significant index number l aas vr coo cee we government entities division department of the treasury internal_revenue_service washington d c oct tep la ra ad re taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of date for the above-named plan which are described in sec_431 and sec_431 of the internal_revenue_code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning date this extension applies to the eligible amortization charge bases as identified in your application submission established as of date the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 of the code sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 including a certification from the plan’s actuary that i absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ii the plan_sponsor has adopted a plan to improve the plan's funding status iii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided we have sent a copy of this letter to the to the and to your authorized representative pursuant to a power_of_attorney on file in this office this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact sincerely yours ghg za david m ziegler manager ep actuarial group


t c memo united_states tax_court john t o’donnell and ellen j norris o’donnell petitioners v commissioner of internal revenue respondent docket no 22230-08l filed date donald g koch jacob zelmanovitz john p fazzio and jacob delmano for petitioners justin l campolieta frederick c mutter mimi m wong and rose e gole for respondent memorandum opinion cohen judge this case was commenced under sec_6330 in response to a notice_of_determination concerning collection action that sustained a levy with respect to petitioners’ unpaid federal_income_tax liabilities for and the issue for decision is whether the appeals settlement officer abused his discretion in refusing petitioners’ suggested installment_agreement unless otherwise indicated all section references are to the internal_revenue_code in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure background all of the facts have been stipulated and the stipulated facts are incorporated as our findings by this reference petitioners resided in new york at the time they filed their petition on or about date a final notice--notice of intent to levy and notice of your right to a hearing date notice_of_levy relating to the collection of petitioners’ outstanding income_tax liabilities for and was sent to petitioners petitioners did not request a sec_6330 hearing in response to this notice on or about date petitioners’ representative ronny buni mailed to the internal_revenue_service irs a letter transmitting a form 433-a collection information statement for wage earners and self-employed individuals dated date as well as copies of petitioners’ forms w-2 wage and tax statement for the taxable_year in the letter buni proposed as a collection alternative for the irs to consider an installment_agreement with a monthly payment starting at dollar_figure and increasing to dollar_figure monthly for the subsequent year and eventually to dollar_figure for the second subsequent year on or about date a final notice--notice of intent to levy and notice of your right to a hearing date notice_of_levy was sent to petitioners the date notice_of_levy related to the collection of petitioners’ outstanding income_tax liabilities for and on or about date petitioners submitted to the irs a form request for a collection_due_process or equivalent_hearing although petitioners listed the taxable years through on their date form they had forfeited their right to administrative review by the office of appeals with respect to and because they did not request a hearing in response to the date notice_of_levy for and petitioners’ outstanding liabilities consisted only of the assessed balance of tax shown as due but unpaid on joint income_tax returns filed by petitioners plus statutory additions to tax and statutory interest accruals on or about date settlement officer michael smith sent to petitioners a letter for the purpose among other things of scheduling a telephone hearing and requesting that petitioners provide the following information an updated form 433-a each of petitioners’ final pay statements for petitioners’ most recent checking account statements and a copy of the yearend account statements for petitioners’ treasury bond sec_401 retirement cref money market and cref stock accounts on or about date petitioners’ representative buni sent two packages to the settlement officer the first package was a fax transmitting an updated form 433-a dated date and signed by buni the second was a package of documents containing additional financial information on or about date a telephone conference was held between buni and the settlement officer during which the parties discussed a potential installment_agreement involving an upfront lump-sum payment out of current_assets on or about date the settlement officer contacted the law firm representing petitioner and spoke with donald koch of that firm koch informed the settlement officer that buni was no longer with the firm but that koch would be representing petitioners on behalf of the firm the settlement officer continued discussions with koch concerning a potential installment_agreement proposal by petitioners and the possibility of a potential upfront lump-sum payment by petitioners on or about date the settlement officer and koch discussed by telephone a potential installment_agreement the settlement officer inquired as to whether petitioners’ investment accounts listed as assets on line of the form 433-a could be liquidated to provide for an upfront lump-sum payment as a start to a possible five-year installment_agreement koch indicated that he had not yet discussed the investment accounts with petitioners but that he would discuss a possible liquidation of those accounts and get back to the settlement officer within to days on or about date the settlement officer and koch had a telephone conversation during which the settlement officer requested that petitioners make a proposal for a collection alternative koch indicated that he still needed to speak with petitioners however he further indicated that petitioners had significant outstanding liabilities to other creditors including new york state and credit card companies and that emptying the investment accounts and paying only the irs might not be a feasible course of action because the other creditors could commence collection efforts with respect to income and assets needed to pay the irs on or about date the settlement officer and koch had a telephone conversation and discussed a number of matters regarding petitioners’ liabilities koch pointed out that there were two errors on the date form 433-a first the statement incorrectly listed petitioners’ cref and sec_401 retirement accounts as assets koch indicated that these inclusions were improper because petitioners were unable to access those funds in response the settlement officer requested that petitioners substantiate that the retirement_funds were unavailable and if so then they would not be taken into consideration in determining petitioners’ ability to pay second koch indicated that petitioners’ other investment accounts had previously been liquidated to pay petitioners’ federal_income_tax liability and should not have been listed as current_assets on the statement in response the settlement officer noted that the funds held in the liquidated accounts exceeded petitioners’ total federal_income_tax liability and asked that petitioners provide an accounting of how the additional funds were spent koch agreed to provide this information as well as updated financial statements also requested by settlement officer smith including a revised form 433-a during the date conference koch proposed an installment_agreement commencing with a monthly payment of between dollar_figure and dollar_figure that would increase after a year to between dollar_figure and dollar_figure a month in response the settlement officer indicated that according to his calculations and given petitioners’ current net monthly income petitioners could afford a larger monthly installment_payment the settlement officer also expressed his concern that a number of petitioners’ claimed living_expenses exceeded the national and local standard allowances without an agreement that would pay the liability in full within five years many of these conditional living_expenses would not be allowed in determining petitioners’ ability to pay on or about date koch faxed to the settlement officer a package of documents including a letter from koch supporting financial documentation and an updated form 433-a dated date signed by petitioners the cover letter from koch explained that petitioners’ nonretirement investment account was closed on date after withdrawal of dollar_figure and the funds were transferred into an account held by petitioners’ 28-year-old son of the total amount dollar_figure was returned to petitioners and used to pay new york state and federal income_tax liabilities and the balance remained in petitioners’ son’s account and was used to pay his tuition tuition loans credit card debt and living_expenses the july form 433-a reflected gross monthly income of dollar_figure cash on hand of dollar_figure investments of dollar_figure and a vehicle valued at dollar_figure that statement reported monthly expenses of dollar_figure including the following food clothing and misc housing and utilities vehicle operating costs public transportation out-of-pocket health care court ordered payments tuition fees legal fees taxes credit card payments dollar_figure big_number big_number big_number big_number big_number big_number big_number included with the documents petitioners submitted to the settlement officer on date was a copy of a billing statement from counsel to petitioners that described services as reviewed form 433a and bankruptcy analysis spreadsheets in preparation for meeting with clients prepared outline meeting with dr and mrs o’donnell - reviewed all calculations and explained that bankruptcy is the only total solution to the problem but they need to wait before filing we will try to reach a settlement at the cdp hearing to tide them over for one year or some portion thereof and then file an offer_in_compromise based on a bankruptcy which should hold off irs collection for another year or more on or about date koch faxed another letter to the settlement officer stating among other things i have included the minimum amount needed to pay monthly credit card charges as an allowable expense if dr o’donnell fails to meet his duties to these creditors the debt will quickly become a judgment and the creditors will levy his earnings not only will such an outcome force him to default on any installment arrangement that we agree to but it is likely to force him into bankruptcy exercise of his right to bankruptcy relief will be costly to the irs since more than half of his tax debt is dischargeable now and nearly another will become dischargeable within a year following conclusion of the cdp hearing the settlement officer responded on date in a voicemail message that he memorialized in his notes as follows it was clear from the information that you sent me that dr o’donnell’s intent is to delay collection as much as he can until all the liability is dischargeable in bankruptcy its his intent to pay his credit card bills and new york state taxes in preference to payment of the federal taxes there is information that you sent me that he has been making large cash withdrawals from his own morgan stanley account and putting it into the checking account of his stepson jeremy norris you know which all of this is the intent to defeat collection i asked you a few weeks ago whether he was sincere in wanting to take care of his taxes the information that you sent me convinced me that he’s not sincere that he’s just attempting to not pay so i have sustained the levy its my opinion that the collection office should levy as much as possible prior to the taxpayer filing bankruptcy which is his intent and especially so in consideration the fact that he’s transferring assets ok on or about date the settlement officer spoke with koch and communicated his determination to sustain the proposed collection action the settlement officer reviewed the information petitioners submitted and determined the amounts of petitioners’ allowable expenses he disallowed completely the expenses for tuition fees and credit card payments applied standard allowances for food clothing and misc housing and utilities vehicle operating costs and public transportation_expenses and allowed entirely--without verification--the expenses claimed for out-of-pocket health care court ordered payments taxes and legal fees the settlement officer determined petitioners’ total allowable expenses to be dollar_figure as follows food clothing and misc housing and utilities vehicle operating costs public transportation out-of-pocket health care court ordered payments tuition fees legal fees taxes credit card payments dollar_figure big_number big_number big_number big_number big_number on date the settlement officer issued the notice_of_determination concerning collection action s under sec_6320 and or sustaining respondent’s proposed use of a levy to collect petitioners’ outstanding income_tax liabilities for and the notice explained we determine that the collection office may levy as proposed to collect these taxes the taxpayer’s payment proposal is not viable because it does not offer in payment any of the taxpayer’s investment_assets which the taxpayer acknowledged he could obtain the taxpayer did not provide complete financial information in regard to substantial withdrawals from his morgan stanley account the information provided establishes that he recently moved some of the funds in these accounts to a checking account owned by his step son in addition the proposal initially offers just dollar_figure monthly from current income which exceeds dollar_figure per month the proposed payment amount is not consistent with the taxpayer’s ability to pay when the government’s allowable expense standards are employed information provided establishes the taxpayer’s intent to simply hold off irs collection until a bankruptcy can be filed the taxpayer’s returns for the years through were filed at the end of the and returns were filed in date the return was the first return in ten years to have been filed timely all these returns reflected a substantial_underpayment of the tax on the return john o’donnell is a physician at st clare’s hospital in new jersey he is also self-employed as a psychiatric consultant ellen o’donnell is a nurse working at st luke’s hospital in manhattan these assessments are all the result of returns the taxpayers filed without full payment of the liability the taxpayer’s income was dollar_figure or dollar_figure per month on average the taxpayer’s income grew to dollar_figure or dollar_figure per month on average subsequent information provided by your attorney establishes that this payment proposal was not intended to be a means to pay your full liability over the long term notes of your april 4th meeting with mr koch establish that the dollar_figure per month installment_payment proposal was intended to hold off irs collection for one year or a portion thereof pending a bankruptcy filing aside from your current income you have not fully disclosed the availability of liquid_assets to pay these liabilities your liquid_assets as shown on your financial statement include dollar_figure in investments and dollar_figure in the bank appeals’ discussions with mr buni and mr koch addressed the availability of your investment accounts and pension funds your representative reported on june 11th that these funds in morgan stanley investment accounts and in tiaa-cref accounts had been used to pay your current taxes or were not available to you the statement that the investment funds were no longer available was never substantiated the information provided to appeals indicates you had transferred approximately dollar_figure last fall from your own morgan stanley accounts to the checking account held by your stepson jeremy norris while there is insufficient information to conclude this was constructively fraudulent it certainly qualifies as a suspicious transaction that merits further consideration by the collection office the transfer of liquid funds to a relative was never disclosed in any conversations with appeals on june 23rd we learned that you told your representative you were able to access your tiaa-cref accounts this was never disclosed at the time to appeals in any of our discussions in his notes of may 27th your attorney wrote that he believes you should use the investment accounts to pay nys taxation a junior creditor and credit cards debts and non-dischargeable taxes in anticipation of a future bankruptcy filing at no time did your representative make a payment proposal that would include any of your liquid funds on hand he wrote on june 6th that he would try to avoid paying a lump sum payment from the funds you have available a full accounting of the withdrawals and availability of your investment accounts and retirement_funds was never provided to appeals it was requested more than once during the course of this hearing we determine that the collection office may levy as proposed to collect these assessments as you have not offered a payment proposal that is commensurate with your ability to pay from current income you have not offered to pay anything from the liquid funds you have access to you have never made a payment since the date of assessment of any of these liabilities it is our conclusion that it is unlikely that you will pay these liabilities voluntarily to the best of your ability if levy action is not taken your intent to delay collection until such time as you could have these liabilities discharged in bankruptcy underscores the need for levy action you raised no other issues in this due process hearing petitioners are not challenging the existence or the amount of their underlying liability for tax additions to tax and interest for or nor do petitioners challenge that the office of appeals properly verified that the requirements of any applicable law or administrative procedure had been met the petition in this case was filed date the case was called for trial on date and the parties filed a stipulation of facts and exhibits and moved for submission of the case under rule the motion was granted and the court ordered simultaneous briefs with opening briefs due_date respondent’s brief was timely filed but on date petitioners filed a petition in bankruptcy they did not file a brief an automatic_stay under u s c sec_362 was in effect until date at the request of the parties a discretionary stay was thereafter entered because of the pendency of an adversary proceeding commenced date in the bankruptcy court because the bankruptcy case was still pending without discernible activity four years after this case was submitted the court ordered petitioners to file an answering brief so that this case could be resolved in that brief petitioners argue that the notice_of_determination was an abuse_of_discretion because the settlement officer made inappropriate adjustments to their allowed monthly expenses petitioners also contend that the settlement officer misinterpreted the legal bills petitioners provided that showed a discussion of bankruptcy strategy between petitioners and their counsel discussion sec_6330 provides for notice and opportunity for a hearing before the irs may levy upon the property of any person under sec_6330 the determination to proceed with a collection action shall take into consideration whether any proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary petitioners do not challenge their underlying self-reported liabilities or that the settlement officer followed verification procedures required under sec_6330 they recognize that our review in these circumstances is for abuse_of_discretion abuse_of_discretion may be found if action is arbitrary capricious or without sound basis in fact or law 129_tc_107 112_tc_19 sec_6159 authorizes installment agreements with taxpayers to facilitate collection of the taxpayers’ liabilities and these agreements are within the discretion of the irs see sec_301_6159-1 proced admin regs in reviewing for abuse_of_discretion we do not recalculate a taxpayer’s ability to pay and substitute our judgment for that of the settlement officer see aldridge v commissioner tcmemo_2009_276 slip op pincite see also 125_tc_301 aff’d 469_f3d_27 1st cir 124_tc_165 aff’d 454_f3d_782 8th cir hult v commissioner tcmemo_2007_302 petitioners in their brief suggest interpretations of the billing records containing discussion of bankruptcy strategy different from those drawn by the settlement officer in his notes they contend that bankruptcy was intended only as an option not as something intended to be done after time had passed to make more of their liabilities subject_to discharge this argument is apparently intended to counteract a question from the settlement officer concerning their sincerity about paying their federal tax_liabilities there is no evidence in the record supporting petitioners’ explanation and the settlement officer’s interpretations are not unreasonable his interpretation was validated by what subsequently occurred in this case in any event the notice_of_determination does not rely on a subjective reaction to the billing records although petitioners dispute the settlement officer’s calculation of their allowable monthly expenses they acknowledge the settlement officer ultimately based his decision to reject petitioners’ proposed installment_agreement on his contention that petitioners’ present ability to pay far exceeded what they offered to pay whereas the settlement officer calculated that petitioners could afford to pay at least dollar_figure per month towards their outstanding liability the actual amount that petitioners could afford was at most dollar_figure the amount they offered however was only dollar_figure to dollar_figure per month increasing to between dollar_figure and dollar_figure after a year petitioners contend in effect that the settlement officer was required to engage in unlimited exchanges to verify the information that petitioners provided even after alleged errors in that information had been corrected multiple times over months of negotiations in view of the stipulated history of those negotiations we cannot conclude that the settlement officer acted arbitrarily because his determination was reasonably based on the information petitioners provided we cannot conclude that it was without foundation in fact or law in reviewing the determination we do not recalculate petitioners’ ability to pay in installments but the record confirms that their ability significantly exceeded their offer the settlement officer did not abuse his discretion in sustaining the levy we have considered the arguments of petitioners for a contrary result they are either irrelevant to our conclusion or without merit to reflect the foregoing decision will be entered for respondent


internal_revenue_service department of the treasury washington dc index no number release date telephone number refer reply to date person to contact plr-106845-98 cc dom intl b1 date a date b date c date d date e country f dear this is in response to your letter dated date requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s loss of u s citizenship did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements 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 a was born on date b and became a u s citizen at birth on the basis of her mother being a citizen_of_the_united_states a since birth has also been a citizen of country f a has been a resident of country e since date b except for the period between date c and date d during which she resided in the united_states a renounced her united_states citizenship on date e on the date of a’s expatriation her net_worth will exceed the net_worth required under sec_877 sec_877 generally provides that a citizen who loses u s citizenship or a u s long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be taxed under sec_877 and the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes plr-106845-98 sec_2107 and sec_2501 a provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former citizen or former long term-resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 a if the individual’s average income_tax_liability or the individual’s net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a b a former u s citizen or former long term-resident whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary’s determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 under notice_98_34 1998_27_irb_40 modifying notice_97_19 1997_1_cb_394 an eligible former citizen will not be presumed to have a principal purpose of tax_avoidance if that former citizen submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_98_34 requires that certain information be submitted with a request for a ruling that an individual’s expatriation did not have for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling pursuant to notice_97_19 because she became at birth a citizen_of_the_united_states and a citizen of another country and continues to be a citizen of such other country see sec_877 a submitted all the information required by notice_99_34 accordingly based solely on the information submitted and the representations made it is held that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 however because the information submitted does not clearly establish the existence or lack of a principal purpose to avoid taxes under subtitle a or b of the code no opinion is expressed as to whether a’s expatriation had for one of its principal purposes the avoidance of such taxes while this ruling rebuts the presumption of tax_avoidance under sec_877 it is not conclusive as to whether a subsequently may be found to have a principal purpose of tax_avoidance under sec_877 sec_2107 and sec_2501 a a based on all the facts and circumstances see sec_877 except as expressly provided herein no opinion is expressed or implied plr-106845-98 concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition no opinion is expressed as to a’s u s tax_liability for taxable periods prior to her loss of u s citizenship or for taxable periods after her loss of u s citizenship under sections of the code other than sec_877 sec_2107 and sec_2501 a a copy of this letter must be attached to a’s u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to a sincerely yours ___________________ w edward williams office of the associate chief_counsel international cc assistant_commissioner international international district operations op in d chief examination_division


acknowledged significant advice may be disseminated office_of_chief_counsel internal_revenue_service memorandum tl-n-1556-98 cc dom fs p si rlbuch date may acknowledged sca to associate district_counsel rocky mountain district salt lake city cc wr rmd slc from assistant chief_counsel field service cc dom fs subject applying barred adjustments when making computational adjustments this responds to your request for significant advice dated date in connection with a question posed by the examination_division of the ogden service_center disclosure statement unless specifically marked acknowledged significant advice may be disseminated above this memorandum is not to be circulated or disseminated except as provided in ccdm d and e this document may contain confidential information subject_to the attorney-client and deliberative_process privileges therefore this document shall not be disclosed beyond the office or individual s who originated the question discussed herein and are working the matter with the requisite need to know in no event shall it be disclosed to taxpayers or their representatives issue whether adjustments that are otherwise barred by the sec_6501 limitation on assessment may be asserted or otherwise taken into account when making a computational adjustment to a partner's tax_liability under sec_6231 conclusion the adjustments that are otherwise barred by the limitation on assessment under sec_6501 may not be assessed or otherwise asserted but such adjustments may be taken into account for the limited purpose of determining the proper amount of tax attributable to the adjustment of the partnership items facts on his tax_return the taxpayer elected to use income_averaging each of the taxpayer’s base years through were examined and adjusted and such adjustments have become final for income_averaging purposes the adjustments to through have increased the base_year income the result of which should have been an increase in the taxpayer’s income_tax_liability for the tax_year the taxable_year was never examined or adjusted to take into account the changes to the base_year income in addition to the above the taxpayer was an investor in a partnership for taxable_year and the partnership is subject_to the tefra unified_audit an litigation procedures the partnership was examined and during the course of the examination the tax_matters_partner extended the period for assessment upon conclusion of the examination a notice of final_partnership_administrative_adjustment was issued a petition for redetermination was filed with the tax_court and a final_decision of the court has been entered the service_center is in the process of computing the taxpayer’s share of the adjustments that resulted from the tax_court decision once the partner’s distributive_share of the adjustments is taken into account the appropriate tax_rate will be applied and the tax will be assessed by way of computational adjustment the service_center is seeking advice as to the extent to which changes to the base_year income can be taken into account for purposes of assessment discussion in congress enacted the tefra unified_audit and litigation procedures to simplify and streamline the partnership audit litigation and assessment process the underlying principle of tefra is that the tax treatment of items of partnership income loss deductions and credits will be determined at the partnership level in a unified partnership proceeding rather than separate proceedings with the partners conf_rep no partners are generally required to report items in a manner consistent with partnership treatment and the service may examine the partnership as an entity rather than conduct separate examination as to each of the partners where applicable the tefra provisions either supplant or augment the general administrative provisions limitation on assessment because tax is only assessed against the partners and not the partnership the partner’s limitation on assessment controls the timeliness of any assessment as to that partner the limitation on assessment is generally set forth in sec_6501 and provides that taxes must generally be assessed within the later of three years from the date of filing the taxpayer’s return or the due_date for filing the taxpayer’s return sec_6501 in the case of partnership items sec_6501 provides for an extension of the period in the case of partnership items and refers to i r c the tefra provisions set forth a minimum period within which the service is able to conduct an examination of a partnership return and flow any adjustments through to the partners section a provides that the period for assessment of any_tax resulting from partnership items shall not expire before the date which i sec_3 years after the later of the filing of the partnership return or the due_date for filing the partnership return in essence i r c sets forth a minimum period within which adjustments attributable to partnership items generally may be assessed against all partners of a partnership without regard to a specific partner's limitation period under sec_6501 on occasion the i r c minimum assessment_period does not have an impact on the limitation on assessment take the example when a partnership return was due and was filed on date and a partner's return was due and was filed on date in this case the i r c minimum assessment_period does not impact the partner's limitation on assessment the sec_6501 limitation on assessment would generally expire on date three years from the due filing_date of the partner's return the minimum assessment_period under i r c would have prevented the statute from expiring before date three years from the due filing_date of the partnership's return accordingly since the sec_6501 assessment_period remains open without regard to i r c assessments attributable to both partnership and nonpartnership_items may be made at any time on or before date unlike in the previous example i r c may have an impact on the assessment_period if the i r c period remains open beyond the period of limitation on assessment of sec_6501 take the example when a partner's return was due and was filed on date and the partnership return was due and was filed on date in this case the i r c minimum assessment_period extends the partner's limitation on assessment as to partnership items the sec_6501 limitation on assessment would generally expire on date three years from the due filing_date of the partner's return however under the express language of i r c the period for assessing any_tax which is attributable to any partnership_item or affected_item for a partnership taxable_year shall not expire before three years from the filing due_date of the partnership return accordingly the minimum assessment_period under i r c would have prevented the statute from expiring before date three years from the due filing_date of the partnership's return accordingly the i r c minimum assessment_period for partnership items holds sec_6501 open for assessments attributable to partnership items while the period for assessing tax attributable to nonpartnership_items would have closed the period for making an assessment may be extended by agreement see sec_6501 similarly the minimum period for assessing partnership items may be extended by agreement i r c b the impact of an extension agreement differs depending upon the nature of the extension agreement an agreement to extend the sec_6501 limitation period extends the period for assessing tax without regard to the source of the adjustments conversely an agreement to extend the i r c period extends the assessment_period only for purposes of assessing partnership items for an extension agreement to be limited extending the i r c minimum assessment_period for partnership items the agreement must expressly state that it is limited to partnership items i r c b the minimum period within which to assess partnership items may be extended by a partner as to that partner or by the tax_matters_partner if the tax_matters_partner extends the minimum assessment_period on behalf of the partners such extension applies to the period for assessing partnership items as to all partners i r c b b analysis applying the above to the facts submitted the adjustments that are solely attributable to the income_averaging issue cannot be asserted the general statute_of_limitations as to the taxpayer's taxable_year has closed except to the extent it has been extended the tmp of the partnership extended the i r c a period which holds the sec_6501 period open only for purposes of making adjustments attributable to partnership items as to all other adjustments the limitation period has expired note that a similar analysis was applied in in re madden ustc big_number bankr d n j in which the court held that a year was barred for purposes of adjusting a net_operating_loss_carryover while the year remained open for the limited purpose of adjusting partnership items the service_center has inquired as to whether the adjustment could be treated as a mathematical_or_clerical_error the tefra provisions allow adjustments to correct a mathematical_or_clerical_error appearing on the partnership return i r c b because the error does not appear on the partnership return this provision does not apply furthermore although a mathematical_or_clerical_error may be assessed without certain notices that might otherwise be required there is no provision in the code which allows such an error to be assessed after the expiration of the limitation on assessment lastly as an aside it does not appear as though the adjustment at issue meets the statutory definition of a mathematical_or_clerical_error see sec_6213 having determined that the income_averaging adjustment may not be asserted the question remains as to the proper computation of the adjustment arising from the tefra partnership adjustments otherwise stated may the service take into account the correct base_year income although the base years are closed for purposes of determining the proper adjustment to the tax_liability of an open_year the tax_court squarely faced this issue in 59_tc_528 and held that the correct amount of taxable_income must be used for each base_period year even though adjustment of a base_period year may be barred by statute in so holding the tax_court looked to the statutory language of i r c which uses the taxable_income for the base_year for computation purposes as distinguished from the taxable_income as reported from this the tax_court held that the inference is clear the income to be used for each base_period year is the correct income for such year whether or not the assessment of a deficiency for such base_period year is barred by the statute_of_limitations unser t c pincite similarly the correct base_period income should be taken into account when computing the proper amount of tax that arises from the partnership adjustments however as noted above only tax attributable to the partnership adjustments may be assessed regarding the mechanics of computing the tax_liability the correct_tax attributable to the partnership_adjustment can be derived by first determining the correct_tax liability using income_averaging and taking into account both the correct base_year income and the partnership adjustments subtract from that amount the correct_tax liability using income_averaging but not including partnership adjustments the difference between these numbers will be the tax_liability that is solely attributable to the partnership adjustments if you have any questions or need assistance please contact ronald l buch jr pincite-7329 deborah a butler assistant chief_counsel by ____ s ________________________ patrick putzi special counsel natural_resources passthroughs special industries branch


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division jul uniform issue list et ep rate kee kk kkk attention legend system x state s plan x excess_plan x board b dear kkk wak kkk rek rak this is in response to correspondence dated date as supplemented by correspondence dated date date date and date submitted on behalf of system x by its authorized representatives in which a request for a letter_ruling was submitted with respect to the applicability of sec_415 of the internal_revenue_code code to an excess_benefit_plan excess_plan x and the tax consequences related thereto the following facts and representations have been submitted under penalty of perjury in support of the rulings requested 2u1447061 state s has established plan x on behalf of its eligible employees who are certain judges justices solicitors and circuit public defenders of state s your authorized representatives have represented that plan x is a defined_benefit_plan a governmental_plan as described in sec_414 of the code and is intended to meet the qualification requirements of sec_401 of the code system x an instrumentality of state s is the administrator of plan x board b a board comprised of officials of state s is the trustee of plan x contributions to plan x are mandatory for participating employees and are equal to a fixed percentage of each participant’s_compensation plan x allows participants to make pre-tax elective contributions to plan x to buy years_of_service credit in plan x for eligible prior service in other specified public employment these purchases of years_of_service credit may also be made by after-tax contributions rollovers or trustee-to-trustee transfers state s statutes provide for the establishment of qualified excess_benefit arrangements within the meaning of sec_415 of the code pursuant to this authority on date board b adopted and is planning to implement excess_plan x for the benefit of employees of state s who participate in plan x excess_plan x will operate in accordance with sec_415 of the code as a qualified_governmental_excess_benefit_arrangement employees who participate in plan x will become eligible for benefits from excess_plan x if their benefits calculated under the benefit formula are limited by sec_415 of the code as that section applies to government plans participation in excess_plan x is mandatory and automatic for all participants in plan x whose retirement benefits from plan x are limited by sec_415 of the code section dollar_figure of excess_plan x provides that a participant will receive a benefit equal to the amount of retirement income that would have been payable to or with respect to a participant that could not be paid_by plan x because of the application of the limitations on his retirement income under sec_415 of the code an excess_benefit under excess_plan x will be paid only if and to the extent the participant is receiving retirement benefits from plan x section dollar_figure of excess_plan x will be amended to provide that no portion of benefits in excess of the code sec_415 limit paid to a participant can be attributable to service_credit purchases made with picked-up employer contributions - excess_plan x will be administered by system x board b has established a separate trust fund for segregation of the assets related to excess_plan x the trust fund was established solely for the purpose of holding employer contributions intended to pay excess_benefits to affected excess_plan x participants the trustees of this separate trust fund will be members of board b your authorized representatives have represented in the correspondence dated date that the trust fund is designed to constitute a grantor_trust 901447061h under state law and for federal_income_tax purposes under the represented facts excess_plan x participants will receive no property right or interest in the trust assets and the trust assets are subject_to the claims of state s’s general creditors in the event of insolvency excess_plan x will be funded on a pay as you go basis board b will determine the amount necessary to pay the excess_benefits under excess_plan x for each plan_year the required_contribution will be the aggregate of the excess_benefits payable to all affected participants for such plan_year in an amount determined by board b to be a necessary and reasonable expense of administering excess_plan x the amount so determined will be paid_by state s and deposited into the trust fund any contributions not used to pay the excess_benefits for a current_year together with any income accruing to the trust fund will be used to pay the administrative expenses of excess_plan x for the plan_year any contributions not so used that remain after the payment of administrative expenses will be used to fund administrative expenses or excess_benefits of participants in future years benefits under excess_plan x will be paid only if and to the extent the participant is receiving benefits from plan x participation in excess_plan x will cease for any plan_year in which the participant’s benefit under plan x does not exceed the requisite limitations of sec_415 of the code or if all benefit obligations under excess_plan x to the member retiree or beneficiary have been satisfied the form of the benefits paid to a participant from excess_plan x will be the same form as the participant’s retirement benefit under plan x a participant in excess_plan x will be paid the amount of the benefit that would otherwise have been payable to the participant under plan x except for the limitations of sec_415 of the code the excess_benefit to which a participant is entitled under excess_plan x will be paid commencing during or with the month in which all monthly payments of retirement benefits under plan x are paid under no circumstances will the participant be given any election to defer compensation under excess_plan x either directly or indirectly represented facts there will be no employee contributions to excess_plan x in addition under the although excess_plan x is a part of plan x no assets of plan x will be used to pay any benefits under excess_plan x excess_plan x is intended to grant a participant no more than a mere contractual right to payment of benefits under excess_plan x employer contributions to excess_plan x’s related trust may not be commingled with assets of plan x’s related trust nor may excess_plan x receive any transfers from plan x under no circumstances will employer contributions to fund the excess_benefits under excess_plan x be credited to plan x based upon the facts and representations stated above the following rulings are requested excess_plan x is a qualified_governmental_excess_benefit_arrangement within the meaning of sec_415 of the code the benefits payable under excess_plan x will be includible in gross_income for the taxable_year or years in which such benefits are paid or otherwise made available to a participant or a participant’s beneficiary in accordance with the terms of excess_plan x income accruing to excess_plan x is exempt from federal_income_tax under sec_115 and sec_415 of the code as income derived from the exercise of an essential_governmental_function sec_415 of the code and sec_1_415_b_-1 of the income_tax regulations regulations set forth the limitations on annual benefits for participants in defined benefit plans sec_415 of the code provides that in determining whether a governmental_plan as defined in sec_414 of the code meets the benefit limitations of sec_415 of the code benefits provided under a qualified_governmental_excess_benefit_arrangement shall not be taken into account sec_415 also states that income accruing to a governmental_plan or to a_trust that is maintained solely for the purpose of providing benefits under a qualified_governmental_excess_benefit_arrangement shall constitute income derived from the exercise of an essential_governmental_function upon which such governmental_plan or trust shall be exempt from tax under sec_115 of the code sec_415 of the code describes the tax treatment of benefits payable under a qualified_governmental_excess_benefit_arrangement under sec_415 of the code the taxable_year or years for which amounts in respect of a qualified excess_benefit arrangement are includable in gross_income by a participant and the treatment of such amounts when so includible by the participant are determined as if such qualified_governmental_excess_benefit_arrangement were treated as a plan for the deferral of compensation that is maintained by a corporation not exempt from tax and which does not meet the requirements for qualification under sec_401 of the code sec_415 of the code defines a qualified_governmental_excess_benefit_arrangement as a portion of a governmental_plan that meets the following three requirements a such portion is maintained solely for the purpose of providing to participants in the plan that part of the participant’s annual_benefit otherwise payable under the terms of the plan that exceeds the limitations on benefits imposed by sec_415 excess benefits’ b under such portion no election is provided at any time to the participant directly or indirectly to defer compensation and c excess_benefits are not paid from a_trust forming a part of such governmental_plan unless such trust is maintained solely for the purpose of providing such benefits with respect to your first requested ruling excess_plan x was adopted by board it has been represented that plan x is a governmental b as a part of plan x plan as described in sec_414 of the code it has also been represented that the only purpose of excess_plan x is to provide affected employees who are participants in plan x that portion of their benefits that would otherwise be payable under the terms of plan x except for the limitations on benefits imposed by sec_415 of the code as applicable to governmental plans the terms of excess_plan x limit participation to participants in plan x for whom benefits would exceed the limits of sec_415 of the code therefore we have determined that excess_plan x maintained solely for the purpose of providing to state s employees who participate in plan x that part of the participants’ benefits otherwise payable under the terms of plan x that exceed the sec_415 limits and as such meets the requirements of sec_415 is a portion of a governmental_plan which is your authorized representatives have stated that participation in excess_plan x is mandatory and automatic and that there are no employee contributions to excess_plan x your representatives also assert that no direct or indirect election to defer compensation is provided to any participant in excess_plan x thus we have determined that no direct or indirect election is provided at any time to participants to defer compensation and accordingly the requirements of sec_415 are met in this case excess_plan x will be funded on sec_415 of the code requires that the trust from which the excess_benefits are paid must not form a part of the governmental_plan which contains the excess_benefit arrangement unless such trust is maintained solely for the purpose of providing such benefits a pay-as-you-go basis board b established a_trust fund for the segregation of assets related to excess_plan x which is maintained separately from plan x this trust fund was established solely for the purpose of holding employer contributions intended to pay excess_benefits to affected plan x participants contributions to the trust fund will consist only of the amounts required to pay the excess_benefits and administrative expenses for the plan_year any contributions not used to pay the excess_benefits for a current plan_year together with any income accruing to the trust fund will be used to pay the administrative expenses of excess_plan x for the plan_year any contributions not so used that remain after the payment of administrative expenses will be used to fund excess_benefits of participants or pay administrative expenses in future years therefore we have determined that the requirements of sec_415 of the code are met since excess_plan x satisfies all of the requirements of sec_415 of the code we conclude with respect to your first ruling_request that excess_plan x a qualified_governmental_excess_benefit_arrangement within the meaning of sec_415 of the code is your second ruling_request asks whether the benefits payable under excess_plan x will be includible in gross_income for the taxable_year or years in which such benefits are paid or otherwise made available to a participant or a participant's beneficiary in accordance with the terms of excess_plan x first ruling_request we determined that excess_plan x meets the legal requirements of sec_415 of the code and therefore constitutes a qualified_governmental_excess_benefit_arrangement accordingly under sec_415 of the code the tax treatment of the amounts distributed under excess_plan x to the participants is determined as if such qualified_governmental_excess_benefit_arrangement were a plan for the deferral of compensation which is maintained by a corporation not exempt from tax and which does not meet the requirements for qualification under sec_401 of the code n response to your sec_83 of the 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 regulations provides that for purposes of code 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 sec_402 of the code provides that contributions made by an employer to an employee's trust that is not exempt from tax under sec_501 are included in the employee's gross_income in accordance with sec_83 except that the value of the employee's interest in the trust will be substituted for the fair_market_value of the property in applying sec_83 under sec_1_402_b_-1 of the regulations an employer's contributions to a nonexempt employee's trust are included as compensation in the employee's gross_income for the taxable_year in which the contribution is made but only to the extent that the employee's interest in such contribution is substantially_vested as defined in the regulations under sec_83 of the code sec_451 of the code and sec_1_451-1 of the regulations provide that an item_of_gross_income is includible in gross_income for the taxable_year in which actually or constructively received by a taxpayer using the cash_receipts_and_disbursements_method of accounting under sec_1_451-2 of the regulations income is constructively received in the taxable_year during which it is credited to a taxpayer's account set apart or otherwise made available so that the taxpayer may draw on it at any time however income is not constructively received if the taxpayer's control of its receipt is subject_to substantial limitations or restrictions various revenue rulings have considered the tax consequences of nonqualified_deferred_compensation arrangements revrul_60_31 situations 1960_1_cb_174 holds that a mere promise to pay not represented by notes or secured in any way does not constitute receipt of income within the meaning of the cash_receipts_and_disbursements_method of accounting see also revrul_69_650 1969_2_cb_106 and revrul_69_649 1969_2_cb_106 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 cir revrul_60_31 situation revrul_72_25 1972_1_cb_127 and revrul_68_99 c b holds that 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 based on the foregoing with respect to the second ruling_request we conclude that the benefits payable under excess_plan x will be includible in gross_income for the taxable_year or years in which such benefits are paid or otherwise made available to a participant or a participant’s beneficiary in accordance with the terms of excess_plan x with respect to your third requested ruling sec_415 of the code provides that income accruing to a governmental_plan or to a_trust that is maintained solely for the purpose of providing benefits under a qualified_governmental_excess_benefit_arrangement in respect of a qualified_governmental_excess_benefit_arrangement will constitute income derived from the exercise of an essential_governmental_function upon which such governmental_plan or trust will be exempt from tax under sec_115 of the code we have determined in connection with your first ruling_request that excess_plan x meets the legal requirements of sec_415 of the code for qualified governmental excess_benefit arrangements therefore under sec_415 of the code with respect to your third requested ruling we conclude that income accruing to excess_plan x is exempt from federal_income_tax under sec_115 and sec_415 of the code as income derived from the exercise of an essential_governmental_function 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 no opinion is expressed as to whether the trust fund established for the purpose of holding employer contributions intended to pay excess_benefits to affected excess_plan x participants constitutes a grantor_trust under revproc_92_64 1992_33_irb_11 no opinion is expressed as to the tax treatment of the transactions described herein with respect to the trust holding the contributions under the provisions of any other section of either the code or regulations which may be applicable thereto this letter assumes that plan x is and was a governmental_plan as described in sec_414 of the code is and was qualified under sec_401 and its related trust is and was exempt from tax under sec_501 at all relevant times thereto this ruling is contingent upon the adoption of the amendments to article ill and section dollar_figure of excess_plan x as stated in the correspondence dated date and date this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this ruling letter is being sent to your authorized representatives if you wish to inquire about this ruling please contact at - please address all correspondence to se t ep ra t3 sincerely yours laura b warshawsky manager employee_plans technical group enclosures deleted copy of letter_ruling notice of intention to disclose cc kk


t c memo united_states tax_court clarence a hunt jr petitioner v commissioner of internal revenue respondent docket no filed date clarence a hunt jr pro_se elizabeth l groenewegen for respondent memorandum opinion couvillion special_trial_judge this case was heard pursuant to sec_7443a and rule sec_180 sec_181 and sec_182 respondent determined a deficiency of dollar_figure in petitioner's federal_income_tax and an accuracy-related_penalty of dollar_figure unless otherwise indicated section references are to the internal_revenue_code in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure under sec_6662 for negligence or disregard of rules or regulations under sec_6662 and for a substantial_understatement_of_income_tax under sec_6662 the issues for decision are whether petitioner's horse racing activity was an activity_not_engaged_in_for_profit under sec_183 and whether petitioner is liable for the accuracy-related_penalty under sec_6662 some of the facts were stipulated and those facts with the annexed exhibits are so found and are incorporated herein by reference at the time the petition was filed petitioner's legal residence was oakland california petitioner grew up near the fairgrounds a thoroughbred horse racing track in new orleans louisiana his cousin who was a groom at the track introduced petitioner to the grooming training and racing of thoroughbred horses petitioner developed a love for racehorses and fantasized of one day owning the winning horse in the kentucky derby petitioner realized that accomplishing such a goal would require a great deal of capital in the meantime petitioner frequented different horse racing tracks met with trainers and began studying horses in petitioner began a temporary employment business called allied temporaries allied through the success of this business petitioner accumulated the resources necessary to begin a horse racing activity in petitioner obtained a license to be a horse owner and purchased his first thoroughbred racing horse he later acquired other horses but never owned more than three horses at any given time prior to acquisition of his first horse petitioner did research as to the cost of maintaining and training a racehorse the potential revenue that could be made if a horse won a certain caliber of race and the rules and regulations of horse racing petitioner hired horse trainers and boarded his horses at various race tracks in the year at issue petitioner owned three thoroughbreds none of these were able to race during because they were all injured from to horses owned by petitioner won a few minor races the activity never realized a profit following petitioner continued the activity with no greater degree of success until or on his federal_income_tax return petitioner reported expenses for training and veterinarians of dollar_figure no gross_income and a net_loss of dollar_figure from his horse racing activity petitioner reported wage income of dollar_figure from allied in the notice_of_deficiency respondent disallowed the horse racing activity loss determining the horse racing activity was an activity_not_engaged_in_for_profit under sec_183 and that petitioner had not properly substantiated the claimed expenses at trial respondent conceded that the claimed expenses had been substantiated sec_183 provides generally that if an activity is not engaged in for profit no deduction attributable to such activity shall be allowed sec_183 however provides that deductions that are allowable without regard to whether the activity is engaged in for profit shall be allowed sec_183 further provides that deductions that would be allowable only if the activity were engaged in for profit shall be allowed but only to the extent that the gross_income derived from such activity for the taxable_year exceeds the deductions allowable by reason of sec_183 sec_183 defines an activity_not_engaged_in_for_profit as any activity other than one with respect to which deductions are allowable for the taxable_year under sec_162 or under paragraph or of sec_212 the court inquires whether the taxpayer is engaged in the activity with the actual and honest objective of making a profit 90_tc_74 78_tc_642 affd without published opinion 702_f2d_1205 d c cir the taxpayer's expectation of profit need not be a reasonable one but there must be a good_faith objective of making a profit dreicer v commissioner supra pincite sec_1_183-2 income_tax regs the determination of whether the requisite profit objective exists is to be resolved on the basis of all the surrounding facts and circumstances of the case 72_tc_411 affd without published opinion 647_f2d_170 9th cir sec_1_183-2 income_tax regs greater weight is to be given to the objective facts than to the taxpayer's mere statement of his intent dreicer v commissioner supra pincite sec_1_183-2 income_tax regs the taxpayer has the burden of proving the requisite intent and that the commissioner's determination that the activity was not engaged in for profit is incorrect rule a 290_us_111 although the question of the taxpayer's profit objective is a subjective one objective indicia may be considered to establish the taxpayer's true intent sec_1_183-2 income_tax regs sec_1_183-2 income_tax regs sets forth a nonexclusive list of nine objective factors to be considered when ascertaining a taxpayer's intent these factors are the manner in which the taxpayer carries on the activity the expertise of the taxpayer or his advisers the time and effort expended by the taxpayer in carrying on the activity the expectation that the assets used in the activity may appreciate in value the success of the taxpayer in carrying on other similar or dissimilar activities the taxpayer's history of income or losses with respect to the activity the amount of occasional profits if any the financial status of the taxpayer and the elements of personal pleasure or recreation involved in the activity these factors are not merely a counting device where the number of factors for or against the taxpayer is determinative but rather all facts and circumstances must be taken into account and more weight may be given to some factors than to others cf 70_tc_715 affd 615_f2d_578 2d cir not all factors are applicable in every case and no one factor is controlling 86_tc_360 72_tc_28 sec_1_183-2 income_tax regs in considering the objective factors relevant to this case the court is satisfied based on the record that petitioner has not sustained his burden of establishing that he conducted his horse racing activity with an actual and honest objective of making a profit in petitioner did not present any documentary or other evidence to show that his activity was carried on in a businesslike manner or that he maintained complete and accurate books_and_records of the activity nor did petitioner present any evidence of the amount of time he expended on the activity on the other hand it is clear from the record that petitioner's employment with allied was full time further the court cannot ignore the fact that petitioner realized only nominal gross_income and never realized a profit from the activity over the period from to and thereafter petitioner acknowledged at trial that i didn't have any success at all however he produced no evidence to show that he changed the manner in which he operated his activity in order to make the activity profitable it is quite evident that petitioner derived tremendous pleasure from the activity he had a great love for horses and fantasized winning the kentucky derby despite that fantasy however he failed to conduct the activity with an intent that at some realistic point it would attain a profitable status respondent therefore is sustained on this issue the next issue is whether petitioner is liable for the addition_to_tax under sec_6662 sec_6662 provides that if that section is applicable to any portion of an underpayment in taxes there shall be added to the tax an amount equal to percent of the portion of the underpayment to which sec_6662 applies under sec_6664 no penalty shall be imposed under sec_6662 with respect to any portion of an underpayment if it is shown that there was a reasonable_cause and that the taxpayer acted in good_faith with respect to the underpayment sec_6662 provides that sec_6662 shall apply to any underpayment attributable to negligence or disregard of rules or regulations negligence is defined as lack of due care or failure to do what a reasonable and ordinarily prudent person would do under like circumstances 85_tc_934 the term negligence includes any failure to make a reasonable attempt to comply with the provisions of the internal revenue laws and the term disregard includes any careless reckless or intentional disregard of rules or regulations sec_6662 provides that sec_6662 shall apply to any portion of the underpayment attributable to any substantial_understatement_of_income_tax there is a substantial_understatement_of_income_tax if the amount of the understatement exceeds the greater of percent of the tax required to be shown on the return or dollar_figure sec_6662 for purposes of sec_6662 understatement is defined as the excess of tax required to be shown on the return over the amount of tax that is shown on the return reduced by any rebates petitioner improperly claimed on his federal_income_tax return a dollar_figure net_loss from his horse racing activity furthermore petitioner presented no evidence to establish that he was not negligent or did not disregard rules or regulations the court concludes that petitioner was negligent or in disregard of rules or regulations for purposes of sec_6662 petitioner has not established that any of the reductions under sec_6662 would apply to show that he did not have a substantial_understatement_of_income_tax for for purposes of sec_6662 relating to the penalty for any portion of the underpayment attributable to any substantial_understatement_of_income_tax the maximum accuracy-related_penalty imposed on an underpayment_of_tax may not exceed percent of such underpayment notwithstanding that such portion is attributable to more than one of the types of misconduct described in sec_6662 sec_1_6662-2 income_tax regs therefore although the underpayment_of_tax required to be shown on petitioner's income_tax return was attributable to both negligence and a substantial_understatement_of_income_tax the maximum accuracy- related penalty petitioner is liable for is percent petitioner did not make a showing that there was a reasonable_cause for the understatements of income under sec_6664 accordingly respondent is sustained on the imposition of the accuracy-related_penalty under sec_6662 decision will be entered for respondent


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi -- plr-166168-01 date mar number release date index numbers legend partnership agency state x project a b c d e f g h i plr-166168-01 j k l m n o p q r dear this letter responds to a letter dated date and subsequent correspondence that was submitted on behalf of the agency and the partnership by their authorized representative requesting permission under sec_42 of the internal_revenue_code and sec_1_42-13 of the income_tax regulations to correct an administrative error the agency and the partnership have made the following representations the partnership is a calendar_year taxpayer that uses the accrual_method of accounting the partnership is a state x limited_partnership that was formed on date a for the purpose of owning and operating the project a b-unit c-building low-income_housing project pursuant to a carryover allocation dated f the agency allocated dollar_figured of sec_42 credits to the partnership’s project based on the estimated eligible_basis of dollar_figuree the buildings in the project were placed_in_service in g according to the partnership the eligible_basis of the project was dollar_figureh based upon cost certifications provided to the agency the agency’s qualified_allocation_plan qap addresses the requirement in sec_42 that the agency consider the reasonableness of the developmental costs of the project in allocating housing_credit amounts by using development and construction cost limits under the hud d program the qap does not address whether the hud d limits should be applied on the date of the allocation or on the date the project is placed_in_service plr-166168-01 the agency used the hud d limits for l the year of carryover allocation in determining the final amount of sec_42 credits for the project using the l limits on i the agency issued the form 8609s low-income_housing_credit allocation certification which reduced the partnership’s allocation of sec_42 credits to dollar_figurej based upon a total eligible_basis of k if the authority had used the hud d limits for m the year the project was placed_in_service the partnership’s allocation would have been dollar_figuren of sec_42 credits based on an eligible_basis of dollar_figurer upon receipt the form 8609s reflecting the reduced sec_42 credits the partnership contested the reduction the partnership assumed that the agency would use m numbers in making its final_determination after reviewing the matter the agency agreed that it had committed an administrative error by not allowing the partnership to use the hud d limits for m the year the project were placed_in_service the agency represents that the dollar_figurep difference between the dollar_figured carryover allocation of sec_42 credits and the dollar_figurej in reduced sec_42 credits was treated as returned sec_42 credits in o by the agency pursuant to sec_1_42-14 which allows credits returned after september to be treated as returned january of the succeeding year the agency and the partnership request a ruling granting approval to correct the form 8609s for the buildings in the project because of the administrative error described above at the time the agency determined the reasonableness of the project’s developmental costs and issued the form 8609s as required by sec_1_42-13 the agency and the partnership agree to such conditions as the secretary considers appropriate if the ruling_request is granted under sec_42 state housing_credit agencies may correct administrative errors and omissions concerning allocations and recordkeeping within a reasonable period of time after their discovery sec_1_42-13 defines an administrative error or omission as a mistake that results in a document that inaccurately reflects the intent of the agency at the time the document is originally completed or if the mistake affects a taxpayer a document that inaccurately reflects the intent of the agency and the affected taxpayer at the time the document is originally completed sec_1_42-13 however provides that an administrative error or omission does not include a misinterpretation of the applicable rules and regulations under sec_42 under sec_1_42-13 and b an agency must obtain the secretary's prior approval to correct an administrative error or omission if the correction is not made before the close of the calendar_year of the error or omission and the correction requires a numerical change to the credit_amount allocated for a building or project or affects the determination of any component of the state’s housing_credit ceiling under sec_42 respectively plr-166168-01 based solely on the taxpayer’s and agency’s representations and the relevant law and regulations set forth above we conclude as follows the agency committed an administrative error when it used the l hud d limit upon making its final review of the reasonableness of the partnership’s developmental costs of the project under its qap because of this administrative error the form 8609s inaccurately reflect the intent of the agency and the partnership at the time the agency issued the form 8609s and after the agency agreed that there was an administrative error the agency and partnership attempted to correct the administrative error within a reasonable period of time to correct this administrative error the agency must do the following amend the form 8609s to correct the administrative error described above by increasing the amount of sec_42 credits and maximum qualified_basis for each building in the project to the credit and basis amounts based on the hud d limits for m resulting in a total of dollar_figuren in sec_42 credits based on a total eligible_basis of dollar_figurer on the amended form 8609s the agency will indicate that it is making the correction under sec_1_42-13 and b and amend line 5b on the o form_8610 annual low-income_housing_credit agencies report that represents the amount of the credit ceiling returned in o from allocations made prior to o by reducing the amount of the sec_42 credits returned from the partnership’s project from dollar_figurep to dollar_figureq the agency should asterisk line 5b and briefly explain at the bottom of the form_8610 that this line amount reflects the correction required by this letter_ruling when filed a copy of this letter_ruling must also be attached to the form_8610 attach copies of the amended form 8609s to the amended o form_8610 and mail the amended form 8609s to the partnership when completing the amended form_8610 the agency should follow the specific instructions on the form_8610 under the heading amended report plr-166168-01 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 the project qualifies for the low-income_housing tax_credit under sec_42 and the amounts included in the eligible_basis of each building in the project this ruling is directed only to the taxpayers who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file a copy of this letter is being sent to the agency’s and the partnership's authorized legal_representative sincerely yours susan j reaman chief branch office of associate chief_counsel passthroughs and special industries enclosures copy copy of letter


significant index no department of the treasury internal_revenue_service wasuincon n c z072 dec tep ca az re dear this letter constitutes notice that the company's request for a waiver of the minimum_funding_standard for the pian for the plan_year ending date has been granted subject_to the following conditions a collateral acceptable to the pension_benefit_guaranty_corporation pbgc’ is provided to the plan for the full amount of the waiver by the later of a days from the date of the ruling letter or b the earlier of i the date the pbgc notifies the service in writing that this condition has not been met or ii days from the date of the ruling letter starting with the quarterly contribution due on date the company makes the required quarterly contributions to the plan in a timely fashion while the plan is subject_to a waiver of the minimum_funding_standard for this purpose the total amount of each quarterly contribution will be determined in accordance with sec_430 j d and sec_430 e of the internal_revenue_code code and can be comprised of several installments made prior to the respective due_date of the quarterly contribution the company makes contributions to the plan in amounts sufficient to meet the minimum_funding requirements for the plan years ending date through by date through réspectively without applying for a waiver of the minimum_funding_standard if the service determines that pre-2008 funding waiver amortizations are not carried over as a separate amortization base for post-2007 plan years the company will make excess annual contributions to the plan as if the waiver amortization was carried over as a separate base such that the waiver will be paid off in five years the pre-funding balance shall be increased by these additional contributions and maintained until the end of the 5-year period at which time there must be an election to reduce the prefunding balance by the accumulated amount of the excess_contributions and the company provides proof of payment of all contributions described above in a timely manner to the service and to the pbgc using the fax numbers or addresses below information must be provided to both or other individuals designated by the respective agencies using the addresses or fax numbers below internat revenue service ep classification commerce st dal dallas tx fax pension_benefit_guaranty_corporation disc k street n w washington dc fax your authorized representative agreed to these conditions in letter dated date sent via facsimile if any one of these conditions is not satisfied the waiver is retroactively null and void this conditional waiver has been granted in accordance with sec_412 of the code and sec_303 of the employee_retirement_income_security_act_of_1974 erisa the amount for which this conditional waiver has been granted is the contribution that would otherwise be required to reduce the balance in the funding_standard_account to zero as of date the company is a private non-profit corporation established to sponsor a symphony orchestra present musical concerts of a classical nature and promote the education and appreciation of classical music the foundation is a separate nonprofit corporation that was formed to aid and support the company the music center is also a separate nonprofit corporation that was formed to manage the development and construction as well as to maintain operate and present performances and events at the hall the company's home the foundation and the music center are both under the control of the company the company's revenues are based upon ticket sales and donations and endowment income since date ticket sales have met projections but donations have dropped considerably in addition the minimum required contributions to the plan have increased during the period from date to date the company has taken several steps to improve its financial situation the company negotiated a new agreement that included a wage freeze and a shorter season the company also hired new and experienced directors to oversee marketing artistic programming and the running of the company's endowment campaign moreover the ‘company has undertaken a new campaign to increase its endowment and to raise additional money for the orchestra finally the company has a new agreement that will ailow use of the performance hall rent-free through the season it appears from our analysis of the information submitted with the request that the company has suffered a substantial business hardship it also appears that the business hardship is temporary therefore the company's requests for a waiver of the minimum_funding_standard for the plan for the plan_year ending date has been granted subject_to the conditions described above your attention is called to sec_412 of the code and sec_304 of erisa which describe the consequences that would result in the event the plan is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting while any portion of the waived_funding_deficiency remains unamortized please note that any amendment to a profit sharing plan or any other retirement plans covering employees covered by this plan maintained by the company to increase the liabilities of those plans would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa similarly the establishment of a new profit sharing plan or any other retirement_plan by the company covering employees covered by this plan would be considered an amendment for purposes of sec_412 c7 of the code and sec_304 of erisa 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 when filing form_8500 for the plan_year ending date the date of this letter should be entered on schedule b actuarial information for this reason we suggest that you furnish a copy of this letter to the enrolled_actuary who is responsible for the completion of the schedule we have sent a copy of this letter to the and to your authorized representative pursuant to a power_of_attorney on file in this office require further assistance in this matter please contact to the if you vat sincerely yours dsb aa david m ziegler manager employee_plans actuarial group


t c memo united_states tax_court jerry l hill and valerie j hill petitioners v commissioner of internal revenue respondent docket no filed date joe alfred izen jr for petitioners huong duong for respondent memorandum findings_of_fact and opinion laro judge petitioners petitioned the court to redetermine a dollar_figure deficiency in their federal_income_tax and a dollar_figure accuracy-related_penalty under sec_6662 following concessions including petitioners’ concession that the trust at hand re-cap trust is disregarded for federal_income_tax purposes we decide whether petitioners may deduct certain amounts as charitable_contributions we hold they may not we also decide whether petitioners are liable for the accuracy-related_penalty determined by respondent under sec_6662 we hold they are unless otherwise noted section references are to the applicable versions of the internal_revenue_code rule references are to the tax_court rules_of_practice and procedure findings_of_fact some facts were stipulated the stipulated facts and the exhibits submitted therewith are incorporated herein by this reference we find the stipulated facts accordingly petitioners husband and wife resided in san jose california when their petition was filed they filed a joint form_1040 u s individual_income_tax_return that return reported that petitioners’ total income was dollar_figure and that their total_tax for that year was dollar_figure that return reported that their total income was attributable to dollar_figure of compensation received by petitioner jerry l hill hill from re-cap trust and dollar_figure of tax-exempt_interest hill is a college-educated individual who has worked in california for more than decades as a real_estate broker in or about he attended some seminars promoting the use of trusts to shelter his liability for federal income taxes he shortly thereafter formed re-cap trust and transferred most if not all of petitioners’ personal assets to re-cap trust neither hill nor his wife had beforehand consulted a competent professional concerning the federal_income_tax consequences of re-cap trust as to the subject year re-cap trust filed a form_1041 u s income_tax return for estates and trusts that reported total income of dollar_figure and total deductions of dollar_figure with the exception of interest_income of dollar_figure the total income was all attributable to commissions for realtor services performed by hill the deductions claimed by re-cap trust were in part for petitioners’ personal expenses including many of their personal living_expenses re-cap trust reported on this form_1041 that its total_tax was dollar_figure re-cap trust also claimed on that form a deduction for gifts and donations totaling dollar_figure the record does not identify the individual amounts which go into the dollar_figure nor does the record include a written acknowledgment sec_170 from any recipient who received a payment of dollar_figure or more although petitioners have referred to various purported charities and note that the record contains checks drawn on the checking account of re-cap trust we are unable to reconcile our total of the checks payable to those referenced charities to the dollar_figure claimed by petitioners opinion charitable_contributions respondent argues that petitioners may not deduct any charitable_contribution of dollar_figure or more in that petitioners do not have the requisite written acknowledgment for any of these amounts respondent has conceded that petitioners may deduct all other charitable_contributions claimed as such petitioners in their brief make no mention of the written acknowledgment requirement but argue that hill’s testimony coupled with canceled checks in evidence entitles them to deduct all of the claimed contributions in dispute petitioners’ counsel conceded at trial that petitioners bear the burden_of_proof as to this issue we agree with respondent that the disputed amounts are not deductible given the absence of a written acknowledgment under sec_170 an individual taxpayer may deduct a contribution of dollar_figure or more only if he or she substantiates the deduction with a contemporaneous written acknowledgment by the donee that meets the requirements of that section 118_tc_528 berry v commissioner tcmemo_2003_331 stussy v commissioner tcmemo_2003_232 see also weyts v commissioner tcmemo_2003_68 discussion of legislative_history underlying the enactment of sec_170 that acknowledgment which must be furnished by the donee organization must state the amount of cash and describe other_property contributed indicate whether the donee organization provided any goods or services in consideration for the contribution and provide a description and good_faith estimate of the value of any goods or services provided by the donee organization sec_170 sec_1_170a-13 income_tax regs given that petitioners do not have such a written acknowledgment from any of the recipients of the disputed amounts and have not established any exception to this written acknowledgment requirement see eg sec_170 we conclude that petitioners are precluded by the statute from deducting the disputed amounts as charitable_contributions accuracy-related_penalty respondent also determined that petitioners are liable for the accuracy-related_penalty under sec_6662 in relevant part sec_6662 and b imposes an accuracy-related_penalty if any portion of an underpayment is attributable to negligence or a substantial_understatement_of_income_tax negligence includes any failure to make a reasonable attempt to comply with the provisions of the internal revenue laws any failure to keep adequate books_and_records and any failure to substantiate items properly sec_1_6662-3 income_tax regs an understatement of income_tax is substantial if it exceeds percent of the tax required to be shown on the return or dollar_figure sec_6662 respondent bears the burden of production under sec_7491 and must come forward with sufficient evidence indicating that it is appropriate to impose an accuracy-related_penalty 116_tc_438 once respondent has met this burden the taxpayer must come forward with persuasive evidence that the accuracy-related_penalty does not apply id the taxpayer may establish for example that part or all of the accuracy-related_penalty is inapplicable because it is attributable to an understatement for which the taxpayer acted with reasonable_cause and in good_faith sec_6664 whether a taxpayer acted as such is a factual determination sec_1_6664-4 income_tax regs for which the taxpayer’s effort to assess the proper tax_liability is a very important consideration here petitioners concede that respondent has met his burden of production in that the parties agree that the understatement on petitioners’ return is substantial within the meaning of sec_6662 petitioners argue that they acted reasonably as to the subject matter of the deficiency in that they assert hill relied reasonably upon his tax preparer to prepare petitioners’ tax_return correctly although reliance on the advice of a professional as to the tax treatment of an item may sometimes be enough to escape the imposition of a sec_6662 accuracy-related_penalty see 469_us_241 sec_1_6664-4 income_tax regs individual taxpayers relying upon this exception must prove by a preponderance of evidence the adviser was a competent professional who had sufficient expertise to justify reliance the taxpayer provided necessary and accurate information to the adviser and the taxpayer actually relied in good_faith on the adviser’s judgment 115_tc_43 affd 299_f3d_221 3d cir ellwest stereo theatres inc v commissioner tcmemo_1995_610 see also rule a on the basis of the credible_evidence in the record which we do not find includes the testimony of hill we are unable to conclude that each of these requirements has been met to say the least hill is a college-educated individual who for many years has known about his obligation to pay federal income taxes on the income generated from his services yet neither he nor his wife ever consulted a competent professional concerning the federal_income_tax consequences of re-cap trust which according to their reporting position now conceded by them to be wrong allowed them to deduct otherwise nondeductible personal expenses and ultimately pay only dollar_figure of income taxes dollar_figure dollar_figure on dollar_figure of personal_service_income dollar_figure - dollar_figure we sustain respondent’s determination as to the accuracy-related_penalty all arguments made by the parties have been considered and those arguments not discussed herein have been found to be without merit to reflect respondent’s concessions decision will be entered under rule