- gyieo7 ce-ee department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date jun contact person identification_number telephone number employer_identification_number legend b dear sir or madam this is in response to a letter dated date which requested certain rulings with respect to a proposed transfer of assets from b to c as amended in a letter dated date b is exempt under sec_501 of the internal_revenue_code and is classified as a private_foundation under sec_509 c has submitted an application_for recognition of exemption under sec_501 of the code and classification as a private_foundation under sec_509 b was established jointly by d and e by trust agreement dated date dande each contributed an equal amount to b in and no additional contributions have been made since that time d died on date survived by her six children recently differences of opinion have arisen among e the surviving founding donor of b and the children of d the deceased founding donor of b as to the management and charitable activities of b to resolve the discord concerning the management and charitable activities of b b proposes to transfer one half of its assets securities and cash to c the distribution of assets to c will allow e and the children of d to pursue their respective independent charitable interests and objectives b represents that it will exercise the expenditure_responsibility required by sec_4945 of the code with respect to the transfer of assets to c intends to terminate its private_foundation_status nor has b ever received notification that its status as a private_foundation has been terminated furthermore b has stated that it has not committed willful repeated acts or failures to act or a willful and flagrant act or failure to act giving rise to liability for tax under chapter b has not notified the service that it sec_507 of the code states in part that except for transfers described in sec_507 an organization’s private_foundation_status will be terminated only if the organization notifies the service of its intent to terminate or there have been either willful repeated acts or failures to act or a willful and flagrant act or failure to act giving rise to liability for tax under chapter sec_507 of the code provides that when a private_foundation transfers assets to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization the transferee foundation shall not be treated as a new organization sec_507 of the code imposes a tax on an organization that terminates its private_foundation_status under sec_507 of the code sec_1_507-1 of the income_tax regulations provides that if a private_foundation transfers all or part of its assets to one or more other private_foundations pursuant to a transfer described in sec_507 of the code such transferor foundation will not have terminated its foundation status under sec_507 sec_1_507-1 of the regulations provides that neither a transfer of all of the assets of a private_foundation nor a significant disposition of assets as defined in sec_1_507-3 by a private_foundation whether or not any portion of such disposition of assets is made to another private_foundation shall be deemed to result in a termination of the transferor private_foundation under sec_507 of the code unless the transferor private_foundation elects to terminate pursuant to sec_507 or sec_507 is applicable sec_1_507-3 of the regulations provides that in the case of the significant disposition of assets to one or more private_foundations within the meaning of paragraph c of this subsection the transferor organization shall not be treated as a newly created organization sec_1_507-3 of the regulations provides that a transferee organization in the case of a transfer described in sec_507 of the code shall succeed to the aggregate tax_benefit of the transferor organization in an amount equal to the amount of such aggregate tax_benefit of the transferor organization multiplied by a fraction the numerator of which is the fair_market_value of the assets less encumbrances transferred to such transferee and the denominator of which is the fair_market_value of the assets of the transferor less encumbrances immediately before the transfer fair_market_value is determined at the time of transfer sec_1_507-3 of the regulations provides that if a private_foundation incurs liability under chapter or any penalty resulting therefrom prior to or as a result of making a transfer of assets under sec_507 to one or more private_foundations in any case where transferee_liability applies each transferee foundation shall be treated as having received the - transferred assets subject_to such liability to the extent that the transferor foundation does not satisfy such liability sec_1_507-3 of the regulations provides that a transferor private_foundation is required to meet its charitable distribution_requirements under sec_4942 of the code even for any taxable_year in which it makes a transfer of all or part of its assets to another private_foundation such transfer shall itself be counted toward satisfaction of such requirements to the extent the amount transferred meets the requirements of sec_4942 of the code sec_1_507-3 of the regulations provides that if a transferor private_foundation transfers assets to a private_foundation effectively controlled directly or indirectly by the same person or persons who effectively control the transferor private_foundation the transferee foundation will be treated as if through and sec_507 through of the code the transferee is treated as the transferor in the proportion which the fair_market_value of all the assets of the transferor's assets that were transferred bears to the fair_market_value of all of the assets of the transferor immediately before the transfer it were the transferor foundation for purposes of sec_4940 sec_1_507-3 of the regulations provides that in order for a transfer of assets pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization not to be a taxable_expenditure it must be to an organization described in sec_501 other than an organization described in sec_509 or treated as described in sec_501 under sec_4947 sec_1_507-3 of the regulations provides that unless a private_foundation gives notice under sec_507 of the code a transfer of assets described in sec_507 of the code will not constitute a termination of the transferor’s private_foundation_status sec_1_507-4 of the regulations provides that the tax on termination of private_foundation_status under sec_507 of the code does not apply to a transfer of assets pursuant to sec_507 of the code unless the provisions of a become applicable sec_4940 of the code imposes a tax on the net_investment_income of private_foundations sec_4941 of the code imposes a tax on each act of self-dealing between a disqualified_person and a private_foundation sec_4942 of the code requires a private_foundation to make specified distributions of income for each taxable_year including the year in which it transfers substantial assets to another private_foundation under sec_507 sec_4942 of the code defines a qualifying_distribution as any amount including that portion of reasonable and necessary administrative expenses paid to accomplish one or more purposes described in sec_170 other than any contribution to i an organization controlled by the foundation or one or more disqualified persons or ii a - private_foundation which is not an operating_foundation except as otherwise provided or b any amount_paid to acquire an asset used directly in carrying out one or more purposes described in sec_170 sec_4942 of the code requires that a grantor private_foundation in order to have a qualifying_distribution for its grant to another private_foundation which is not an operating_foundation under sec_4942 of the code must have adequate_records as required by sec_4942 of the code to show that the grantee private_foundation in fact subsequently made qualifying distributions that were equal to the amount of the grant and that were paid out of the grantee’s own corpus within the meaning of sec_4942 of the code such grantee foundation’s qualifying distributions out of corpus must be expended before the close of the grantee’s first tax_year after its tax_year in which it received the grant sec_4944 of the code imposes tax upon a private_foundation which invests any amount in such a manner as to jeopardize the carrying out of any of its exempt purposes sec_4945 of the code imposes tax upon a private foundation’s making of any taxable_expenditure under sec_4945 sec_4945 of the code defines the term taxable_expenditure to include any amount_paid or incurred by a private_foundation as a grant to an organization unless a the organization is described in subparagraphs or of sec_509 of the code or is an exempt_operating_foundation as defined in sec_4940 of the code or b the private_foundation exercises expenditure_responsibility with respect to such grant in accordance with sec_4945 of the code the exercise of expenditure_responsibility requires the foundation that makes the transfer to keep detailed records of the way the payment is spent by the recipient foundation sec_4945 of the code provides that expenditure_responsibility referred to in subsection d means that the private_foundation is responsible to exert all reasonable efforts and to establish adequate procedures to see that the grant is spent solely for the purpose for which made to obtain full and detailed reports with respect to such expenditures and to make full and detailed reports to the secretary sec_4946 of the code defines the term disqualified_person as a person who is a substantial_contributor to a private_foundation a foundation_manager an owner of more than of a corporation or partnership which is a substantial_contributor to the private_foundation a family_member of persons described above or a corporation partnership trust or estate of which persons described above own more than of the combined voting power sec_53_4945-5 of the foundation and similar excise_taxes regulations refers to the rules relating to the extent to which the expenditure_responsibility_rules contained in sec_4945 and h and this section apply to transfers of assets described in sec_507 sec_53_4945-5 of the regulations provides in part that if a private_foundation makes a grant described in sec_4945 to a private_foundation which is exempt from taxation under sec_501 for endowment or other capital purposes the grantor foundation shall require reports from the grantee on the use of the principal and the income if any from the funds the grantee shall make such reports annually for its taxable_year in which the grant was made and the immediately succeeding two taxable years only if it is reasonably apparent to the grantor that before the end of such second succeeding taxable_year neither the principle nor the income from the grant funds has been used for any purpose which would result in liability for tax under sec_4945 the grantor may then allow such reports to be discontinued sec_53_4945-6 of the regulations provides that a transfer of assets of a private_foundation under sec_507 of the code is not a taxable_expenditure if such transfer is to an organization described in sec_501 other than an organization described in sec_509 or treated as so described under sec_4947 sec_53_4946-1 of the regulations provides that for purposes of sec_4941 the term disqualified_person does not include any organization described in sec_501 c other than an organization described in sec_509 under sec_507 of the code in the case of a transfer of assets of any private_foundation to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization the transferee foundation shall not be treated as newly created organization thus the transfer by b to c will constitute in the aggregate an adjustment organization or reorganization within the meaning of sec_507 accordingly the transfer by b to c will not be treated as a transfer to a newly created organization because a transfer of assets as described in sec_507 will not cause a termination of an organization’s private_foundation_status the transfer of b’s assets to c will not terminate b’s status as a private_foundation b will not terminate its status as a result of this transaction therefore the transfer of b’s assets to c will not result in the imposition of tax under sec_507 of the code because this transfer of assets from b to c is described in sec_507 of the code c will be deemed to possess certain attributes and characteristics of b including being entitled to a pro-rata portion of the aggregate tax_benefit of b not exceeding the fair_market_value of the transferred assets at the time of the proposed transfer because the majority of the trustees of b are also the majority of the trustees of c band c are effectively controlled by the same persons thus sec_1_507-3 of the regulations provides that for purposes of chapter sec_42 and sec_507 through of the code c will be treated as if encumbrances transferred to c bears to the fair_market_value of the assets less encumbrances of b immediately before the transfer it were b in the proportion which the fair_market_value of the assets less the attributes under chapter and sec_507 through of the code transferred to c from b include the minimum distribution_requirements under sec_4942 of the code and the right to reduce its distributable_amount under sec_4942 of the code by the amount of any excess qualifying_distribution carryover the proposed transfer of assets from b to c is for endowment purposes and c will not make a qualifying_distribution equal to the amount of grant it will receive from b thus the proposed transfer from b to c will not be treated by b as a qualifying_distribution under sec_4942 of the code because the proposed transfer of assets from b to c will be made to accomplish the exempt purposes of b and c the transfer will not constitute investments for purposes of sec_4944 of the code thus the excise_taxes imposed on jeopardizing investments under sec_4944 of the code will not apply to the proposed transfer of assets from b to c b is not selling property to c nor making an investment in c rather the proposed transfer of assets is a grant essentially analogous to a gift and will not be net_investment_income to c within the meaning of sec_4940 of the code provided b exercises expenditure_responsibility pursuant to sec_4945 of the code with regard to the assets transferred to c b will not be subject_to the excise_tax on taxable_expenditures under sec_4945 as provided under sec_53_4945-5 of the regulations b will require reports from c on the use of the principal and the income if any from the transferred funds c will make such reports annually for its taxable_year in which the grant was made and the immediately succeeding two taxable years only if succeeding taxable_year neither the principle nor the income from the transferred funds has been used for any purpose which would result in liability for tax under sec_4945 b may then allow such reports to be discontinued it is reasonably apparent to b that before the end of such because b as an organization described in sec_501 of the code is not a disqualified_person with respect to c the transfer of assets to c will not constitute an act of self- dealing within the meaning of sec_4941 of the code accordingly based on the information furnished we rule as follows the proposed transfer of fifty percent of the assets of b to c will constitute a transfer as described in sec_507 of the code as a transfer described in sec_507 the proposed transaction will not result in a termination of the foundation status of b under sec_507 and will not cause the imposition of the termination_tax described in sec_507 c will not be treated as a newly created organization - c will succeed to the aggregate tax_benefit of b in proportion to the assets transferred c will be treated as if sec_507 through of the code in the proportion to the assets transferred it were b for the purposes of sec_4940 through and following the transfer c may proportionately reduce its required distributions under sec_4942 of the code by its proportional amounts of b's excess qualifying distributions carryover for prior years as defined in sec_4942 the proposed transfer of assets of b to c will not give rise to net_investment_income and is not subject_to tax under sec_4940 of the code the provisions of sec_1_507-3 through g of the regulations will apply to c with respect to the assets transferred from b the proposed transfer of assets of b to c will not constitute self-dealing under sec_4941 of the code because for purposes of sec_4941 the term disqualified_person does not include an organization described in sec_501 c the proposed transfer of assets of b to c will not constitute a jeopardizing investment within the meaning of sec_4944 of the code since b proposes to exercise expenditure_responsibility under sec_4945 of code with respect to the assets transferred to c such transfer will not constitute a taxable_expenditure under sec_4945 the proposed transfer of assets of b to c are for endowment or capital purposes and therefore sec_53 c of the regulations applies to the transfer and requires that b shall receive reports from c on the use of the principal and the income if any from the transferred funds c shall make such reports annually for its taxable_year in which the transfer was made and the immediately succeeding two taxable years only if reasonably apparent to b that before the end of such second succeeding taxable_year neither the principle nor the income from the transferred funds has been used for any purpose which would result in liability for tax under sec_4945 b may then allow such reports to be discontinued it is these rulings are issued on the assumption that c is recognized as exempt under sec_501 of the code we are informing the te_ge office of this action please keep a copy of this ruling in your organization’s permanent records this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely serald v sack manager exempt_organizations technical group


department of the treasury internal_revenue_service washington d c nov set ep rac tl ‘ tax_exempt_and_government_entities_division u i l kekrerearerreirrrreie rerkrerireeeraar i ii hk rrekaaiakrreearere legend taxpayer a huikkenkeeeereeeereekee ira xx kriekerereererereareraiar amount d amount e hakkkenrereeereererekte khatri ae bank b kekrekrkerrereerereeerer amount f account h rekhekhererereaarreaeaer rakhi rerreeerer dear rrkrekerererareeererereese this is in response to your letter dated date as supplemented by correspondence dated date and date submitted on your behalf by your authorized representative in which you request a waiver of the day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalties of perjury in support of your request taxpayer a who i sec_77 years old maintained an individual_retirement_arrangement ira x with bank b since taxpayer a has attained her required_beginning_date she has been receiving annual distributions from ira x as required under code sec_401 information submitted with this request indicates that taxpayer a’s annual required_minimum_distribution for tax_year is amount d documentation submitted by taxpayer a indicates that on date she completed a bank b ira withdrawal statement requesting pha dn iddnidbbinebiibekik that bank b make a distribution to her for the following reason normal distribution for tax year’ even though taxpayer a requested a normal distribution for the tax_year bank b on date made a lump sum distribution of the entire proceeds of ira x to taxpayer a documentation submitted by taxpayer a indicates that on date amount f amount e less amount d was deposited into account h a money market account she also maintains with bank b subsequent to the date distribution of amount f from ira x bank b stamped ira x as closed taxpayer a asserts that she at the time she made the withdrawal of amount f she assumed that she was rolling amount f over to another ira time-deposit that was similar to the one in which amount f investment sponsored by bank b was previously invested taxpayer a further asserts that bank b misunderstood her instructions as indicated on the ira withdrawal statement and that she did not intend to take a total_distribution from ira x taxpayer a further states that she believed that amount f had been rolled over to another ira at bank b on july and was unaware that amount f had not been rolled over to another ira at bank b until she received a form 1099-r from bank b indicating a distribution from ira x in the amount of amount e taxpayer a asserts that she has not used any of amount f since it has been in account h and has submitted account statements for account h since amount f was deposited into that account that indicates that amount f continues to be held in that account based upon the foregoing facts and representations you request that the service waive the day rollover requirement with respect to the distribution of amount f from ira x sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual received the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of karr ania itaa ria iiia iii o such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at the time during the 1-year period ending in the day of such receipt such individual received any other amount described in sec_408 from an ira which was not included in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity and good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occur after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability or hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information submitted in this case indicates that on date taxpayer a completed a bank b ira withdrawal statement requesting that bank b make a distribution to her as a normal distribution for the tax_year documentation submitted also indicates that bank b made a distribution of the entire proceeds of ira x to taxpayer a on date even though taxpayer a specifically requested her normal distribution for the tax_year taxpayer a asserts that even though a total_distribution was made from ira x on date she assumed that amount f was being rolled over to another time-deposit ira account because the investment in which amount f was held had matured further taxpayer a states that she did not intend take a total_distribution from ira x as evidenced by the fact that she deposited the entire proceeds of ira x less her required_minimum_distribution amount into another account with bank b on the same day as she received the distribution from ira x taxpayer a asserts that inn nn idnndnndnneeiidiiiees she believed that amount f had been rolled over to another ira with bank b on date and was unaware that amount f had not been rolled over to another ira with bank b until she received a form 1099-r from bank b indicating that a total_distribution had been made from ira x during tax_year taxpayer a asserts that amount f remains in account h as supported by account statements and that she has not used amount f since it has been in account h therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount f from ira x taxpayer is granted a period of days from the date of this ruling to contribute amount f less the amount required to be distributed to her pursuant to code sec_401 for tax_year to an ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount f less the code sec_401 required_minimum_distribution amount for will be considered rollover_contribution within the meaning of sec_408 of the code taxpayer a is over and therefore has attained her required_beginning_date for purposes of code sec_401 in this regard this ruling does not authorize the rollover of any portion of amount f that may be required to be distributed to taxpayer a by code sec_401 this ruling assumes that ira x satisfied the qualification requirements of code sec_408 at all times relevant to this transaction no opinion is expressed as to the tax treatment of the transactions described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this ruling is being sent to your authorized representative in accordance with a power_of_attorney on file in this office you have any if se questions concerning this ruling please contact sincerely yours manager employee_plans technical group


internal_revenue_service number release date index number --------------------------------- ----------------------------- --------------------------- --------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-101504-04 date january ------------------------------- ----------------------------------------------------- --------------------------------------- -------- legend x ---------------------------------- y ----------------------------------- a a d1 ---------------------- d2 ------------------- d3 --------------------- d4 ------------------------ d5 ------------------------ dear ----------------- this responds to the letter dated date and other subsequent correspondence submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts was created by the last will and testament of a dated d2 a died on d3 upon the completion of the probate process a shares of x stock were transferred to y on d4 an election to qualify y as a qualified_subchapter_s_trust qsst was not made causing the termination of x’s s election on d5 corporation and filed their tax returns accordingly x and its shareholders agree to x represents that at all relevant times x and its shareholders treated x as an s x made an election to be treated as an s_corporation effective d1 y a_trust sec_1361 defines a small_business_corporation as a domestic sec_1361 provides that the term qualified_subchapter_s_trust means a sec_1361 defines an s_corporation as a small_business_corporation for plr-101504-04 make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary with respect to the period specified by sec_1362 law and analysis which an election under sec_1362 is in effect corporation which is not an ineligible_corporation which does not a have more than shareholders b have as a shareholder a person other than an estate and other than a_trust described in subsection c who is not an individual c have a nonresident_alien as a shareholder and d have more than class of stock trust - a the terms of which requires that - i during the life of current income_beneficiary there shall be only income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current income_beneficiary in the trust shall terminate on the earlier of such beneficiary’s death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to such beneficiary and b all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to individual who is a citizen or resident_of_the_united_states terminated whenever the corporation ceases to be a small_business_corporation corporation was terminated under sec_1362 the secretary determines that the circumstances resulting in the termination were inadvertent no later than a reasonable period of time after the discovery of the circumstances resulting in the termination steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period of inadvertent termination of the s election agrees to makes such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the termination the corporation is treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and representations made we conclude that x’s election to be treated as an s_corporation terminated on d5 we also conclude that the termination constituted an inadvertent termination within the meaning of sec_1362 sec_1362 provides that an election under sec_1362 shall be sec_1362 provides that if an election under sec_1362 by any except as specifically provided herein no opinion is expressed or implied as to plr-101504-04 under the provisions of sec_1362 x will be treated as continuing to be an s_corporation from d5 and thereafter provided that x’s s_corporation_election is not otherwise terminated under sec_1362 and further providing that the beneficiary of y files a qsst election for y effective d5 with the appropriate service_center within days of the date of this letter the federal tax consequences of the facts described above under any other provision of the code in particular no opinion is expressed as to whether x is an s_corporation for federal tax purposes or whether y is a qsst under sec_1361 provides that it may not be used or cited as precedent be sent to x’s authorized representative pursuant to the power_of_attorney on file with this office a copy of this letter will this ruling is directed only to the taxpayer requesting it sec_6110 sincerely s dianna k miosi dianna k miosi branch chief branch passthroughs special industries enclosures cc copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------- ----------------------------------- ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b04 plr-146610-08 date april re ----------------------------------------- legend ----------------------------------------------------------- -------------------------- ----------------------------------------------------------- --------------------------------------------------------------------------------------- grantor sister trust trustees ----------------------------------------- law firm accountant attorney attorney date year ----------------------------------------------------------- ---------------- ---------------------------- ------------------ --------------------------- ------- dear ------------------ this is in response to correspondence requesting an extension of time under sec_301 of the procedure and administration regulations and sec_2632 of the internal_revenue_code to elect not to have the automatic allocation rules of sec_2632 apply to a_trust plr-146610-08 facts on date grantor established trust an irrevocable insurance_trust for the benefit of sister the trustees of trust are trustees trust was funded with cash and debentures in year under the terms of trust there is a possibility that a generation- skipping transfer gst may occur and trust may be considered a gst_trust as defined in sec_2632 grantor has children and sister does not grantor had not intended trust to be a gst_trust and never intended gst_exemption to be automatically allocated to trust law firm drafted trust form_709 united state gift and generation-skipping tax_return for year was prepared by accountant and reviewed by attorney affidavit from attorney states that attorney did not believe that an election out of the automatic allocation rules was required because he did not believe that trust was a gst_trust with respect to grantor affidavit from accountant states that grantor did not intend to allocate any of his gst_exemption to his transfers to trust it also states that accountant did not believe that an election out of the automatic allocation rules was required because he did not believe that trust could have gst transfers with respect to grantor grantor executed an affidavit stating that he did not intend to allocate any of his gst_exemption to trust for the benefit of sister and that he relied on accountant and attorney to properly file his return when attorney discovered that trust could be treated as a gst_trust she recommended grantor file a ruling_request to request an extension of time under sec_2642 and sec_301 to make an election under sec_2632 not to have the automatic allocation rules of sec_2632 apply 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 tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines 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 generation-skipping_transfer is defined as the excess of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of 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 reduced by the sum of certain federal estate_tax or state death_tax and charitable deductions plr-146610-08 sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption amount that 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 an individual's gst_exemption may be allocated 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 return is required to be filed under sec_26_2632-1 an allocation of a decedent's available gst_exemption by the executor of the decedent's_estate is made on form_706 filed on or before the date prescribed for filing the return by sec_6075 including any extensions granted an allocation of gst_exemption with respect to property included in the gross_estate of a decedent is effective as of the date of death sec_2632 provides that if any individual makes an indirect_skip during such individual's lifetime any unused portion of such individual's gst_exemption shall be allocated to the property transferred to the extent necessary to make the inclusion_ratio for such property zero if the amount of the indirect_skip exceeds such unused portion the entire unused portion shall be allocated to the property transferred sec_2632 provides that for purposes of this subsection the term indirect_skip means any transfer of property other than a direct_skip subject_to the tax imposed by chapter made to a gst_trust sec_2632 provides in part that a the term gst_trust means a_trust that could have a generation-skipping_transfer with respect to the transferor unless one or more of subsections i through vi are satisfied sec_2632 provides that an individual may elect to have this subsection not apply to any or all transfers made by such individual to a particular trust sec_2632 provides that an election under sec_2632 may be made on a timely filed gift_tax_return for the calendar_year for which the election is to become effective sec_2642 provides generally 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 sec_2642 which was enacted into law on date 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 plr-146610-08 and such other factors as the secretary deems relevant for purposes of determining whether to grant relief 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 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 gst_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 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 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 a gst_trust is defined in sec_2632 in general as any trust that could have a generation-skipping_transfer a_trust is a gst_trust unless it meets one of the exceptions described in sec_2632 through vi where a sufficient possibility exists based on the statutory criteria that the trust corpus will not be distributed to lower generations based upon the facts submitted and the representations made we conclude there is a possibility that a generation-skipping_transfer gst may occur and trust may be considered a gst_trust as defined in sec_2632 plr-146610-08 further 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 the election out of the automatic allocation of gst_exemption under sec_2632 for the transfers to trust the elections should be made on supplemental form sec_709 filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the form sec_709 a copy is enclosed for this purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 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 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 curt g wilson associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


department of the treasury internal_revenue_service washington d c so an uniform issue list nov a si lpl ty legend taxpayer a amount b ira c broker d _ dear taxpayer a this is in response to your request of date through your authorized representative for a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested you are a year old retiree and have been diagnosed with progressive alzheimer's disease on october of you signéd a contract to buy a house as your primary residence although you had other funds available to pay for the house you made a series of withdrawals from ira c administered by broker d for amount b your daughter opposed the withdrawals from ira c and requested an medical evaluation of your mental condition this medical evaluation indicated you were incapable of understanding your actions and the tax consequences of making page withdrawals from ira c your daughter contacted broker d to see if amount b could be re-deposited in ira c broker d advised her the days rollover period had expired based on the above facts and representations she helped you hire an attorney to request a ruling that the service waive the 60-day rollover requirement with respect to the distribution of amount b sec_408 of the code provides that except as otherwise provided in section -_-_--by the-payee or distributee -as the case- may be-in-the- manne rprovided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any - amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual page subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error whether the check was cashed and the time élapsed since the distribution occurred for example in the case of payment by-check the information submitted by your attorney demonstrates that you suffer from alzheimer’s disease and did not understand what you were doing when you withdrew amount b from ira c to purchase the residence the withdrawals were beyond your reasonable control due to the fact that you suffer from alzheimer's disease therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount b you are granted a period of days from the issuance of this ruling letter to contribute amount b into ira c provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contributions these amounts will be considered rollover_contributions within the meaning of sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayers who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office page if you wish to inquire about this ruling please contact please address all correspondence to at wout sincere yours __ alan -c- pipkin manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc


internal_revenue_service number release date index number ---------------------------------- ---------------------------------------------------- ------------------- -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no --------------- ----------------- telephone number ---------------------- refer reply to cc corp b06 plr-134406-13 date date legend target ---------------------------------------------------------- ---------------------------------------------------- ------------------------------------ acquiring ---------------------------------------------------------- ---------------------------------------- x ---------------------------------------------------------- ----------------------------------------- regulator -------------------------------- business a ------------ llc --------------------------------------------------------------------------- ------------------------------- a b c d state a date --------------------------- ---- ---------------------------------- -------------------------------- ------------ --------------------------- plr-134406-13 date date --------------------------- ------------------------ dear -------------------- this letter responds to your date request for rulings regarding certain u s federal_income_tax consequences of a proposed transaction additional information was submitted in a letter dated date the information provided in the request and in subsequent communications is summarized below 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 summary of facts target is a state a corporation that is a holding_company target has one class of outstanding_stock target owns a percent of the outstanding_stock of acquiring the acquiring stock is target's primary asset consisting of more than b percent of the gross and net fair_market_value of target’s assets as of date as of that date target’s other assets consisted of cash and various other non-operating assets acquiring is a state a corporation that has two classes of common voting_stock outstanding class a shares and class b shares the class a shares and class b shares are identical except with respect to voting rights acquiring is a holding_company that owns all of the stock of corporation x which is directly involved in business a both acquiring and x are subject_to regulation by the regulator the regulator has informed target that it would be subjected to regulatory oversight which target believes would result in significant administrative burden without any additional business benefit on date target formed llc an entity disregarded as separate from target thus treated as a branch or division of target for u s federal_income_tax purposes under sec_301_7701-1 et seq and contributed all of its assets other than the acquiring stock and cash to llc in exchange for all of the membership interests in llc and llc’s assumption of certain of target’s liabilities collectively the contribution at the time of the contribution llc agreed to indemnify target against any potential contingent liabilities of target plr-134406-13 on date target distributed to its shareholders pro_rata all of the membership interests in llc the llc distribution and cash of dollar_figurec the cash distribution and collectively with the llc distribution the distributions target and its shareholders treated the distributions as dividends within the meaning of sec_316 following the distributions the only remaining assets of target are dollar_figured in cash and acquiring stock on date the shareholders of acquiring voted to amend its articles of incorporation to provide the class b shares with the same voting rights as class a shares after this amendment the class a shares and the class b shares have identical rights proposed transaction the parties have proposed the following transaction the reorganization target its shareholders and acquiring will adopt a plan_of_reorganization to undertake step sec_2 and below target will transfer all of its shares in acquiring the old acquiring shares to acquiring in exchange for an equal number of newly issued acquiring class a shares the new acquiring shares acquiring will issue the new acquiring shares in the names of target’s shareholders in the same proportion that such shareholders own their target shares acquiring will not assume any of target’s liabilities target will distribute pro_rata all of the new acquiring shares to its shareholders and will dissolve under state corporate law target will use its dollar_figured cash to pay its transaction-related expenses and will distribute pro_rata its remaining cash if any to its shareholders the residual cash distribution representations the following representations have been made regarding the reorganization a the fair_market_value of the new acquiring shares to be received by each target shareholder in the reorganization will approximately equal the fair_market_value of the target stock surrendered in the exchange b target’s shareholders will receive solely new acquiring shares and the residual cash distribution if any in exchange for their target stock plr-134406-13 c acquiring will acquire the assets of target in the reorganization solely in exchange for the new acquiring shares target will not distribute any of the old acquiring shares to target’s shareholders in the reorganization d during the five-year period ending on the date of the reorganization a neither acquiring nor any person related within the meaning of sec_1 e to acquiring has acquired target shares with consideration other than acquiring shares b neither target nor any person related within the meaning of sec_1_368-1 without regard to sec_1 e i a to target will have acquired target shares with consideration other than acquiring shares or target shares and c other than the distributions no distribution will have been made with respect to the stock of target other than ordinary normal regular dividend distributions made pursuant to the historic dividend-paying practice of target e neither acquiring nor any person related within the meaning of sec_1_368-1 to acquiring has any plan or intention to acquire or redeem the new acquiring shares issued in the reorganization either directly or indirectly or through any transaction agreement or other arrangement with any other person f acquiring has no plan or intention to sell or otherwise dispose_of any of the assets of target acquired in the reorganization g acquiring will acquire at least percent of the fair_market_value of the net assets and at least percent of the fair_market_value of the gross assets held by target immediately prior to the reorganization for purposes of this representation amounts paid_by target to dissenters amounts used by target to pay its transaction-related expenses amounts paid_by target to shareholders who receive cash or other_property and all redemptions and distributions except for regular normal dividends but including the distributions and the residual cash distribution made by target immediately preceding the reorganization will be included as assets of target held immediately prior to the reorganization h acquiring will not assume within the meaning of sec_357 liabilities of target in the reorganization nor will the assets that target transfers to acquiring be subject_to any liabilities i target will distribute the new acquiring shares and the residual cash distribution to its shareholders in pursuance of the reorganization j following the reorganization acquiring will continue the historic_business of target or use a significant portion of target’s historic_business_assets in a business within the meaning of sec_1_368-1 plr-134406-13 k acquiring target and target’s shareholders will pay their respective expenses if any incurred in connection with the reorganization l there is no intercorporate indebtedness existing between acquiring and target that was issued acquired or will be settled at a discount m no two parties to the reorganization are investment companies as defined in sec_368 and iv n the total fair_market_value of the assets that target will transfer to acquiring in the reorganization will exceed the sum of i the amount of any liabilities if any assumed within the meaning of sec_357 by acquiring in the exchange ii the amount of any liabilities if any owed to acquiring by target if any that are discharged or extinguished in connection with the exchange and iii the amount of cash and the fair_market_value of any other_property other than stock and securities permitted to be received under sec_361 without recognition of gain received by target in the exchange o the fair_market_value of the assets of acquiring will exceed the amount of acquiring’s liabilities immediately after the reorganization p target is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 rulings based solely on the information submitted and the representations set forth above and provided that target’s shareholders will receive solely new acquiring shares and the residual cash distribution in exchange for their target stock in the reorganization we rule as follows the reorganization will qualify as a reorganization within the meaning of sec_368 target and acquiring each are a_party_to_a_reorganization within the meaning of sec_368 target will not recognize any gain_or_loss on its transfer of the old acquiring shares to acquiring in exchange for the new acquiring shares sec_361 acquiring will not recognize any gain_or_loss on its receipt of the old acquiring shares from target in exchange for the new acquiring shares sec_1032 target will not recognize any gain_or_loss on its distribution of the new acquiring shares to its shareholders sec_361 plr-134406-13 gain if any will be recognized by a target shareholder on the exchange of the shareholder’s target shares for new acquiring shares and a proportionate share of the residual cash distribution if any or other_property in the reorganization the amount of which shall not exceed the amount of cash and the fair_market_value of other_property received in the exchange sec_356 if the exchange has the effect of the distribution of a dividend determined with the application of sec_318 then the amount of the gain recognized that is not in excess of the target shareholder's ratable share of undistributed_earnings and profits of target will be treated as a dividend sec_356 the determination of whether the exchange has the effect of a distribution of a dividend will be made in accordance with the principles set forth in 489_us_726 the remainder if any of the gain recognized will be treated as gain from the exchange of property no loss will be recognized on the exchange sec_356 a target shareholder’s basis in the new acquiring shares received will equal the basis of the target shares surrendered in the exchange decreased by the amount of any money and the fair_market_value of any other_property received and increased by the amount of gain if any which was treated as a dividend and the amount of gain not including any portion of the gain treated as a dividend recognized by the shareholder on the exchange sec_358 each target shareholder’s holding_period in the new acquiring shares received in the reorganization will include the period during which the stock of target surrendered in exchange therefor was held provided that the target stock is held as a capital_asset by the target shareholder on the date of the exchange sec_1223 pursuant to sec_381 and b and sec_1_381_a_-1 and sec_1 b - the taxable_year of target will end upon the completion of the reorganization and acquiring will succeed to and will take into account the items described in sec_381 on the date of the reorganization subject_to the limitations of sec_381 sec_381 sec_383 and sec_384 and the regulations thereunder caveat 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 procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-134406-13 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any 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 sincerely _maury passman_______________ maury passman senior technician reviewer branch office of associate chief_counsel corporate


t c memo united_states tax_court herschel h and roberta s hoopengarner petitioners v commissioner of internal revenue respondent docket nos filed date james g lebloch for petitioners thomas j fernandez and edwin herrera for respondent memorandum findings_of_fact and opinion vasquez judge respondent determined deficiencies in additions to and penalties on petitioners herschel and roberta hoopengarner’s petitioners income_tax as follows accuracy-related addition_to_tax penalty deficiency sec_6651 sec_6662 year dollar_figure big_number big_number big_number big_number big_number -0- dollar_figure -0- -0- -0- -0- dollar_figure big_number big_number big_number the issues for decision are whether petitioners are entitled to carry forward claimed net operating losses nols for and whether petitioners are entitled to deduct claimed schedule c expenses for and whether petitioners are liable for an addition_to_tax pursuant to sec_6651 for and whether petitioners are liable for an accuracy-related_penalty pursuant to sec_6662 for and these issues arise primarily from facts surrounding claimed net_operating_loss deductions that were allegedly generated when numerous banks foreclosed on five properties that petitioners had been developing for commercial use findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code as in effect for the years in issue all amounts are rounded to the nearest dollar incorporated herein by this reference petitioners were married in at the time they filed the petition petitioners resided in laguna niguel california a petitioners’ work history petitioner-husband petitioner began work in the insurance_business in or for penn mutual insurance co penn mutual except for years with a different insurance_company petitioner was continuously employed by penn mutual until in or about petitioner opened a penn mutual agency in orange county california petitioner trained agents and the agency grew to employ approximately people in petitioner earned approximately dollar_figure in or petitioner sold the agency to focus on real_estate development activities beginning in petitioner-wife was employed as a school teacher she retired from teaching when her husband’s commercial real_estate development activities became successful b petitioner’s real_estate development activities petitioner entered into commercial real_estate development beginning in or initially petitioner was successful with these activities he sold his first building at a profit and he was able to secure tenants including his employer penn mutual for the buildings in petitioners formed the h h partnership with grant b and victoria t hornbeak under california law the main purpose of the partnership was to acquire real_property in irvine california and to construct and rent a building on the site grant hornbeak was the managing partner petitioners and the hornbeaks each owned a 50-percent interest in the partnership and shared net profits and net losses equally the agreement stated the managing partner shall provide quarterly financial statements of the partnership’s activities to each partner in addition the managing partner shall furnish each partner with a copy of the income_tax return filed by the partnership all books records and accounts of the partnership shall be open to inspection by all partners petitioner brought an asset base to the partnership so that the partnership could secure bank loans to construct the buildings the bank loans were secured with some of petitioner’s personal assets grant hornbeak provided services for and day- to-day management of the partnership in return for monetary compensation the only return filed for the partnership on date was for the taxable_year ending date on date the partners dissolved the partnership the partnership was unsuccessful due to historically high interest rates of approximately percent c k-mart property on date petitioners grant hornbeak and others purchased real_estate located in las vegas nevada for dollar_figure to construct a k-mart on date the property was transferred to the h h partnership on date a portion of the property was sold for dollar_figure petitioner testified that he did not recall whether the proceeds from the sale were reinvested in the property for improvements on date grant hornbeak transferred his interest in the property to petitioner for dollar_figure between and loans were taken against the property in the amounts of dollar_figure dollar_figure and dollar_figure in the property was foreclosed upon the foreclosure proceeds totaled dollar_figure d indio property h h land development corp purchased the indio property located in riverside county california for dollar_figure the purchase_price was secured_by three deeds of trust on date and date h h land development corp recorded additional deeds of trust in the amounts of dollar_figure and dollar_figure respectively on date h h land development corp sold a portion of the property for dollar_figure in the property was foreclosed upon the foreclosure proceeds totaled dollar_figure e cowan avenue property the cowan avenue property located in irvine california was initially owned by the h h partnership on date petitioners and the hornbeaks recorded a grant deed for a purchase_price of dollar_figure on date a deed_of_trust was recorded securing a loan on the property in the amount of dollar_figure on date a collateral_assignment of leases was recorded securing a debt in the amount of dollar_figure also on date a deed_of_trust with assignment of rents was recorded to secure a debt of dollar_figure in the property was foreclosed upon a_trust deed of sale was recorded in satisfaction of the debt for dollar_figure consideration received f avenida del mar property on date petitioner and grant hornbeak acquired the avenida del mar property in san clemente california for a purchase_price of dollar_figure concurrently a deed_of_trust was recorded securing a loan of dollar_figure on date petitioner and grant hornbeak obtained a loan of dollar_figure secured_by a deed_of_trust on the property concurrently a deed_of_trust in full reconveyance by the bank of san clemente was recorded which related to the property on date a dollar_figure loan was obtained secured_by a deed_of_trust on the property on date a notice of default was recorded pertaining to the dollar_figure loan on date a deed_of_trust was recorded securing a note of dollar_figure in the property was foreclosed upon g business center drive property on date the property located at business center drive irvine california was assigned to petitioner for dollar_figure in consideration on date petitioner obtained a loan in the amount of dollar_figure on date a deed_of_trust was recorded securing a loan in the amount of dollar_figure allan silverman a business acquaintance of petitioner took out a loan of dollar_figure and gave the funds to petitioner to repay a different loan on the property allan silverman’s loan was partially secured_by the business center drive property on date according to the schedule prepared by revenue_agent john grennan regarding this property petitioner transferred a 50-percent interest in the property to allan silverman petitioner collected the rents on the irvine business center property and kept the money for himself instead of paying the bank or allan silverman on the loan in the property was foreclosed upon h petitioners’ financial difficulties petitioners lost personal assets totaling approximately dollar_figure 5-dollar_figure million including their house about the time when the foreclosures upon the k-mart indio cowan avenue and avenida del mar properties occurred petitioners’ cars were not foreclosed upon in petitioners moved to a rental house on balboa island california petitioners were unable to afford the legal retainer fee to file for bankruptcy petitioner-wife returned to teaching to supplement their income earning approximately dollar_figure per year petitioner returned to selling insurance petitioner earned approximately dollar_figure-dollar_figure in but his income increased to dollar_figure by i petitioners’ tax returns petitioners timely filed tax returns for all years in issue except taxable_year for through respondent’s records show that petitioners reported adjusted_gross_income as follows year1 adjusted_gross_income dollar_figure -big_number -big_number -big_number -big_number none reported on return -big_number -big_number -big_number -0- -big_number -big_number -big_number -big_number -big_number -big_number -big_number -big_number -big_number -big_number for the parties provided no information as to whether or not a return was filed or as to the amount of taxable_income or adjusted_gross_income j respondent’s adjustments on date respondent issued a timely notice_of_deficiency for and on date respondent issued a timely notice_of_deficiency for and respondent made the following adjustments and determinations nol_carryover schedule c expenses year disallowed disallowed other adjustment sec_1 dollar_figure big_number big_number big_number big_number big_number dollar_figure big_number -0- -0- -0- -0- -dollar_figure -431 -0- -0- big_number big_number the other adjustments include items such as se agi adjustment social_security rrb and itemized_deductions opinion a petitioners have not substantiated the claimed nols petitioners have not substantiated their claimed net operating losses taxpayers are required to maintain adequate_records to substantiate claimed losses and taxpayers bear the burden of proving that they are entitled to claimed losses sec_6001 rule a 290_us_111 petitioners in deducting nols bear the burden of establishing both the existence of the nols and the amount of any nol that may be carried over to the subject years 349_us_232 115_tc_605 25_tc_1100 revd and remanded on other grounds 259_f2d_300 5th cir such a deduction is a matter of legislative grace it is not a matter of right united_states v olympic radio television inc supra pincite 308_us_488 sec_172 allows a taxpayer to deduct an nol for a taxable_year the amount of the nol deduction equals the sum of the nol carryovers plus nol carrybacks to that year sec_172 absent an election to the contrary an nol for any taxable_year the parties agree that sec_7491 is inapplicable in this case as the examination began before the effective date of the statute must first be carried back years and then carried over years sec_172 and a taxpayer claiming an nol deduction for a taxable_year must file with his return for that year a concise statement setting forth the amount of the nol deduction claimed and all material and pertinent facts including a detailed schedule showing the computation of the nol deduction sec_1_172-1 income_tax regs petitioners’ tax returns do not substantiate the claimed nols a tax_return is merely a statement of the taxpayer's claim and does not establish the truth of the matters set forth therein 71_tc_633 petitioner's through individual returns do not by themselves substantiate the claimed nols furthermore petitioners did not provide the only tax_return filed by the partnership for the taxable_year ending in and petitioners failed to provide their individual tax returns prior to which are the years in which the net operating losses were allegedly generated nor have petitioners provided the court with copies of tax returns filed by h h land development corp for any taxable_year for and nols must be carried back years and then carried over years petitioner’s testimony does not substantiate the claimed nols petitioner relies on his own testimony to substantiate the claimed nols we found petitioner’s testimony to be general vague conclusory and or questionable in certain material respects under the circumstances presented here we are not required to and generally do not rely on petitioner’s testimony to sustain his burden of establishing error in respondent’s determinations see 877_f2d_624 7th cir affg tcmemo_1987_295 440_f2d_688 9th cir affg per curiam tcmemo_1969_159 87_tc_74 petitioner’s testimony was vague and unclear as to how the loan proceeds contributed to improvements on the properties indeed petitioners did not object to respondent’s proposed finding of fact which stated that petitioner collected the rents on the irvine business center property and kept the money for himself instead of paying the bank on the loan petitioner’s testimony did not establish whether the loans incurred were recourse or nonrecourse petitioners offered no testimony or evidence as to depreciation claimed or deducted or allowed and allowable on the properties furthermore petitioners offered no explanation regarding how their adjusted_gross_income corresponded with losses_incurred when the properties were foreclosed upon for example in petitioners reported adjusted_gross_income of zero in petitioners reported adjusted_gross_income of -dollar_figure petitioners contend that losses from foreclosures on the five properties created the net operating losses based on the stipulated facts in this case however four of the properties were foreclosed upon between and and the fifth property was not foreclosed upon until this is one of the many inconsistencies evident in petitioners’ case petitioners have failed to offer credible testimony to meet their burden of substantiation in this case petitioners provided no financial records petitioners failed to provide any financial documentation to substantiate the net operating losses petitioners did not produce books_or_records for the alleged loss years to substantiate the claimed losses petitioners provided no financial statements from the h h partnership petitioner conceded that he does not have any records for the properties or the h h partnership as his partner mr hornbeak retained all the records petitioner failed to obtain these records from mr hornbeak petitioners provided no financial statements from h h land development corp petitioners provided no receipts as to losses on the property petitioners provided no information as to costs incurred in buying or selling the properties or in foreclosure expenses petitioners’ situation in this case is a result of their own inexactitude and failure to maintain records of their expenses further we find petitioners’ efforts before trial to locate any records that might be in the hands of third parties especially lax petitioners failed to call key witnesses we note that neither grant hornbeak petitioners’ partner in the real_estate transactions nor anyone from gendron co petitioner’s accountant and preparer of the through tax returns was called as witnesses we infer that their testimony would not have been favorable to petitioners 6_tc_1158 affd 162_f2d_513 10th cir the court will not estimate petitioners’ claimed nols despite the above mentioned discussion petitioners argue that they have substantiated their claimed net operating losses for taxable years through based upon their alleged bases in the properties and losses from the foreclosures petitioners derived these numbers from property records gathered by revenue_agent grennan during the audit petitioners argue that at the time of foreclosure they had bases and losses in the properties as follows property basis loss dollar_figure k-mart big_number indio cowan ave big_number business center dr big_number dollar_figure big_number big_number big_number petitioners make no argument regarding basis or loss for the avenida del mar property if the taxpayer fails to keep adequate_records but the court is convinced that deductible expenditures were incurred the court may make as close an approximation as it can bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making 39_f2d_540 2d cir 112_tc_183 see also sandoval v commissioner tcmemo_2000_189 we may estimate basis however there must exist some reasonable evidentiary basis upon which to make such an estimate 85_tc_731 edwards v commissioner tcmemo_2002_169 we are mindful that there must be sufficient evidence in the record to provide a basis for us to make an estimate and to conclude that a deductible expense was incurred in at least the amount to be allowed pratt v commissioner tcmemo_2002_279 we are not required to guess with respect to the amount of deductible expenses 939_f2d_874 9th cir affg in part and revg in part tcmemo_1989_390 245_f2d_559 5th cir petitioners have not shown a reasonable basis for concluding that the loans taken against the properties should be included as increases to basis we are not convinced that the full amounts of the loans were paid into the construction projects given the circumstances of this case and the inexactitude apparent from petitioners’ evidence we have no reasonable evidentiary basis to make an approximation as to the amount of net operating losses we could choose a raw percentage and apply that percentage to the total amount of the loans however our choice of a percentage would be mere guesswork with no reasonable evidentiary basis petitioners dispute the computations and theory set forth by revenue_agent john grennan in analyzing whether petitioners had substantiated their claimed nols the revenue_agent thought that petitioners might have had cancellation_of_indebtedness_income when the foreclosures on the properties occurred due partially to the possibility of cancellation_of_indebtedness_income the net operating losses were not substantiated petitioners argue that they did not have cancellation_of_indebtedness_income because they were insolvent when the foreclosures occurred furthermore since they did not have cancellation_of_indebtedness_income petitioners argue that they had net operating losses while the court is sympathetic to petitioners’ financial hardships and assuming arguendo that petitioners did establish basis using the public property records and did establish that they were insolvent petitioners are incorrect as a matter of law in stating that they had net operating losses federal_law provides that generally a taxpayer must recognize income from the discharge_of_indebtedness sec_61 284_us_1 the code provides an exception to the recognition of cancellation_of_indebtedness_income in cases where the discharge occurs when the taxpayer is insolvent see sec_108 see also 23_f3d_1032 6th cir affg tcmemo_1992_673 sec_108 provides in turn that upon discharge the taxpayer must reduce certain tax_attributes by the amount of the cancellation_of_indebtedness_income excluded from gross_income sec_108 provides that nols are the first tax attribute to be reduced and sec_108 provides that they be reduced dollar-for-dollar by the amount of the cancellation_of_indebtedness_income excluded under sec_108 petitioners have not proven that they did not have cancellation of the court makes no such findings a taxpayer can elect to reduce the basis of any depreciable_property by the amount of debt discharged before reducing the amount of any other tax_attributes sec_108 petitioners did not make such an election indebtedness income at the time of the foreclosures nor have they proven that any of the claimed nols were not reduced by sec_108 and b for the aforementioned reasons petitioners did not substantiate their claimed net operating losses for the taxable years and b petitioners failed to address claimed schedule c expenses petitioners reported income and expense for insurance service on schedule c of the and tax returns respondent disallowed certain schedule c expenses petitioners’ briefs fail to address this issue we conclude that petitioners have conceded the uncontested items and abandoned this issue see 92_tc_661 89_tc_46 c late-filed return for respondent determined that petitioners are liable for an addition_to_tax pursuant to sec_6651 for sec_6651 imposes an addition_to_tax for failure_to_file a return on the date prescribed determined with regard to any extension of time for filing unless the taxpayer can establish that such failure is due to reasonable_cause and not due to willful neglect the taxpayer has the burden of proving the addition is improper see rule a 469_us_241 petitioners stipulated that they did not file their tax_return for until date the day on which respondent received the return petitioners offered no evidence showing that the failure_to_file was due to reasonable_cause and not due to willful neglect accordingly we hold that petitioners are liable for the addition_to_tax pursuant to sec_6651 d sec_6662 accuracy-related_penalty sec_6662 provides for an accuracy-related_penalty equal to percent of the underpayment if the underpayment was due to a taxpayer’s negligence or disregard of rules or regulations see sec_6662 and b a taxpayer is negligent when he or she fails ‘to do what a reasonable and ordinarily prudent person would do under the circumstances ’ 91_f3d_670 4th cir quoting 33_f3d_426 4th cir affg in part vacating and remanding in part t c memo affg tcmemo_1995_46 as pertinent here negligence includes the failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code and also includes any failure to keep adequate books_and_records or to substantiate items properly see sec_6662 sec_1_6662-3 income_tax regs a taxpayer may however avoid the application of the accuracy- related penalty by proving that he or she acted with reasonable_cause and in good_faith see sec_6664 whether a taxpayer acted with reasonable_cause and in good_faith is measured by examining the relevant facts and circumstances and most importantly the extent to which he or she attempted to assess the proper tax_liability see 85_tc_934 stubblefield v commissioner tcmemo_1996_537 sec_1_6664-4 income_tax regs petitioners argue that they provided all relevant information to their tax_return_preparer gendron co petitioners however have provided no testimony concerning the information they gave to their return preparer no employee from gendron co testified at trial additionally we have found that petitioner failed to maintain adequate_records related to the claimed net operating losses therefore we find the underpayment attributable to negligence or disregard of rules or regulations we conclude that petitioners are liable for a penalty pursuant to sec_6662 for and in reaching all of our holdings herein we have considered all arguments made by the parties and to the extent not mentioned above we find them to be irrelevant or without merit to reflect the foregoing decisions will be entered for respondent