax_court ronald w oman petitioner v commissioner of internal revenue respondent docket no 1910-05l filed date p filed a petition for judicial review pursuant to sec_6320 i r c in response to a determination by r that lien action was appropriate held the case is remanded for further consideration by the internal_revenue_service office of appeals ronald w oman pro_se robert w dillard and michael d zima for respondent memorandum findings_of_fact and opinion wherry judge this case is before the court on a petition for judicial review of a notice_of_determination concerning collection action s under sec_6320 lien of the internal_revenue_code the issue for decision is whether respondent may proceed with collection in the form of a filed tax_lien of petitioner’s federal_income_tax liabilities for the and taxable years findings_of_fact some of the facts have been stipulated and are so found the stipulations of the parties with accompanying exhibits are incorporated herein by this reference at the time this petition was filed petitioner resided in altamonte springs florida petitioner failed to file a federal_income_tax return for petitioner filed untimely for the and taxable years and did not remit payment of the balances due petitioner filed timely for and but again did not remit sufficient payment the vast majority of petitioner’s tax_liabilities arose in and when petitioner was president of public telephone corporation and earned over dollar_figure in salary each year in public telephone corporation was seized by the federal trade commission and put into receivership thereafter petitioner held a series of seasonal and odd jobs and relied on friends and family for housing food and other bare necessities 1unless otherwise indicated all section references are to the internal_revenue_code code of as amended petitioner also struggled with alcohol drugs and depression for which he entered rehabilitation in the fall of as of petitioner’s outstanding tax_liabilities for the years and totaled dollar_figure on date respondent received from petitioner a form_656 offer_in_compromise offering to pay dollar_figure based on doubt as to collectibility petitioner also provided a form 433-a collection information statement for wage earners and self-employed individuals indicating that he was unemployed lived with friends received money from his parents from time to time and had no assets respondent thereafter evaluated petitioner’s offer preparing inter alia a full pay worksheet dated date and income expense and asset equity tables dated date the worksheet indicated that petitioner’s total ability to pay was zero and stated that initial analysis indicates a low- income taxpayer that can’t pay with assets at this time the income expense table reflected that petitioner had monthly income and allowed expenses of dollar_figure and dollar_figure respectively for a dollar_figure monthly negative cashflow and that the amount that could be paid was zero the asset equity table showed that petitioner had a total minimum value of zero nevertheless respondent rejected petitioner’s dollar_figure offer- in-compromise because petitioner had an egregious history of past non-compliance and respondent’s analysis of petitioner’s current finances reveals that it will be highly unlikely petitioner will be able to remain in compliance during the offer terms therefore respondent concluded it would not be in the best interest of the government in the rejection narrative prepared in connection with the letter informing petitioner of the rejection dated date respondent noted that petitioner’s reasonable collection potential was zero shortly before rejecting the offer-in-compromise respondent on date filed a notice_of_federal_tax_lien in seminole county florida with respect to petitioner’s and income_tax liabilities respondent then on date issued to petitioner a corresponding notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 for the taxable years and in response petitioner 2taxable years and were not covered by this notice because respondent had previously issued on date a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 for these years and petitioner had not timely requested a hearing in response to that notice respondent had also previously issued on date a final notice_of_intent_to_levy and notice of your right to a hearing for taxable years and and petitioner had also not timely requested a hearing in response to that notice because petitioner’s requests for a hearing on the proposed levy for and and the filed lien as to and were filed late petitioner was afforded an equivalent continued submitted a form request for a collection_due_process_hearing which was received by respondent on date petitioner stated his disagreement with the lien as follows i’m going through offer and compromise as we speak respondent’s appeals_office conducted a collection hearing by telephone with petitioner on date during that interview petitioner continued to press for acceptance of his offer-in-compromise thereafter on date respondent issued the above-mentioned notice_of_determination for the and taxable years sustaining the filing of the notice of lien in july of an attachment to the notice addressed the issues raised by the taxpayer and stated as relevant here the rejection of your offer_in_compromise has been sustained by appeals based on irm that due to your egregious history of non-compliance it is in the best continued administrative hearing for these collection actions equivalent administrative hearings are not appealable to this court see sec_6320 sec_6330 126_tc_183 123_tc_1 affd 412_f3d_819 7th cir 3respondent had earlier issued to petitioner a decision letter concerning equivalent_hearing under sec_6330 levy of the internal_revenue_code sustaining levy action as to taxable years and and a decision letter concerning equivalent_hearing under sec_6320 lien of the internal_revenue_code sustaining the filing of a federal_tax_lien with respect to taxable years and see supra note interest of the government not to accept your offer_in_compromise i collection action a general rules opinion if a taxpayer liable to pay taxes fails to do so after demand for payment the tax_liability becomes a lien in favor of the united_states against all of the taxpayer’s real and personal_property and rights to such property sec_6321 the lien arises at the time the assessment is made and continues until the liability is satisfied or becomes unenforceable by reason of lapse of time sec_6322 the secretary is obliged to notify the taxpayer that a notice of a federal_tax_lien has been filed within business days of filing and of the administrative appeals available to the taxpayer sec_6320 upon timely request a taxpayer is entitled to a hearing before the internal_revenue_service office of appeals regarding the propriety of the filing of the lien this hearing is conducted in accordance with the procedural requirements of sec_6330 sec_6320 and c the taxpayer is entitled to appeal the determination of the appeals_office made on or before date to the tax_court or a u s district_court depending on the type of tax at issue sec_6330 where the validity of the underlying tax_liability is properly at issue the court will review the matter de novo 114_tc_604 114_tc_176 the court reviews any other administrative determination for an abuse_of_discretion sego v commissioner supra pincite goza v commissioner supra pincite an abuse_of_discretion has occurred if the commissioner exercised his discretion arbitrarily capriciously or without sound basis in fact or law 112_tc_19 petitioner does not dispute the existence or amounts of the underlying tax_liabilities accordingly the court’s standard of review is abuse_of_discretion b review for abuse_of_discretion among the issues that may be raised at the appeals_office and are reviewed for an abuse_of_discretion are challenges to the appropriateness of collection and offers of collection alternatives such as an offer-in-compromise sec_6330 the court does not conduct an independent review of what would be an acceptable offer-in-compromise rather it gives due deference to the commissioner’s discretion 125_tc_301 woodral v commissioner 4determinations made after date are appealable only to the tax_court see pension_protection_act of publaw_109_280 120_stat_1019 supra pincite the court reviews the appeals officer’s rejection of an offer-in-compromise to decide whether the rejection was arbitrary capricious or without sound basis in fact or law murphy v commissioner supra pincite woodral v commissioner supra pincite sec_7122 authorizes the secretary to compromise any civil case arising under the internal revenue laws in general the decision to accept or reject an offer as well as the terms and conditions agreed to are left to the discretion of the secretary sec_301_7122-1 proced admin regs however regulations promulgated under sec_7122 provide that no offer to compromise may be rejected solely on the basis of the amount of the offer without evaluating that offer under the provisions of the regulations and the secretary’s policies and procedures regarding the compromise of cases sec_301 f proced admin regs the grounds for compromise of a tax_liability are doubt as to liability doubt as to collectibility and promotion of effective tax_administration sec_301_7122-1 proced admin regs petitioner based his offer-in-compromise on doubt as to collectibility which exists in any case where the taxpayer’s assets and income are less than the full amount of the liability sec_301_7122-1 proced admin regs in determining the taxpayer’s ability to pay the individual facts and circumstances of the taxpayer’s case are considered and the taxpayer is permitted to retain sufficient funds to pay basic living_expenses sec_301_7122-1 proced admin regs the internal_revenue_manual irm contains guidelines for rejection of offers-in-compromise irm sec_5 date which respondent relied on in rejecting petitioner’s offer states an offer rejection may also be based on a determination that acceptance of the specific offer at hand is not in the best interest of the government per policy statement p-5-100 rejections under this provision should not be routine and should be fully supported by the facts outlined in the rejection narrative offers rejected under this section require the review and approval of the second level manager that is territory manager for the field or department manager for coic centralized offers in compromise examples of situations that may warrant rejection as not being in the best interest of the government include recent compliance satisfies offer processability criteria however the taxpayer has an egregious history of past non-compliance and our analysis of his current finances reveals that it will be highly unlikely the taxpayer will be able to remain in compliance during the offer terms policy statement p-5-100 date on which the irm relies states the service will accept an offer_in_compromise when it is unlikely that the tax_liability can be collected in full and the amount offered reasonably reflects collection potential an offer_in_compromise is a legitimate alternative to declaring a case currently not collectible or to a protracted installment_agreement the goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the government in cases where any offer_in_compromise appears to be a viable solution to a tax delinquency the service employee assigned the case will discuss the compromise alternative with the taxpayer and when necessary assist in preparing the required forms the taxpayer will be responsible for initiating the first specific proposal for compromise the success of the offer_in_compromise program will be assured only if the taxpayers make adequate compromise proposals consistent with their ability to pay and the service makes prompt and reasonable decisions taxpayers are expected to provide reasonable documentation to verify their ability to pay the ultimate goal is a compromise which is in the best interest of both the taxpayer and the service acceptance of an adequate offer will also result in creating for the taxpayer an expectation of a fresh_start toward compliance with all future filing and payment requirements emphasis added irm sec_5 and policy statement p-5-100 as applied in this case appear to be inconsistent regarding the best interest of the government irm sec_5 pertains to rejecting offers if they are not in the ‘best interest of the government’ per policy statement p-5-100 while policy statement p-5-100 describes the dollar amount of offers which are in the best interest of the government and encourages such compromises the goal of the offer-in-compromise program according to policy statement p-5-100 is to collect what is potentially collectible as early as possible and the ultimate goal is to find a compromise that is in the best interest of both the taxpayer and the service policy statement p-5-100 does not mention egregious past non-compliance it instead mentions creating for the taxpayer an expectation of a fresh_start toward future compliance according to policy statement p-5-100 it appears the best interest of the government is a compromise that is also in the best interest of the taxpayer and which collects the potentially collectible amount or more at the earliest possible time in the instant case respondent determined that petitioner’s reasonable collection potential was zero pursuant to policy statement p-5-100 it appears that acceptance of petitioner’s dollar_figure offer is in respondent’s best interest as it is also in petitioner’s best interest and permits respondent to collect more than respondent determined was potentially collectible otherwise it would also afford petitioner a fresh_start toward future compliance the internal_revenue_manual does contain a provision that allows for rejection of offers that exceed the reasonable collection potential irm sec_5 date states policy statement p-5-89 establishes that offers may be rejected on the basis of public policy if acceptance might in any way be detrimental to the interests of fair tax_administration even though it is shown conclusively that the amount offered is greater than could be collected by any other means if no effective tax_administration eta issues exist note this section should not be confused with irm under effective tax_administration eta offers a decision to reject an offer for public policy reason s should be based on the fact that public reaction to the acceptance of the offer could be so negative as to diminish future voluntary compliance by the general_public decisions to reject offers for this reason should be rare example below are some examples of situations that may warrant rejection based on a public policy decision the taxpayer has openly encouraged others to refuse to comply with the tax laws suspicion that the financial benefits of a criminal activity are concealed or the criminal activity is continuing an offer will not be rejected for public policy grounds solely because a it would generate considerable public interest some of it critical b a taxpayer was criminally prosecuted for tax or non-tax violation the rejection narrative should discuss the specific public policy issues rejections of this type require the approval of the sb_se compliance area director in the field or sb_se compliance services field director for coic emphasis omitted policy statement p-5-89 does not specifically reference egregious past non-compliance but appears to provide that in some cases it may be a legitimate basis for rejecting an offer that exceeds the reasonable collection potential however irm sec_5 provides that respondent should discuss and document the specific public policy issues relevant to the case in the rejection narrative respondent did not reference either irm sec_5 or policy statement p-5-89 in the rejection narrative rather respondent referenced irm sec_5 as the reason for rejecting petitioner’s offer offers-in-compromise contain default provisions irm sec_5 date provides that taxpayers must agree to the future compliance provisions when offers are accepted the taxpayer must timely file all tax returns and pay all taxes due during the compliance_period the compliance_period is five years from the acceptance date or until the offer amount is paid in full whichever is longer it further provides failure to adhere to the compliance terms could result in the default of the oic and reinstatement of compromised liabilities irm sec_5 date form_656 item n elaborates by providing that if the taxpayer fail s to meet any of the terms and conditions of the offer and the offer defaults then the irs may -immediately file suit to collect the entire unpaid balance of the offer -immediately file suit to collect an amount equal to the original amount of the tax_liability as liquidating damages minus any payment already received under the terms of this offer -disregard the amount of the offer and apply all amounts already paid under the offer against the original amount of the tax_liability -file suit or levy to collect the original amount of the tax_liability without further notice of any kind respondent argues that doubt as to future compliance is a sufficient reason to reject an offer-in-compromise respondent contends that although the default provision of an offer-in- compromise affords respondent some protection it is not enough respondent notes citing 123_tc_85 revd 439_f3d_455 8th cir that where taxpayers violate the future compliance condition courts have not always found violations to be material and do not always allow respondent to terminate an offer the court is not convinced by respondent’s speculative argument courts have found offers-in- compromise materially breached and have allowed termination of the offer in appropriate cases where taxpayers fail to make payments agreed to in the offer-in-compromise fail to pay off the amount compromised or fail to pay taxes owed during the year period after the offer has been accepted e g 372_f2d_352 3d cir 303_f2d_1 5th cir 225_fsupp2d_1138 e d mo 182_fsupp_567 d n j ii conclusion taking into account the inconsistency of irm sec_5 and policy statement p-5-100 the best interest of the government reasoning behind respondent’s rejection of petitioner’s offer is unclear absent clarification the court cannot conclude whether it was an abuse_of_discretion for respondent to proceed with collection for the reasons and on the authority set forth in the determination_letter the court will remand the case to respondent’s appeals_office for further consideration and clarification to reflect the foregoing an appropriate order will be issued


y tar ey empt ercun eanes ane significant index number 0072-dollar_figure department of the treasury internal reyenue service washington cg mar o i os19 ta seltiep rad this is in reply to your request for a ruling concerning the income_tax treatment of pension benefits received from c according to the information submitted you commenced pension benefits on date you are entitled to a monthly amount of your life month for the rest of her life of the internal_revenue_code code you made after-tax contributions of if b survives after your death she will receive benefits of c is a pension_plan qualified under sec_401 payable for per the retirement fund you were born february b was born the 1099-r forms you received from forward september incorrectly stated the taxable_amount to be the gross amount_paid to you you did not exclude any portion of the amounts received in prior years’ income_tax returns you requested a ruling on two issues related to the income_tax treatment of these benefits how should you compute the taxable_portion of the pension for the current_year and how should you correct prior years’ returns to reflect the correct exclusion amounts for the pension payments for those years in addition you suggested two options for the second issue the first option is beginning with the earliest year for which you can file an amended_return to treat ine entire amount received as non-taxable until you have cought up to the appropriate recovery amount for the current_year as if you had treated the correct pout amount as excludible each year the second option suggested is to treat the earliest year for which you can file an amended_return as the annuity_starting_date and compute the exclusion amount based on that assumption law_and regulations sec_72 of the code excludes from gross_income that portion of the payments which represents a retum of the investment_in_the_contract after-tax contributions would constitute the investment_in_the_contract sec_72 of the code provides that for a pension under a qualified_plan the excludible amount is determined using the simplified_method which consists of dividing the investment_in_the_contract by a divisor based on the age of annuitant or sum of ayes of annuitant and survivor in the case of a joint_and_survivor_annuity at the annuity_starting_date the result is the monthly excludible amount the total amount excludible in a year is this monthly amount times the number of months for which payments were paid to the taxpayer during the year sec_1_72-4 of the federal_income_tax regulations regulations defines the annuity_starting_date as the first day of the first period for which a payment is received sec_1_451-1 provides that if income was improperly included in gross_income in a prior year and that year is still within the limitation period the taxpayer may file an amended retum correcting the gross_income irs publication provides that a tax_refund for an overpayment may be claimed by an amended_return within years of the date you filed your return or years of the date you paid the tax whichever is later analysis and computation as of that date a was age and the annuity_starting_date is august b wa sec_44 the sum of these ages is under the simplified_method of sec_72 of the code for a joint_and_survivor_annuity where the sum of the ages at the annuity_starting_date is less than the divisor i sec_410 the monthly excludible amount is the investment_in_the_contract employee after-tax contributions divided by or excludible amount for any year in which you are paid payments i sec_12 times equal to the the annual or these amounts are excludible each year until the total amount excluded under the contract is equal to your original contribution amount lf b survives after your death she continues taking the same exclusions that you would have been eligible for had you continued receiving the payments nothing in sec_72 of the code or the regulations thereunder allows the re- computation of the annual excludible amount based on what amounts were actually excluded from the taxpayer's income each year’s exclusion is limited to times the monthly excludible amount computed under the simplified_method utu2j u4d2 therefore your first suggested option for dealing with the prior tax years is not permissible in addition the rules for the simplified_method require that the computation be based on the ages of the annuitants at the annuity_starting_date therefore you second suggested option for dealing with the prior tax years is also not permissible however even if it were permitted the sum of the ages of the annuitants would in any case remain less than so the divisor would remain and the monthly excludible amount would be unchanged conclusion with regard to issue the monthly excludible amount is amount excludible for each year for which payments are made is i hese amounts are excludible each year until the total amount excluded under the contract equals the investment_in_the_contract and the with regard to issue you may amend income_tax returns for prior years to reflect the annual excludible amount of with respect to each year for vhich an amended_return is allowable generally an income_tax return may be amended within three years of the date upon which the original return was due or within two years from the date the income_tax was paid whichever is later ’ with regard to your suggested options for issue you may not recover all of the amounts that could have been treated as excludible from to the current_year by treating the entire amount as excludible in a single year nor may you treat a date in a later year as the annuity_starting_date for purposes of computing the monthly amount excludible under the simplified_method a copy of this ruling should be attached to your federal_income_tax return we have included a copy for that purpose if you have any question concerning this matter please contact sincerely se v1 david m ziegler manager actuarial group employee_plans technical


internal_revenue_service number release date index number ----------------------------------------------------------- ---------------------------------------- ----------------------------------- re ------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------------ telephone number -------------------- refer reply to cc psi b01 plr-103785-18 date date legend decedent ----------------------------- personal representative ------------------------- cpa -------------------------- trust ----------------------------------------------------- ----------------------------------------------------------- date year --------------------------- -------- dear ----------------- this letter responds to your personal representative’s letter of date requesting an extension of time under sec_301 of the procedure and administration regulations and sec_2642 of the internal_revenue_code to allocate the generation- skipping transfer gst_exemption to a_trust facts the facts and representations submitted are summarized as follows decedent died plr-103785-18 testate on date decedent’s estate included the assets in trust trust has gst potential cpa prepared and timely filed a form_706 united_states estate and generation- skipping transfer_tax return for year however cpa failed to allocate decedent’s available gst_exemption to trust personal representative of decedent’s estate requests an extension of time under sec_2642 and sec_301_9100-1 to allocate decedent’s available gst_exemption to trust law and analysis sec_2601 imposes a tax on every generation-skipping_transfer a generation- skipping transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax imposed by sec_2601 is the taxable_amount multiplied by the applicable_rate sec_2631 provides that for purposes of determining the gst tax every individual shall be allowed a gst_exemption amount 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_2641 defines the applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a gst is the excess if any of one 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 under sec_2631 allocated to the trust and the denominator of which is the value of the property transferred to the trust sec_2642 provides that if property is transferred as a result of the death of the transferor the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter except that if the requirements prescribed by the secretary respecting allocation of post-death changes in value are not met the value of such property shall be determined as of the time of the distribution concerned sec_2642 provides that any allocation to property transferred as a result of the death of the transferor shall be effective on and after the date of the death of the transferor plr-103785-18 sec_2642 provides that if the value of property is included in the estate of a spouse by virtue of sec_2044 and if such spouse is treated as the transferor of such property under sec_2652 the value of such property for purposes of subsection a shall be its value for purposes of chapter in the estate of such spouse 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 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 under this paragraph 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_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death are to be treated as if not expressly prescribed by statute and taxpayers may seek an extension of time to make an allocation described in sec_2642 or b 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 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 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 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 plr-103785-18 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore personal representative of decedent’s estate is granted an extension of time of days from the date of this letter to allocate decedent’s available gst_exemption to the year transfer to trust the allocation will be effective as of the respective date of the transfer to trust and the value of the transfer to trust as determined for federal estate_tax purposes will be used in determining the amount of decedent’s gst_exemption to be allocated to trust this allocation should be made on a supplemental form_706 and filed with the cincinnati service_center at the following address internal_revenue_service cincinnati service_center - stop cincinnati oh a copy of this letter should be attached to the supplemental form sec_709 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code 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 your authorized representative sincerely associate chief_counsel passthroughs special industries lorraine e gardner ______________________________ by lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter


offic e of department of the treasury i n t e r n a l r e v e n u e s e r v i c e washington d c date chief_counsel number info release date conex-100399-07 ulic 48a the honorable robert c bryd united_states senate washington dc dear senator byrd i am responding to your and senator rockefeller’s letter of date to the secretary_of_the_treasury about the allocation of tax_credits under the qualifying_advanced_coal_project program of the energy policy act of epact to integrated_gasification_combined_cycle igcc projects using bituminous coal the tax_credits are available under sec_48a of the internal_revenue_code the code which the congress enacted as part of epact under sec_48a of the code the secretary_of_the_treasury in consultation with the secretary of energy was required to establish a qualifying_advanced_coal_project program for the deployment of advanced coal-based generation technologies on date the irs published notice_2006_24 which established the qualifying_advanced_coal_project program this notice was developed in consultation with the u s department of energy doe and was approved by the treasury department’s office of tax policy i am enclosing a copy of the notice under the notice we were permitted to consider a project under the qualifying_advanced_coal_project program only if the doe certified the project for feasibility and consistency with energy policy goals see section dollar_figure of notice_2006_24 if the doe certified a project we allocated the tax_credits according to the procedures in sec_4 of the notice under these procedures credits were first allocated within each class of projects to projects that were entitled to priority under sec_48a of the code in the case of igcc projects using bituminous coal as a primary feedstock the requested allocation of credits for priority projects exceeded the total credit available for these projects for that situation sec_4 b of notice_2006_24 set forth a formula to allocate the credit among the projects the formula allocated the total credit available for igcc bituminous coal projects dollar_figure million to the projects having the highest ratio of total nameplate generating capacity to requested allocation of credits for the allocation round doe certified four igcc bituminous coal projects each of these projects was entitled to priority and requested the maximum amount of the credit permitted for a n igcc bituminous coal project dollar_figure million initially the applicants’ information about total nameplate generating capacity was inconsistent in that some were at gross output and others were at net output and none were at the same optimal operating conditions to resolve these inconsistencies we requested and received from the applicants the total of the numbers to be stamped on the nameplate of each generator to be used for the project ie total nameplate generating capacity at international standards organization iso conditions that is pinciteºf humidity and psia applicants provided the information regarding total nameplate generating capacity under penalties of perjury because each of the four projects requested the maximum credit permitted dollar_figure million for an igcc bituminous coal project we allocated the total credit available for these projects dollar_figure million to the two projects with the highest total nameplate generating capacity at iso conditions thus the process we used to allocate the credits which relied on detailed information provided by the applicants under penalties of perjury appropriately took total nameplate generating capacity into account in accordance with the rules set forth in notice_2006_24 we will consider your comments about the nameplate generating capacity as we continue to evaluate and administer the program in addition you commented on the provision in notice_2006_24 allowing for no appeal of the awards of the credit because the code limits the total amount of credits that can be awarded appeal rights would deny certainty to successful applicants this lack of certainty could indefinitely delay progress on the projects receiving allocations and thereby frustrate congress’ intent in enacting these credit provisions i hope this information is helpful if you have any questions please contact me at ----- ------------------ --------------------------------------------------------------------------------------------------------------------------------or --- ---------------------at ----- ------------- sincerely clarissa c potter enclosure clarissa c potter deputy chief_counsel technical office_of_chief_counsel department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s hington d c date ulic 48a the honorable john d rockefeller iv united_states senate washington dc dear senator rockefeller i am responding to your and senator byrd’s letter of date to the secretary_of_the_treasury about the allocation of tax_credits under the qualifying_advanced_coal_project program of the energy policy act of epact to integrated_gasification_combined_cycle igcc projects using bituminous coal the tax_credits are available under sec_48a of the internal_revenue_code the code which the congress enacted as part of epact under sec_48a of the code the secretary_of_the_treasury in consultation with the secretary of energy was required to establish a qualifying_advanced_coal_project program for the deployment of advanced coal-based generation technologies on date the irs published notice_2006_24 which established the qualifying_advanced_coal_project program this notice was developed in consultation with the u s department of energy doe and was approved by the treasury department’s office of tax policy i am enclosing a copy of the notice under the notice we were permitted to consider a project under the qualifying_advanced_coal_project program only if the doe certified the project for feasibility and consistency with energy policy goals see section dollar_figure of notice_2006_24 if the doe certified a project we allocated the tax_credits according to the procedures in sec_4 of the notice under these procedures credits were first allocated within each class of projects to projects that were entitled to priority under sec_48a of the code in the case of igcc projects using bituminous coal as a primary feedstock the requested allocation of credits for priority projects exceeded the total credit available for these projects for that situation sec_4 b of notice_2006_24 set forth a formula to allocate the credit among the projects the formula allocated the total credit available for igcc bituminous coal projects dollar_figure million to the projects having the highest ratio of total nameplate generating capacity to requested allocation of credits for the allocation round doe certified four igcc bituminous coal projects each of these projects was entitled to priority and requested the maximum amount of the credit permitted for an igcc bituminous coal project dollar_figure million initially the applicants’ information about total nameplate generating capacity was i nconsistent in that some were at gross output and others were at net output and none were at the same optimal operating conditions to resolve these inconsistencies we requested and received from the applicants the total of the numbers to be stamped on the nameplate of each generator to be used for the project ie total nameplate generating capacity at international standards organization iso conditions that is pinciteºf humidity and psia applicants provided the information regarding total nameplate generating capacity under penalties of perjury because each of the four projects requested the maximum credit permitted dollar_figure million for an igcc bituminous coal project we allocated the total credit available for these projects dollar_figure million to the two projects with the highest total nameplate generating capacity at iso conditions thus the process we used to allocate the credits which relied on detailed information provided by the applicants under penalties of perjury appropriately took total nameplate generating capacity into account in accordance with the rules set forth in notice_2006_24 we will consider your comments about the nameplate generating capacity as we continue to evaluate and administer the program in addition you commented on the provision in notice_2006_24 allowing for no appeal of the awards of the credit because the code limits the total amount of credits that can be awarded appeal rights would deny certainty to successful applicants this lack of certainty could indefinitely delay progress on the projects receiving allocations and thereby frustrate congress’ intent in enacting these credit provisions i hope this information is helpful if you have any questions please contact me at ----- ------------- or -------------------- at ----- ------------- sincerely clarissa c potter clarissa c potter deputy chief_counsel technical enclosure