department of the treasury internal_revenue_service washington d c date tl-n-681-98 uil number release date memorandum for from chief branch employee_benefits exempt_organizations subject payments to employees for_the_use_of legend x issue this is in response to your e mail of concerning the proper treatment of payments an employer makes to its employees for use of the employees in addition to your e mail you provided copies of materials from x which we have enclosed this response will discuss and then whether the arrangement by x is an accountable_plan conclusion we cannot conclude that the same result will apply in every case however this memo suggests an analysis to follow in cases the issue is whether the are wages for federal employment_tax purposes if the are paid pursuant to an accountable_plan the payments are not wages for employment_tax purposes thus the issue that must be resolved in these cases is whether the arrangement is an accountable_plan x we understand that x is an entity that x maintains based upon the information we have reviewed it is not clear whether x offers as stated above whether are wages subject_to employment_taxes depends upon whether they are paid pursuant to an accountable_plan we cannot opine on whether however we note that certain comments included in x’s and are not correct facts your request is not case specific we understand that in a typical arrangement the employer will pay an employee a small hourly wage such as dollar_figure and treat that amount as wages subject_to employment_taxes the employer will also pay the employee an additional_amount per hour such as dollar_figure to the employee’s the amount treated as wages will be reported to the employee on form_w-2 and the if reported will be reported on form_1099 we have assumed for purposes of this response that the workers are employees law analysis the three employment_taxes are the federal_insurance_contributions_act fica_taxes federal_unemployment_tax_act futa_tax and income_tax_withholding the discussion herein is limited to whether for employment_tax purposes the employer is properly treating amounts paid under the arrangement this memorandum does not discuss how an employee should report payments not paid under an accountable_plan that the employer does not treat as wages 1in certain cases worker classification may be an issue to determine whether a worker is an employee or an independent_contractor the common_law test must be applied see irs publication independent_contractor or employee if the analysis concludes that the workers are independent contractors issues arise concerning the effect of converting workers to independent contractors and exam should contact the national_office 2when an employer fails to characterize properly amounts paid to an employee as wages issues arise concerning how the employee should report such payments and claim any related deductions sec_62 as stated the issue is whether the payments are wages for employment_tax purposes in general wages are defined for fica futa and income_tax_withholding purposes as all remuneration for employment unless otherwise excluded sec_3121 sec_3306 and sec_3401 there is no statutory exception from wages for amounts paid_by employers to employees for employee business_expenses however sec_1_62-2 provides that amounts an employer pays to an employee for employee business_expenses under an accountable_plan are excluded from the employee's gross_income are not required to be reported on the employee's form_w-2 and are exempt from the withholding and payment of employment_taxes sec_31_3121_a_-3 sec_31_3306_b_-2 and sec_31_3401_a_-4 of the employment_tax regulations and sec_1_6041-3 of the income_tax regulations whether amounts are paid under an accountable_plan is governed by sec_62 which includes the provisions on employee reimbursement or other expense allowance arrangements sec_62 generally defines adjusted_gross_income as gross_income minus certain above-the-line deductions sec_62 allows an employee an above-the-line deduction for expenses paid_by the employee in connection with his or her performance of services as an employee under a reimbursement or other expenses allowance arrangement with the employer sec_62 provides that an arrangement will not be treated as a reimbursement or other expense allowance arrangement for purposes of sec_62 if such arrangement does not require the employee to substantiate the expenses covered by the arrangement to the person providing the reimbursement or such arrangement provides the employee with the right to retain any amount in excess of the substantiated expenses covered under the arrangement under sec_1_62-2 of the regulations a reimbursement or other expense allowance arrangement satisfies the requirements of sec_62 if it meets the three requirements of business connection substantiation and returning amounts in excess of expenses set forth in paragraphs d e and f respectively of sec_1_62-2 the three requirements if an arrangement meets the three requirements all amounts paid under the arrangement are treated as paid under an accountable_plan sec_1 c i the regulations further provide that if an arrangement does not satisfy one or more of the three requirements all amounts paid under the arrangement are paid under a nonaccountable_plan amounts paid under a nonaccountable_plan are included in the employee's gross_income for the taxable_year must be reported to the employee on form_w-2 and are subject_to_withholding and payment of employment_taxes sec_1_62-2 sec_31_3121_a_-3 sec_31 b - b and a -4 b an arrangement meets the business connection requirement of sec_1_62-2 if it provides advances allowances including per_diem allowances allowances for meals and incidental expense and mileage allowances or reimbursements for business_expenses that are allowable as deductions by part vi sec_161 through sec_196 subchapter_b chapter of the code and that are paid_or_incurred by the employee in_connection_with_the_performance_of_services as an employee sec_1_62-2 provides that the business connection requirement will not be satisfied if the payor arranges to pay an amount to an employee regardless of whether the employee incurs or is reasonably expected to incur business_expenses described in paragraphs d or d sec_1_62-2 of the regulations provides that the substantiation requirement is met if the arrangement requires each business_expense to be substantiated to the payor the employer its agent or a third party within a reasonable period of time as for the third requirement that amounts in excess of expenses must be returned to the payor the general_rule of sec_1_62-2 provides that this requirement is met if the arrangement requires the employee to return to the payor within a reasonable period of time any amount_paid under the arrangement in excess of the expenses substantiated sec_1_62-2 provides that if a payor's reimbursement or other expense allowance arrangement evidences a pattern of abuse of the rules of sec_62 sec_62 of the code was enacted by the family support act of publaw_100_485 through enactment of sec_67 of the code by sec_132 of the tax_reform_act_of_1986 act publaw_99_514 c b vol the congress sharpened the distinction between the tax treatment of unreimbursed and reimbursed employee business_expenses among other changes unreimbursed employee business_expenses plus other miscellaneous_itemized_deductions generally were made subject_to a two-percent floor at the same time the congress decided to retain the above-the-line deduction treatment for reimbursements received by an employee pursuant to a reimbursement arrangement this rationale for allowing the employee an above-the-line deduction to offset true reimbursement amounts does not apply in the case of nonaccountable plans under these plans the amount received by the employee from the employer is not determined by the actual amount of expenses_incurred by the employee during the year and the regulation sections all payments made under the arrangement will be treated as made under a nonaccountable_plan revrul_68_624 employers typically rely on revrul_68_624 1968_2_cb_424 as authority for designating a portion of an employee’s compensation as a rental payment and excluding that amount from wages the question raised in revrul_68_624 is what percentage of the total amount_paid by a corporation for_the_use_of a truck and the services of a driver is allocable as wages of the driver for fica purposes the facts specify that the corporation hires a truck and driver to haul stone from its quarry to its river loading dock at a fixed amount per load and allocates one-third of the amount_paid the employee as wages and two-thirds as payment for_the_use_of the truck the ruling holds that an allocation of the amount_paid to an individual when the payment is for both personal services and the use of equipment must be governed by the facts in each case if the contract of employment does not specify a reasonable division of the total amount_paid between wages and equipment a proper allocation may be arrived at by reference to the prevailing wage scale in a particular locality for similar services in operating the same class of equipment or the fair rental value of similar equipment although revrul_68_624 has not been obsoleted we believe it should not be relied upon to exclude payments for from wages the analysis in rev_rul is incomplete under current law because it does not consider whether the are paid under an accountable_plan under current law the can be excluded from wages only if they are paid under an accountable_plan an employment contract that merely allocates compensation between wages and will not satisfy the requirements of sec_62 to exclude employee reimbursements or other expense allowance payments from wages an employer must establish an accountable_plan case law the service has not issued any private letter rulings or technical_advice memoranda that address whether payments are wages in addition to our knowledge no case has considered the issue however two recent cases trans-box systems v united_states no c-97-2768 the u s dist lexis n d cal date appeal pending 9th cir and welch v commissioner t c memo are helpful in analyzing the issue trans-box a courier service paid its courier drivers who used their own cars to make deliveries dollar_figure per hour trans-box treated of the dollar_figure as wages subject_to employment_taxes and treated the remaining as either lease payments or vehicle expenses the government assessed employment_taxes on the entire dollar_figure in opposing the government’s motion for summary_judgment trans-box’s primary position was that the automobile lease payments or vehicle expenses were paid under an accountable_plan and were exempt from employment_taxes trans-box asserted that it had substantially complied with the accountable_plan requirements in sec_62 citing 81_tc_709 trans-box raised two alternative arguments first it argued the drivers were independent contractors rather than employees for purposes of the automobile lease payments and thus not subject_to sec_62 second trans-box argued that it was entitled to relief under sec_530 of the revenue act of the government argued that trans-box had treated the drivers as employees for all purposes and the arrangement trans-box established was not an accountable_plan because the drivers were not required to substantiate their expenses or return any amounts received that exceeded their expenses the court concluded that trans-box failed to created a triable issue of fact regarding whether the drivers were at least for some purposes independent contractors the court noted that the facts in the record point to the conclusion that trans-box had treated the owner-operators as employees for all purposes it had paid the drivers hourly wages reported those on form_w-2 and not filed any forms for the automobile payments the court pointed out that trans-box's primary argument was that the drivers were employees for all purposes and that it substantially complied with the requirements of sec_62 while acknowledging that trans-box was free to argue alternative or conflicting legal arguments the court stated serious questions about the veracity of its allegations are raised because trans-box’s alternative argument relies upon conflicting versions of the material facts at issue trans-box systems v united_states u s dist lexis thus the court granted the government's motion for summary_judgment on the plaintiff's claims and summary_judgment on the government's counterclaim for recovery_of unpaid employment_taxes the court did not address the sec_530 argument 4although not asserted by the government trans-box also did not satisfy the business connection requirement sec_1_62-2 provides that the business connection is not satisfied if a payor arranges to pay an amount to an employee regardless of whether the employee incurs or is reasonably expected to incur business_expenses although the court’s decision rests on trans-box’s failure to create a triable issue of fact on worker classification the decision is significant because the court refused to apply a substantial compliance rule to sec_62 or to allow trans- box to argue different versions of the facts in welch v commissioner t c memo the tax_court held that mr welch’s equipment_leasing activities in were not passive activities mr welch a carpenter was hired by movie production companies as a construction coordinator mr welch and the production company would enter into a deal memorandum setting forth the terms of his employment including the rate that he would be paid and the rate at which he rented his equipment to the company typically an inventory of his tools and equipment would be attached to the deal memo the production company would report mr welch’s wages on a form_w-2 and the tool rentals on a form_1099 as construction coordinator he constructed movie sets hired employees arranged for the purchase of materials and furnished all the required tools he was required to purchase maintain transport and repair the tools as needed the facts also specify that in mr welch rented tools to a third party for dollar_figure for a project for which he was not the construction coordinator the court analyzed whether mr welch’s rental_activity was a rental_activity for purposes of sec_469 and concluded it was not because he provided equipment to production companies for an average period of days or less and he performed significant_personal_services in connection with making the property available for use by customers the court noted that he acquired maintained transported and repaired the tools and equipment the court concluded that mr welch provided extraordinary_personal_services and the rental of the tools and equipment by the production companies was incidental to receipt of mr welch’s services as a construction coordinator the court further held that mr welch materially participated in his business as a construction coordinator and therefore was not subject_to the loss limitations imposed by sec_469 although the tax_court was not required to decide whether the rental arrangement was an accountable_plan within the meaning of sec_62 or whether mr welch was an employee or independent_contractor the facts illustrate an arrangement for the rental of equipment that was an arms length transaction memorialized in a writing perhaps the most significant fact is that mr welch actually rented his tools to a third party that did not also employ him as the construction coordinator thus at least in that instance his rental_activity was separate from the services he performed as an employee case development hazards and other considerations it is our view that the best approach to address the issue is to go forward with a well developed case accordingly we make the following suggestions for case development analyzing whether a arrangement is an accountable_plan requires factual development including an understanding of the details of the arrangement it may not be assumed that every is a disguised payment of wages or that an employer cannot establish a arrangement that satisfies the accountable_plan requirements an important fact to ascertain is when did the employer begin compensating its employees in part with a did the employer pay prior to the enactment of the tax_reform_act_of_1986 or the family support act of it is also important to ask the employer why it decided to pay a and whether the employer had motivations other than reducing its employment_taxes it is also important to find out whether the arrangement is written there may be a lease or the arrangement may be described in an employee handbook any writing should be evaluated to determine whether it reflects an arms length transaction and whether it specifies the employer's basis for allocating amounts between wages and rentals employers will likely maintain that the reflects the fair_market_value of the thus it is important to ask how the employer determined that amount if there is a lease factors to develop include whether the lease has a specific term and what happens if the employee terminates employment before the end of the lease_term even when there is a writing it remains important to interview workers and find out their understanding of the arrangement and whether the specified terms of the arrangement are actually followed for example the written arrangement or the employer may specify that employees must agree to let other employees use their however if another employee never actually uses the the requirement is meaningless if the arrangement is unwritten that is an important fact other factors to consider include whether employees must supply are the left at the work site are the maintained and insured and if so who bears those costs how the arrangement fits within the decisions in welch and trans-box should also be considered x we have reviewed the the most important fact to know is that irs has not ruled on the validity of arrangement and is incorrect we also have not ruled that an employer may reduce liability for employment_taxes by recharacterizing wages as in addition the private_letter_ruling program does not allow the irs to rule on whether commercial products marketed and sold to the public comply with the provisions of the internal_revenue_code if a taxpayer purchased x’s services and submitted a request for a private_letter_ruling on whether it had established an accountable_plan we might be able to issue a ruling provided all other requirements of revproc_99_1 were met finally if a taxpayer that is merely a factor to consider in determining whether the taxpayer’s arrangement is valid does not necessarily mean that the arrangement is accountable if you have questions please call me at jerry e holme sec_5 specify that rental income is not subject_to seca_tax and that is incorrect sec_1402 excludes rentals from real_estate from the definition of net_earnings_from_self-employment the statute however does not exclude other rental income see stevenson v commissioner t c memo


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 plr-128459-16 date march legend decedent spouse date date dear ------------ ----------------------------------------------------- ------------------------------------------------ -------------------- ------------------------ this letter responds to your personal representative’s letter of date and subsequent correspondence requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code code portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations submitted are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election plr-128459-16 spouse as executor of decedent’s estate represents that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of the decedent’s death and that decedent made no taxable_gifts during his lifetime as executor spouse requests an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return plr-128459-16 sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely-filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a plr-128459-16 see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date spouse as executor represents that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-128459-16 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely yours associate chief_counsel passthroughs special industries by leslie h finlow leslie h finlow senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ---------------------------- ---------------------------------- --------------------------------- ------------------------ in re ---------------------------------- --------------------------------- ------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no -------------- ----------- telephone number -------------------- refer reply to cc psi b05 plr-141504-04 date date taxpayer ------------------------------------------------------------------------------------------------- ------------------------ project ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- -------------------------- ------------------------------------------------------ ------------------------------------------------------ year year dear --------------- this letter responds to your letter dated date and subsequent correspondence submitted on behalf of taxpayer requesting an extension of time to make elections under ' f and ' g of the internal_revenue_code pursuant to ' of the procedure and administration regulations according to the information submitted taxpayer a limited_partnership placed project in service in year taxpayer inadvertently failed to make a timely election for each of the buildings in project under ' f to begin the credit_period in the succeeding taxable_year year taxpayer also inadvertently failed to make a timely election for each of the buildings in project under ' g sec_42 defines the credit_period of any building as the period of taxable years beginning with the taxable_year in which the building is placed_in_service or at the taxpayer s irrevocable election the succeeding taxable_year but in either case only if the building is a qualified_low-income_building at the close of the first year of the credit_period plr-141504-04 sec_42 defines qualified_low-income_housing_project as any project for residential_rental_property if the project meets the requirements of ' g a or b whichever is elected by the taxpayer the project meets the requirements of ' g a if percent or more of the residential units are both rent-restricted and occupied by individuals whose income i sec_50 percent or less of area_median_gross_income the project meets the requirements of ' g b if percent or more of the residential units are both rent-restricted and occupied by individuals whose income is percent or less of area_median_gross_income sec_42 provides that following the close of the first taxable_year in the credit_period with respect to any qualified_low-income_building the taxpayer shall certify to the secretary at such time and in such form and in such manner as the secretary prescribes d the election made under ' g with respect to the qualified_low-income_housing_project of which such building is a part and e such other information as the secretary may require in the case of a failure to make the certification required by the preceding sentence on the date prescribed therefor unless it is shown that such failure is due to reasonable_cause and not to willful neglect no credit shall be allowable by reason of ' a with respect to such building for any taxable_year ending before such certification is made sec_1_42-1 of the income_tax regulations provides that a completed form_8609 low-income_housing_credit allocation certification must be filed with the owner’s federal_income_tax return for each of the taxable years of the compliance_period failure to comply with this requirement for any taxable_year after the first taxable_year in the credit_period will be treated as a mathematical_or_clerical_error for purposes of ' b and g sec_301_9100-7t provides that for elections under the tax_reform_act_of_1986 the election under ' g must be made for the taxable_year in which the project is placed_in_service and shall be made in the certification required to be filed pursuant to ' l sec_301_9100-7t provides that the election under ' g is irrevocable sec_301_9100-8 provides that the election under ' f generally must be made for the taxable_year in which the project is placed_in_service or the succeeding taxable_year if the ' f election is made to defer the start of the credit_period and must be made in the certification required to be filed pursuant to ' l and sec_301_9100-8 provides that the election under ' f is irrevocable sec_301_9100-1 through of the procedure and administration regulations provide the standards the commissioner will use to determine whether to grant an extension of time to make an election plr-141504-04 sec_301_9100-1 defines the term aregulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin under ' c the commissioner has discretion to grant a reasonable extension of time under the rules set forth in and to make a regulatory election or a statutory election but no more than six 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_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of ' requests for relief under ' a will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government in the instant case based solely on the facts submitted and the representations made we conclude that the requirements of and have been met accordingly taxpayer is granted an extension of time to make the elections under ' f and ' g for each building in project by filing within days from the date of this letter for all open taxable years amended forms that include the intended elections the amended forms are to be filed with the service_center where taxpayer s return is filed in addition a copy of this letter along with a copy of the forms should be sent to the area director compliance sb_se area nashville tennessee a copy of this letter is enclosed for this purpose electing to begin the credit_period in year accordingly taxpayer must amend it s federal_income_tax returns including the schedules k-1 for year and all subsequent years as is necessary to reflect the proper amount of ' credits by making the election for the buildings in project under ' f taxpayer is no opinion is expressed or implied regarding the application of any other provisions of the code or regulations specifically we express no opinion on whether taxpayer s low-income_housing project otherwise qualifies for the low-income_housing_credit under ' this ruling is directed only at the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent plr-141504-04 in accordance with the power_of_attorney on file a copy of this letter is being sent to taxpayer s authorized representatives enclosures cc copy of this letter copy for ' purposes sincerely heather c maloy associate chief_counsel passthroughs and special industries


internal_revenue_service index no number release date cc ebeo br1 - plr-120053-98 employer plan trust trustee dear this is in reply to your letter dated date and subsequent correspondence on behalf of the above employer requesting a ruling on the federal tax consequences of employer’s deferred_compensation plan the plan and related trust under sec_457 of the internal_revenue_code as amended by the small_business job protection act of employer is represented to be an eligible_employer within the meaning of sec_457 of the code the plan which is offered to a select group of management or highly compensated employees is intended to be an eligible_deferred_compensation_plan to which sec_457 applies under the plan an employee participant may elect to defer compensation that would otherwise have been received for services to the employer until retirement death or separation_from_service with the employer or until the occurrence of an unforeseeable_emergency in addition the employer may make matching_contributions under the plan the election to defer compensation must be made prior to the month for which the compensation is earned the plan provides for a maximum amount that may be deferred by a participant in any taxable_year and also provides for a catch-up computation for amounts deferred for one or more of the participant’s last three taxable years ending before he attains normal_retirement_age under the plan the amounts that may be deferred under the annual maximum limitation and the catch-up provision are within the limitations set out in sec_457 of the code a participant or his beneficiary may elect the manner in which his deferred amounts will be distributed subsequent to the participant’s separation_from_service and prior to the date benefits would commence under the plan the participant may make one election which shall be irrevocable to determine when benefits will be distributed or to change a previous election made prior to separation_from_service the plan provides for payment of benefits in a lump sum or over a period not to exceed ten years the manner and time of benefit payout must meet the distribution_requirements of sec_457 and sec_401 of the code if the participant or his beneficiary fails to make a timely election concerning distribution of the deferred amounts benefits shall be paid at the time and in the manner prescribed by the plan the plan provides that all amounts of compensation deferred under the plan all employer contributions all property and rights purchased with such amounts and all income attributable to such amounts property or rights will remain until made available to the participant or other beneficiary solely the property and rights of the employer subject only to the claims of the employer’s general creditors a participant’s rights to benefit payments under the plan are not subject in any manner to anticipation alienation sale transfer assignment pledge encumbrance attachment or garnishment by creditors of the participant or the participant’s beneficiary the employer established the trust to set_aside funds for the purpose of assisting it in providing benefits under the plan the trust conforms to the model trust contained in revproc_92_64 including the order in which sections of the model trust language appear the trust does not contain any language that is inconsistent with or conflicts with the language of the model trust agreement under the plan and the trust the interest of the participants and beneficiaries in the trust estate are no greater than the interest of any general unsecured creditor of employer sec_83 of the internal_revenue_code provides that the excess if any of the fair_market_value of property transferred in_connection_with_the_performance_of_services over the amount_paid if any for the property is includible in the gross_income of the person who performed the services for the first taxable_year in which the property becomes transferable or is not subject_to a substantial_risk_of_forfeiture sec_1_83-3 of the income_tax regulations provides that for purposes of sec_83 the term property includes real and personal_property other than money or an unfunded and unsecured promise to pay money or property in the future property also includes a beneficial_interest in assets including money transferred or set_aside from claims of the transferor’s creditors for example in a_trust or escrow account under the economic_benefit_doctrine an employee has currently includible income from an economic or financial benefit received as compensation though not in cash form economic benefit applies when assets are unconditionally and irrevocably paid into a fund or trust to be used for the employee’s sole benefit 16_tc_244 aff’d per curiam 194_f2d_541 6th cir revrul_60_31 situation in revrul_72_25 1972_1_cb_127 and revrul_68_99 1968_1_cb_193 an employee does not receive income as a result of the employer’s purchase of an insurance_contract to provide a source of funds for deferred_compensation because the insurance_contract is the employer’s asset subject_to claims of the employer’s creditors under the terms of the trust assets will be placed in trust to be used to provide deferred_compensation benefits to the participants however the trustee has the obligation to hold the trust assets and income for the benefit of employer’s general creditors in the event of employer’s insolvency the trust further provides that an employee receives no beneficial_ownership in or preferred claim on the trust assets therefore although the assets are held in trust in the event of employer’s insolvency they are fully within reach of employer’s general creditors as are any other assets of employer sec_457 of the code provides rules for the deferral of compensation by an individual participant in an eligible_deferred_compensation_plan as defined in sec_457 sec_457 of the code provides that in the case of a participant in an eligible_deferred_compensation_plan any amount of compensation deferred under the plan and any income attributable to the amounts so deferred shall be includible in gross_income only for the taxable_year in which such compensation or other income is paid or otherwise made available to the participant or beneficiary a basic requirement prescribed by sec_457 is that an eligible sec_457 plan must meet the sec_457 distribution_requirements described above in order to retain its tax-deferred eligible status a sec_457 plan would violate these provisions of sec_457 and regulations thereunder if the participant or anyone else received a distribution earlier than the earliest date established in sec_457 sec_457 provides that for a sec_457 plan to be an eligible_plan the plan must have distribution_requirements providing that under the plan amounts will not be made available to participants or beneficiaries earlier than i the calendar_year in which the participant attains age ii when the participant is separated from service with the employer or iii when the participant is faced with an unforeseeable_emergency as determined under treasury regulations however sec_401 generally allows plans to postpone the required_beginning_date until april of the calendar_year following the later of the calendar_year in which the employee retires or in which he attains age sec_1_457-2 of the income_tax regulations defines an unforeseeable_emergency as a severe financial hardship to the participant resulting from a sudden and unexpected illness or accident of the participant or of a dependent loss of a participant’s property due to casualty or other similar extraordinary an unforeseeable circumstances arising as a result of events beyond the control of the participant sec_301_7701-4 of the procedure and administration regulations provides that generally an arrangement will be treated as a_trust if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and therefore are not associates in a joint enterprise for the conduct of business for profit sec_671 of the code provides that where a grantor shall be treated as the owner of any portion of a_trust under subpart e part i subchapter_j chapter of the code there shall then be included in computing the taxable_income and credits of the grantor those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against tax of an individual sec_677 of the code provides that the grantor shall be treated as the owner of any portion of a_trust whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be held or accumulated for future distribution to the grantor sec_1_677_a_-1 of the regulations provides that under sec_677 of the code a grantor is in general treated as the owner of a portion of a_trust whose income is or in the discretion of the grantor or a nonadverse_party or both may be applied in discharge of a legal_obligation of the grantor provided i that the creation of the trust does not cause the plan to be other than unfunded for purposes of title i of the employee_retirement_income_security_act_of_1974 and ii that the provision in the trust requiring use of the trust assets to satisfy the claims of employer’s general creditors in the event of employer’s insolvency is enforceable by the general creditors of employer under federal and state law and based on the information submitted and representations made we conclude as follows the plan is an eligible_deferred_compensation_plan as defined in sec_457 of the internal_revenue_code_of_1986 the trust will be classified as a_trust under sec_301_7701-4 of the procedure and administration regulations because the principal and income of the trust may be applied in discharge of legal obligations of the grantor employer will be treated as the owner of the entire trust under sec_677 of the code and sec_1_677_a_-1 of the regulations under sec_671 employer must include all of the income deductions and credits against tax of the trust in computing its own taxable_income and credits neither the creation nor maintenance of the plan and the trust nor the contribution of assets to the trust will result in a transfer of property to any participant or beneficiary for purposes of sec_83 of the code or sec_1_83-3 of the regulations amounts of compensation deferred under the plan including any income attributable to the deferred_compensation will be includible in gross_income in the taxable_year or years in which such amounts are actually paid or otherwise made available to such participant or beneficiary within the meaning of code sec_457 this ruling is contingent upon the adoption of the modifications to the plan and trust contained in your subsequent submission of date no opinion is expressed concerning the timing of the inclusion in income of amounts deferred under any deferred_compensation plan other than the plan described above in addition this ruling applies only to deferrals made after the date this ruling is issued if the plan or trust are significantly modified this ruling will not necessarily remain applicable this ruling is directed only to the employer and its employees sec_6110 of the code provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling may be modified or revoked if the adopted temporary or final regulations are inconsistent with any conclusion in the ruling see section dollar_figure of revproc_99_1 1999_1_irb_6 however when the criteria in section dollar_figure of revproc_99_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances sincerely yours robert d patchell assistant chief branch office of the associate chief_counsel employee_benefits and exempt_organizations enclosure copy for sec_6110 purposes


t c memo united_states tax_court daniel d naber petitioner v commissioner of internal revenue respondent docket no filed date larry d harvey for petitioner randall l preheim for respondent memorandum opinion vasquez judge this case is before the court on respondent’s motion for summary_judgment pursuant to rule 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 in effect for the year in issue after a concession the sole issue for decision is whether petitioner can exclude from income wages earned during from working in antarctica background at the time he filed the petition petitioner resided in faribault minnesota during petitioner performed services at mcmurdo station in ross island antarctica on his federal_income_tax return petitioner excluded wage income earned and received during for services performed in antarctica i summary_judgment discussion rule a provides that either party may move for summary_judgment upon all or any part of the legal issues in controversy full or partial summary_judgment may be granted only if it is demonstrated that no genuine issue exists as to any material fact and that the legal issues presented by the motion may be decided as a matter of law see rule b 98_tc_518 affd 17_f3d_965 7th cir we conclude that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law respondent concedes that no penalty pursuant to sec_6662 is due from petitioner for ii in general sec_61 provides that gross_income means all income from whatever source derived accordingly citizens of the united_states generally are taxed on income earned outside the geographical boundaries of the united_states unless the income is specifically excluded from gross_income 117_tc_95 affd sub nom 68_fedappx_44 9th cir affd sub nom 357_f3d_1108 10th cir exclusions from income are construed narrowly and taxpayers must bring themselves within the clear scope of the exclusion id iii sec_911 in 126_tc_89 473_f3d_790 7th cir arnett ii we addressed the arguments made by the parties herein regarding sec_911 the u s court_of_appeals for the seventh circuit agreed with our analysis of sec_911 and affirmed our conclusion that antarctica is not a foreign_country pursuant to sec_911 and the regulations thereunder arnett v commissioner f 3d pincite we shall not repeat our analysis from arnett i herein we follow our analysis and holding in arnett i and the analysis and holding of the court_of_appeals in arnett ii in 126_tc_89 affd 473_f3d_790 7th cir we concluded our opinion with a continued iv conclusion accordingly for the reasons stated in arnett i arnett ii and herein we conclude that petitioner cannot exclude from gross_income wages earned during from working in antarctica to reflect the foregoing an appropriate order and decision will be entered continued citation of sec_863 suggesting that sec_863 provided an additional reason to rule against the taxpayer id pincite see also sec_863 providing that income earned in antarctica by a u_s_person is sourced in the united_states in arnett v commissioner f 3d pincite the u s court_of_appeals for the seventh circuit addressed sec_863 in greater detail stating at the outset we think that it is important to note that considering antarctica not to be a foreign_country is compatible with the general statutory scheme notably sec_911 is found under subtitle a chapter subchapter_n of the irc which is designated tax based on income from sources within or without the united_states part i of this subchapter entitled source_rules and other general rules relating to foreign_income deems any activity in antarctica to be space_or_ocean_activity in turn the united_states is designated the source country of income from such activity when earned by a citizen_of_the_united_states sec_863 although this provision does not provide a definitive answer as to whether antarctica is a foreign_country it supports the conclusion that sec_911 is not intended to apply to income earned for services provided in antarctica we take this opportunity to state our agreement with the court of appeals’ conclusion set forth above see also 450_us_1


internal_revenue_service number release date index numbers ------------------------------- --------------------------------- ------------------------------------------------------------ ----------------- --------------------------------------------------- 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-110807-12 date date legend x ---------------------------------------------------- --------------------------------- d country ---------------------- --------------------------------------- dear --------------- this is in response to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts according to the information submitted x was formed on d under the laws of country x intended to be treated as a disregarded_entity for federal tax purposes effective d however x inadvertently failed to timely file form_8832 entity classification election to be treated as a disregarded_entity for federal tax purposes law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner can plr-110807-12 elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single owner having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six 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 section b defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election to be treated as a disregarded_entity for federal tax purposes effective d x must make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form this ruling is contingent on the owners of x filing by the earlier of days from the date of this letter or the expiration of the period of limitations for any year at issue in this plr-110807-12 ruling all required federal_income_tax and information returns including amended returns consistent with the requested relief being effective on d 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 sincerely joy c spies joy c spies senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court deborah a messina petitioner v commissioner of internal revenue respondent docket no filed date deborah a messina pro_se bradley c plovan for respondent memorandum findings_of_fact and opinion chiechi judge respondent determined the following defi- ciency in and additions to petitioner’s federal_income_tax tax_year deficiency dollar_figure additions to tax sec_6651 sec_6654 sec_6651 dollar_figure dollar_figure dollar_figure the issues remaining for decision are is petitioner required to include in gross_income for dollar_figure paid during that year by the state of maryland on account of her successful prosecution of a claim for wrongful discharge and back wages we hold that she is is petitioner required to include in gross_income for wages totaling dollar_figure paid during that year by the state of maryland we hold that she is is petitioner required to include in gross_income for wages totaling dollar_figure paid during that year by sportland properties inc we hold that she is is petitioner required to include in gross_income for interest totaling dollar_figure paid during that year by the bank of ocean city we hold that she is is petitioner liable for for the addition_to_tax under sec_6651 we hold that she is is petitioner liable for for the addition_to_tax under sec_6654 we hold that she is 1all 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 2respondent concedes that petitioner is not liable for for the addition_to_tax under sec_6651 findings_of_fact most of the facts have been stipulated and are so found petitioner’s legal residence was in berlin maryland at the time she filed the petition petitioner successfully prosecuted a claim for wrongful discharge and back wages petitioner’s claim against the state of maryland petitioner and the state of maryland resolved petitioner’s claim around the end of date when they entered into a release and settlement agreement agreement that agreement provided in pertinent part whereas deborah messina and the state of maryland desire to enter into a full and final resolution of the issues of the position to which ms messina will be restored and the amount of back pay and benefits to be awarded and to avoid litigation of those issues with its attendant expense and inconvenience to the parties now therefore it is hereby agreed between the parties that they shall enter into a full and final settlement of the issues of reinstatement and back pay and bene- fits and dispose completely of those issues in consid- eration of the mutual promises and covenants contained herein and other good and valuable consideration as hereinafter described the adequacy of which is hereby acknowledged accordingly it is agreed as follows in full and complete settlement of these matters the parties agree to abide by the provisions set forth in this agreement the state agrees to reinstate deborah messina as of date in the position of a human ser- vices specialist iv at grade step with the wicomico county department of social services the state agrees to contribute to ms messina’s pension retroactively for the time period from date to date for all purposes including retirement and or pension benefits ms messina’s benefits will be com- puted as if she has been in continuous service with the state from her original entry on duty date the state agrees to pay and deborah messina agrees to accept in full satisfaction of the back pay order the amount of dollar_figure less taxes due and owed to the state and federal governments based on information submitted by deborah messina in her w-4 form the amount deducted for payment of taxes may be less than ms messina’s total income_tax_liability for the parties hereby expressly agree that each party shall bear its own attorneys’ fees it is hereby expressly agreed and understood that no party shall have the right to litigate any of the matters discussed in the agreement in any court or tribunal unless this agreement is alleged to have been materially breached by the opposing party in that event the aggrieved party must give the other party thirty days notice of the alleged breach and the par- ties must attempt to resolve any disagreement before commencing any litigation deborah messina agrees that she will and hereby does forever and irrevocably release and dis- charge the state and its officers directors employ- ees agents successors assigns and representatives from any and all claims demands charges debts defenses actions causes of action obligations damages or liabilities whatsoever which she now has or may have in any way arising from her reinstatement in the aforementioned human services iv position or the aforementioned back pay and leave amounts the parties agree that this agreement con- tains and comprises the entire agreement and under- standing of the parties that there are no additional promises or terms with the agreement between the par- ties other than those contained herein and that this agreement shall not be modified except in writing signed by each of the parties hereto deborah messina has fully discussed the terms of this agreement with her undersigned attorney and has fully reviewed them with her attorney based upon that review and discussion with her counsel deborah messina hereby acknowledges that she fully and completely understands and agrees to the terms of this agreement in anticipation of petitioner’s signing the agreement william ober mr ober petitioner’s attorney had discussions with a representative of the office of the attorney_general of the state of maryland maryland attorney_general concerning mr ober’s proposal to allow petitioner to claim a higher number of exemptions in form_w-4 employee’s withholding allowance certifi- cate form_w-4 in an effort to reduce significantly the amount of federal and state tax that the state of maryland was to withhold from the dollar_figure that the state of maryland agreed to pay to petitioner under the agreement on date that representative sent a letter to mr ober maryland attorney general’s date letter with respect to mr ober’s proposal that letter stated in pertinent part this is to confirm our conversation of regarding your proposal to allow mrs messina to claim a higher number of exemptions on her w-4 form in order to substantially reduce the projected withholding of dollar_figure as we discussed i spoke to ellen coffin of the maryland comptroller’s office who stated that a state employee may claim more exemptions than they actually have the comptroller’s office does not make an in- quiry or judge the number of exemptions but does as a matter of policy forward on a quarterly basis copies of all w-4s that reflect over exemptions to the i r s ms coffin further stated that the employee is then subject_to an inquiry from the i r s that re- quests that the employee state the basis for claiming these exemptions on their w-4 based upon the above information you have stated that your client intends to claim a higher number of exemptions than she in fact has in order to substan- tially reduce the projected withholding of dollar_figure in your estimation the number of exemptions will be well above the exemptions that she claimed prior to her termination it is your opinion based upon advice from a tax expert that the number will be legally defensible because it reflects a good_faith projection of mrs messina’s tax_liability further you have stated that mrs messina fully understands that her claim may subject her to an inquiry by the i r s and that there may be negative tax consequences and or penalties because of her decision to claim higher exemptions reproduced literally after having received the maryland attorney general’s date letter mr ober sent to petitioner by facsimile a memorandum dated date that memorandum stated in pertinent part per our telephone conversation of yesterday eve- ning enclosed please find a copy of the latest fax transmittal from dhr’s department of human resources of the state of maryland attorney which includes a page letter maryland attorney general’s date letter to mr ober and a 5-page release and settlement agreement agreement if the agreement is acceptable to you as is please sign on the appropriate line thereof the bottom left of page of the agree- ment and fax the page containing your signature back to me the arrangement that i have with dhr is that you are to report to work on the eastern shore tomorrow contingent upon receipt by dhr today of your faxed signature on the agreement if we have any changes to make in the agreement we must do so by pm today because of my schedule the check will be issued promptly upon execution of a w-4 by you an event which cannot occur until i determine the exact amount of exemptions for you to claim i am certainly motivated to make this determination asap as we discussed yes- terday your faxing to me of your last pay stub re- flecting year-to-date earnings and withholding will aid me in determining the correct number of exemptions to claim any delay in filling out the w-4 will delay the issuance of the settlement check but will not delay your reporting to work and will not delay the issuance of your first paycheck if the w-4 is filled out prior to the end of the current pay_period please let this letter serve as written confirma- tion that both saul and i will be at your complete disposal to resolve the tax situation with no charge for our time in other words both saul and i will spend as much time as is necessary with no charge to you for our time to minimize the income taxes you will have to pay to the irs and state for the calendar years inclusive after petitioner and a representative of the state of maryland signed the agreement the state of maryland paid on a date not disclosed by the record around the end of date dollar_figure dollar_figure settlement to petitioner less taxes due and owed to the state and federal governments based on information submitted by deborah messina in her w-4 form as required by paragraph of the agreement under a contingency fee agreement with mr ober that petitioner and mr ober signed around date petitioner paid him dollar_figure out of the dollar_figure settlement during the state of maryland also paid wages totaling dollar_figure to petitioner during sportland properties inc sportland proper- ties paid wages totaling dollar_figure to petitioner during the bank of ocean city ocean city bank paid interest totaling dollar_figure to petitioner the state of maryland reported to respondent in form_w-2 wage and tax statement form_w-2 for that it paid to petitioner during that year wages totaling dollar_figure ie the dollar_figure settlement and other wages totaling dollar_figure sportland properties reported to respondent in form_w-2 for that it paid to petitioner during that year wages totaling dollar_figure ocean city bank reported to respondent in form 1099-int interest_income for that it paid to petitioner during that year interest totaling dollar_figure petitioner did not make any estimated_tax payments with respect to her taxable_year nor did petitioner file form_1040 u s individual_income_tax_return tax_return for that year respondent issued a notice_of_deficiency notice to peti- tioner for her taxable_year in that notice respondent determined that petitioner has total unreported income of dollar_figure for consisting of wages totaling dollar_figure that the 3respondent has no record that petitioner filed a tax_return for her taxable_year state of maryland paid to petitioner wages totaling dollar_figure that sportland properties paid to her and interest totaling dollar_figure that ocean city bank paid to her in the notice respondent also determined that petitioner is liable for for additions to tax under inter alia sec_6651 and sec_6654 respec- tively opinion petitioner bears the burden of proving that the determina- tions in the notice are erroneous rule a 290_us_111 dollar_figure settlement it is not clear whether it is petitioner’s position that none of the dollar_figure settlement is includible in her gross_income or that only the dollar_figure contingency fee paid to mr ober her attorney is not includible in her gross_income on brief petitioner argues petitioner clearly did not gain anything from these funds they were simply paid to the attorney mr ober 4respondent also determined in the notice that petitioner is liable for for the addition_to_tax under sec_6651 see supra note 5petitioner makes no argument under sec_7491 or c respondent’s records show that on date a substitute for return was posted to the account that respondent maintained with respect to petitioner for her taxable_year we find that respondent’s examination of petitioner’s taxable_year began before date and that sec_7491 is not applicable in the instant case see internal_revenue_service restructuring and reform act of publaw_105_206 sec c 112_stat_727 through her the check for these funds was issued jointly to petitioner and mr ober petitioner did not have exclusive control of these funds at any time further petitioner relied upon reasonable sources including the attorney general’s office and the comp- troller both of the state of maryland and followed their instructions regarding how to pass through these funds to mr ober and not be responsible for taxes on the non-income reference exhibit 6-p for all the above reasons these funds cannot be considered as income and must be excluded from inclusion in the petitioner’s gross_income figure for reproduced literally on the record before us we find that petitioner has failed to carry her burden of showing that the dollar_figure settlement was paid jointly to petitioner and mr ober in any event the 6on the record before us we further find that petitioner has failed to carry her burden of showing that exhibit 6-p to which petitioner refers on brief and which is part of the record in this case contained instructions regarding how to ‘pass through’ these funds to mr ober and not be responsible for taxes on the non-income the exhibit in question is the maryland attorney general’s date letter to mr ober that letter stated in pertinent part this is to confirm our conversation of regarding your proposal to allow mrs messina to claim a higher number of exemptions on her w-4 form in order to substantially reduce the projected withholding of dollar_figure as we discussed i spoke to ellen coffin of the maryland comptroller’s office who stated that a state employee may claim more exemptions than they actually have the comptroller’s office does not make an in- quiry or judge the number of exemptions but does as a matter of policy forward on a quarterly basis copies of all w-4s that reflect over exemptions to the i r s ms coffin further stated that the employee is then subject_to an inquiry from the i r s that re- quests that the employee state the basis for claiming these exemptions on their w-4 continued parties stipulated that petitioner was paid dollar_figure from sic the state of maryland on account of her successful prosecution of a claim for wrongful discharge and back wages gross_income means all income from whatever source derived sec_61 on the record before us we find that petitioner has failed to carry her burden of establishing that the entire amount of the dollar_figure settlement should be excluded from her gross_income on that record we further find that petitioner has failed to carry her burden of establishing that the dollar_figure contingency fee that she paid to mr ober out of the dollar_figure settlement should be excluded from her gross_income commis- sioner v banks 543_us_426 holding that as a general_rule where a litigant’s recovery constitutes income the litigant’s income includes the portion of the recovery paid to continued based upon the above information you have stated that your client intends to claim a higher number of exemptions than she in fact has in order to substan- tially reduce the projected withholding of dollar_figure in your estimation the number of exemptions will be well above the exemptions that she claimed prior to her termination it is your opinion based upon advice from a tax expert that the number will be legally defensible because it reflects a good_faith projection of mrs messina’s tax_liability further you have stated that mrs messina fully understands that her claim may subject her to an inquiry by the i r s and that there may be negative tax consequences and or penalties because of her decision to claim higher exemptions reproduced literally the attorney as a contingency fee on the record before us we find that petitioner is required to include in her gross_income the entire amount of the dollar_figure settlement petitioner further argues that if the court were to conclude that the dollar_figure settlement is includible in her gross_income such settlement would be income that should be claimed in each of the eight tax years used in the computation and justifica- tion of these funds the period during which they were earned reproduced literally as we understand petitioner’s argument the dollar_figure settlement should be taken into account over an eight-year period the approximate period of years to which such settlement for back wages pertained sec_451 provides in pertinent part sec_451 general_rule for taxable_year of inclusion a general_rule --the amount of any item_of_gross_income shall be included in the gross_income for the taxable_year in which received by the taxpayer unless under the method_of_accounting used in computing tax- able income such amount is to be properly accounted for as of a different period sec_451 through g and the regulations thereunder pre- scribe special rules setting forth exceptions to the general_rule in sec_451 none of those special rules applies in the instant case for the year at issue petitioner was and was required to be on the cash_method_of_accounting on the record before us we find that petitioner is required to include the entire amount of the dollar_figure settlement in her gross_income for her taxable_year other income the parties stipulated that in addition to the dollar_figure settlement that the state of maryland paid to petitioner during during that year the state of maryland also paid her wages totaling dollar_figure sportland properties paid her wages totaling dollar_figure and ocean city bank paid her interest totaling dollar_figure petitioner advances no argument as to why such wages and interest should be excluded from her gross_income for on the record before us we find that petitioner is required to include in her gross_income for her taxable_year the additional wages totaling dollar_figure that the state of maryland paid to her the wages totaling dollar_figure that sportland properties paid to her and the interest totaling dollar_figure that ocean city bank paid to her sec_6651 sec_6651 imposes an addition_to_tax for failure_to_file a tax_return on the date prescribed for filing unless the taxpayer proves that such failure_to_file was due to reasonable_cause and not willful neglect we have found that petitioner did not file a tax_return for her taxable_year in so finding we rejected petitioner’s self-serving and uncorroborated testimony that mr ober filed a tax_return for that year on behalf of her on the record before us we find that petitioner has failed to carry her burden of showing that her failure_to_file a tax_return for her taxable_year was due to reasonable_cause and not due to willful neglect on that record we further find that petitioner is liable for her taxable_year for the addition_to_tax under sec_6651 sec_6654 sec_6654 imposes an addition_to_tax in the case of an underpayment of estimated_tax by an individual we have found that petitioner did not make any estimated_tax payments for her taxable_year although it is not alto- gether clear it appears that petitioner may be arguing that she is not liable for for the addition_to_tax under sec_6654 because she is not required to include in gross_income 7although petitioner claimed at trial that she had a copy of the tax_return that mr ober allegedly filed on her behalf for her taxable_year petitioner did not proffer such copy to the court nor did petitioner provide such copy to respondent moreover respondent has no record that petitioner filed a tax_return for her taxable_year in fact respondent prepared a substitute for return for that year 8our finding about petitioner’s failure to make any esti- mated tax_payments for was based on the parties’ stipula- tion for that year any of the dollar_figure settlement we have found that petitioner is required to include the entire amount of that settlement in gross_income for her taxable_year on the record before us we find that petitioner has failed to carry her burden of showing that any of the exceptions in sec_6654 applies on that record we further find that petitioner is liable for her taxable_year for the addition_to_tax under sec_6654 we have considered all of the contentions and arguments of the parties that are not discussed herein and we find them to be without merit irrelevant and or moot to reflect the foregoing and the concession of respondent decision will be entered for respondent except with respect to the addition_to_tax under sec_6651 9petitioner failed to present evidence and does not argue that any of the exceptions in sec_6654 applies