internal_revenue_service department of the treasury number release date index number re washington dc person to contact telephone number refer reply to cc psi b04-plr-144049-01 date april legend decedent family_trust child child child grandchild first spouse second spouse second spouse’s share law firm attorney date date date date date date date x state statute dear this is in response to your letter dated date requesting an extension of time under sec_301_9100-1 of the procedure and administration regulations to sever second spouse’s share into trust x and trust y under sec_26_2654-1 of plr-144049-01 the generation-skipping_transfer gst tax regulations and to make a reverse qualified_terminable_interest_property qtip_election for trust x under sec_2652 of the internal_revenue_code the letter also requests a ruling that the automatic allocation rules of sec_2632 will apply to trust x with the result that trust x will have an inclusion_ratio of zero for purposes of the gst tax the facts and representations submitted are as follows decedent and first spouse the trustors executed family_trust on date and amended family_trust on date first spouse died on date decedent later married second spouse and further amended the trust on date date and date article iv of the family_trust provides that upon the death of the first trustor to die the family_trust is to be divided into two trusts the surviving trustor’s share shall consist of fifty percent of the assets of the trust estate plus any assets allocable to surviving trustor’s share under the terms of the will of the first deceased trustor and the other share shall be set_aside and designated as the deceased trustor’s share which will consist of that portion of trust estate not allocated to the surviving trustor’s share plus all assets allocable to the deceased trustor’s share under the terms of the deceased trustor’s will article v provides that the trustees shall pay the income of the surviving trustor’s share to the surviving trustor during his lifetime the surviving trustor has the right to direct the trustees to distribute principal of the surviving trustor’s share to the surviving trustor up to the whole thereof as the surviving trustor designates at surviving trustor’s death after paying any inheritance estate or other death taxes the trustees shall allocate the remaining balance of the surviving trustor’s share to the second spouse’s share if second spouse is married to and living with the surviving trustor at the time of his death the trustees shall pay all of the net_income from second spouse’s share to second spouse during her lifetime upon the death of second spouse the trustees shall distribute the remaining corpus equally to the trustor’s grandchildren outright article vi provides that the deceased trustor’s share shall be allocated into two separate and distinct trusts known as trust a and trust b_trust a shall be a fraction of the trust’s qualified_property that will produce minimum total estate_taxes upon the death of the deceased trustor the remaining property in the trust shall be allocated to trust b the trustors intend that trust a be eligible for the marital_deduction the trustees shall pay all the income of trust a and trust b to the surviving trustor while he or she is alive in the trustee’s discretion the trustee may distribute principal to the surviving trustor for care support and maintenance upon surviving trustor’s death the principal of trust a will be added to trust b and distributed in accordance with article vii article vii provides that upon the death of the surviving trustor after payment of plr-144049-01 expenses and taxes the trustees shall divide the remaining assets in the trust pro_rata into three shares as follows one share outright to child one share outright to child and one share to grandchild to be held in trust until grandchild attains the age of thirty if the beneficiary is not living then the beneficiary’s share shall be distributed to that beneficiary’s children equally and held in trust for each child of beneficiary until such child is thirty years old the trustees have discretion to expend for the child’s care support and maintenance until the child is years old and then the trustees will pay out all net_income to that child until the child is thirty years old when the child attains thirty years of age the trust will terminate and the corpus will be distributed to the child outright grandchild is the only surviving issue of child a predeceased child of the trustors article x provides that the trustors acting jointly while both are alive and competent shall have the right to amend and or revoke any or all of the provisions of the trust agreement following the death of the first trustor the surviving trustor shall have the right to amend or revoke the trust with respect to his interest in the community or separate_property following the death of the surviving trustor the trust shall be irrevocable decedent the surviving trustor died on date the trust became irrevocable on that date the trustees represent that decedent’s federal estate_tax_return form_706 was timely filed on schedule m of the form_706 the trustees of the family_trust made a qtip_election under sec_2056 for dollar_figurex the amount of second spouse’s share however the trustees did not make a reverse_qtip_election with respect to second spouse’s share nor did they allocate decedent’s gst_exemption to second spouse’s share the trustees who had no prior experience with estate_tax matters hired law firm to prepare the form_706 and to advise the trustees on estate_tax matters the trustees declare that they provided law firm with all documents relevant to the family_trust law firm had years of experience in the law of federal estate_and_gift_taxation however at the time of decedent’s death law firm failed to advise the trustees to make the reverse_qtip_election nor did law firm make the election on the form_706 the failure to make the reverse_qtip_election was recently discovered upon current discussions between the children of decedent and attorney regarding the estate plans of decedent’s children the trustees represent that decedent made no direct skips to any skip_person and that no trusts other than second spouse’s share created by decedent have any gst potential there have been no distributions of principal from second spouse’s share the estate proposes to sever second spouse’s share into two separate trusts trust x and trust y and make a reverse_qtip_election under sec_2652 with plr-144049-01 respect to trust x trust x will consist of a fraction of the current value on the date of severance of the second spouse’s share the numerator of the fraction will be the amount of decedent’s gst_exemption available at his death and the denominator will be the value of second spouse’s share as finally determined for federal estate_tax purposes in decedent’s estate_trust y will consist of the balance of second spouse’s share state statute provides that on petition by a trustee or beneficiary the court for good cause shown may divide a_trust into two or more separate trusts if the court determines that dividing the trust will not defeat or substantially impair the accomplishment of the trust purposes or interests of the beneficiaries you have requested the following rulings an extension of time under sec_301_9100-1 and sec_301_9100-3 to sever second spouse’s share into trust x and trust y under sec_26_2654-1 and to make a reverse_qtip_election under sec_2652 with respect to trust x and the automatic allocation rules under sec_2632 will apply to trust x with the result that trust x will have an inclusion_ratio of zero for gst tax purposes legal analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate is to be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse sec_2056 provides the general_rule that no deduction is allowed under sec_2056 for an interest passing to the surviving_spouse if on the lapse of time on the occurrence of an event or contingency or on the failure of an event or contingency to occur the interest will terminate or fail sec_2056 provides that in the case of qualified_terminable_interest_property the entire property is treated as passing to the surviving_spouse for purposes of sec_2056 and no part of the property is treated as passing to any person other than the surviving_spouse for purposes of sec_2056 sec_2056 defines qualified_terminable_interest_property as property that passes from the decedent in which the surviving_spouse has a plr-144049-01 qualifying_income_interest_for_life and to which an election under sec_2056 applies sec_2056 provides that an election under sec_2056 with respect to any property shall be made by the executor on the return of tax imposed by sec_2001 such an election once made is irrevocable sec_2601 imposes a tax on every generation-skipping_transfer which under sec_2611 is defined as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of tax imposed by sec_2601 is the taxable_amount multiplied by the applicable_rate sec_2641 provides that for purposes of chapter the term applicable_rate means with respect to any generation-skipping_transfer the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or by his or her executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made is irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2632 provides that in general any portion of an individual’s gst_exemption which has not been allocated within the time prescribed by sec_2632 shall be deemed to be allocated as follows a first to property which is the subject of a direct_skip occurring at such individual’s death and b second to trusts with respect to which such individual is the transferor and from which a taxable_distribution or a taxable_termination might occur at or after such individual’s death sec_26_2632-1 provides that a decedent’s unused gst_exemption is automatically allocated on the due_date for filing form_706 to the extent not otherwise allocated by the decedent’s executor on or before that date unused gst_exemption is allocated pro_rata subject_to the rules of sec_26_2642-2 on the basis of the value of the property as finally determined for purposes of chapter chapter value first to direct skips treated as occurring at the transferor’s death the balance if any of unused gst_exemption is allocated pro_rata on the basis of the chapter plr-144049-01 value of the nonexempt_portion of the trust property to trusts with respect to which a taxable_termination may occur or from which a taxable_distribution may be made sec_2642 provides that except as provided in sec_2642 if property is transferred as a result of the death of the transferor the value of such property for purposes of sec_2642 shall be its value for purposes of chapter except that if the requirements prescribed by the secretary respecting allocation of post-death changes in value are not met the value of such property shall be determined as of the time of the distribution concerned any allocation to property transferred as a result of the death of the transferor shall be effective on and after the date of transferor’s death sec_2652 provides that in the case of any trust with respect to which a deduction is allowed to the decedent's_estate under sec_2056 the estate of the decedent may elect to treat all of the property in the trust for purposes of chapter as if the election to be treated as qtip had not been made this election is referred to as the reverse_qtip_election the consequence of a reverse_qtip_election is that the decedent remains for gst purposes the transferor of the qtip_trust for which the election is made as a result the decedent's gst_exemption may be allocated to the qtip_trust sec_26_2652-2 provides that a reverse_qtip_election is made on the return on which the qtip_election is made sec_26_2654-1 provides rules pursuant to which the severance of a_trust that is included in the transferor’s gross_estate into two or more trusts is recognized for purposes of chapter for a_trust whose governing instrument does not require severance the requirements are i the trust is severed pursuant to discretionary authority granted either under the governing instrument or under local law ii the terms of the new trusts provide in the aggregate for the same succession of interests and beneficiaries as are provided in the original trust iii the trust is severed prior to the date prescribed for filing the federal estate_tax_return including extensions actually granted for the estate of the transferor and iv the trust is severed on a fractional basis either on a pro_rata basis of each asset held in the undivided trust or on a non-pro rata basis under certain circumstances sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i plr-144049-01 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides that in general requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 must be made under the rules of sec_301_9100-3 requests for relief subject_to this section will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides in part that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 provides that a taxpayer will not be considered to have reasonably relied on a qualified_tax professional if the taxpayer knew or should have known that the professional was not i competent to render advice on the regulatory election or ii aware of all relevant facts sec_301_9100-3 provides in part that the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money based on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been met in this case an extension of time to sever second spouse’s share into trust x and trust y and to make a reverse_qtip_election for trust x is granted until days after the date of this letter this election should be made on a supplemental form_706 united_states estate and generation- skipping transfer_tax return and filed with the cincinnati service_center under the facts presented the automatic allocation rules of sec_2632 apply with the result that decedent’s unused gst_exemption will be automatically allocated to trust x the allocation will be effective as of date the date of decedent’s death the estate_tax_value of the transfers to trust x will be used in determining the amount of gst_exemption allocated to trust x provided the severance meets the requirements of sec_26_2654-1 and provided the estate_tax_value of the transfers to trust x equals decedent’s unused gst_exemption trust x will have an inclusion_ratio of zero in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to each taxpayer plr-144049-01 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter should be attached to the supplemental form_706 sincerely yours _________________________ paul f kugler associate chief_counsel passthroughs and special industries enclosures copy of letter for sec_6110 purposes copy of this letter


t c memo united_states tax_court katrina l price petitioner v commissioner of internal revenue respondent docket no filed date katrina l price pro_se jeffrey johnson for respondent memorandum findings_of_fact and opinion colvin judge respondent determined deficiencies in petitioner’s federal_income_tax of dollar_figure for and dollar_figure for additions to tax of dollar_figure for failure_to_file for and dollar_figure for failure to pay estimated_tax for and an accuracy- related penalty of dollar_figure for - the issues for decision are whether petitioner is liable for income_tax on her salary of dollar_figure per year in and and additional income of dollar_figure in and dollar_figure in we hold that she is whether petitioner is liable for additions to tax for failure_to_file and failure to pay estimated_tax for we hold that she is whether petitioner is liable for the accuracy-related_penalty for negligence for we hold that she is section reference are to the internal_revenue_code in effect in the years in issue and rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and are so found a petitioner petitioner resided in new york new york when she filed the petition in this case she had a savings and checking account at citibank and chemical bank she had no other bank accounts during the years in issue petitioner had dollar_figure or less of cash at the beginning of she did not receive any gifts inheritances or loans in or or own any certificates of deposit stocks or bonds in those years - - petitioner worked for a one hour photo developing store photo store in and in and she received a salary of dollar_figure per week or dollar_figure per year in cash from the photo store her employer did not withhold any_tax from her salary petitioner deposited some of her salary in her bank accounts she did not report her photo store salary in income for or petitioner gambled in atlantic city new jersey almost every weekend in and every other weekend in she deposited some of her winnings in her bank accounts she won a dollar_figure jackpot at a casino in atlantic city in b petitioner’s bank transactions petitioner deposited dollar_figure in her bank accounts in and dollar_figure in those amounts include transfers from her chemical bank savings account to her chemical bank checking account of dollar_figure in and dollar_figure in the following chart summarizes petitioner’s bank_deposits and withdrawals of dollar_figure or more hereinafter referred to as large deposits or large withdrawals from her citibank checking citibank savings and chemical bank checking accounts in and feb feb feb feb feb mar mar cash mar mar cash mar mar exp apr apr cash jun jun payee jun jun co jul exp jul dec dec exp dec club ' petitioner’s citibank checking account petitioner’s citibank savings account date posted by bank account qao ch ch ch ckt ck ck ck ck sv sv sv sv ck ck sv sv ck ck ck ck ck ck ck ck ck large deposits dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number petitioner’s chemical bank checking account large withdrawals oo transfer to mastercard oo transfer to bankcard check to agfa compugraf petitioner withdrew petitioner withdrew -0o0 check to american petitioner withdrew check to unknown -08 check to five deepe place -0o0 check to american check to american check to diner’s date posted by large large_bank account deposits withdrawals date ch ck dollar_figure date ch ck dollar_figure check to american exp date c ck dollar_figure date c ck dollar_figure check to beckville mgt for rent date c ck dollar_figure date c ck dollar_figure check to petitioner date c ck dollar_figure date c ck dollar_figure cashier’s ck date c ck dollar_figure check to dept of motor vehicles date c ck dollar_figure date c ck dollar_figure date c ck dollar_figure check to petitioner date c ck dollar_figure date c ck dollar_figure check to w h roth for car ins date c ck dollar_figure check to discover card ' petitioner’s chemical bank checking account petitioner’s citibank checking account petitioner’s gambling winnings c petitioner’s income_tax returns petitioner did not file an income_tax return for she timely filed a income_tax return she reported that she had won dollar_figure from gambling but she reported no other income she deducted dollar_figure for gambling_losses - - d respondent’s reconstruction of petitioner’s income the examination began on date alex malichiwski malichiwski respondent’s revenue_agent examined petitioner’s and returns he issued summonses to petitioner’s banks for petitioner’s records citibank and chemical bank gave malichiwski copies of petitioner’s bank statements and checks for and malichiwski reconstructed petitioner’s income for and because petitioner did not have records he used a modified bank_deposits method in which he assumed that deposits of less than dollar_figure hereinafter referred to as small deposits totaling dollar_figure in and dollar_figure in were petitioner’s wages from the photo shop he did not include the deposit from the reported gambling winnings in as income in the modified bank_deposits method because petitioner had reported the dollar_figure on her return malichiwski concluded that of petitioner’s bank_deposits of dollar_figure or more in totaling dollar_figure were unreported income because petitioner did not establish to his satisfaction during the examination that those funds were not taxable_income to her he concluded that of petitioner’s six bank_deposits of dollar_figure or more in totaling big_number deposits of dollar_figure ' the banks did not have copies of all of petitioner’s checks - and dollar_figure were not taxable_income because petitioner had written checks to herself in those amounts and he wanted to eliminate any possibility of double counting any deposits thus he concluded that dollar_figure was unreported income for opinion a whether petitioner is liable for income_tax on her salary of dollar_figure per year in and petitioner contends that she is not liable for income_tax on the dollar_figure salary that she received in we disagree petitioner bears the burden_of_proof rule a 290_us_111 petitioner stipulated and testified that she received a salary of dollar_figure per year in and in her posttrial brief she asks us to disregard the stipulation and her testimony a stipulation of fact is generally binding on the parties rule e we may modify or set_aside a stipulation if it is contrary to the record 93_tc_181 we do not set_aside the stipulation here because there is no evidence contrary to petitioner’s stipulation and testimony that she received a salary of dollar_figure per year in and respondent does not bear the burden_of_proof under sec_7491 because the examination in this case began on date sec_7491 applies to examinations commenced after date internal_revenue_service restructuring and reform act of publaw_105_206 sec c 112_stat_727 - - on brief petitioner contends that she is liable for income_tax on dollar_figure one-third of dollar_figure from the photo shop in because she worked for and had earnings from the photo shop for only months in we disagree petitioner testified that she had problems with pregnancies in and and that she worked only the first months of because she was pregnant with twins petitioner later testified that she worked throughout but only months in petitioner made small deposits throughout as she had throughout these small deposits totaled dollar_figure in and dollar_figure in this suggests that she worked throughout and we conclude that petitioner earned dollar_figure working for the photo shop in and in and that she is liable for income_tax on those amounts b whether petitioner failed to report income of dollar_figure for and dollar_figure for we must decide whether as respondent contends petitioner failed to report income in addition to her dollar_figure salary from the photo shop of dollar_figure for and dollar_figure for respondent reconstructed petitioner's income using a modified bank_deposits method in which respondent counted deposits of petitioner contends that she did not receive a lump-sum payment of dollar_figure respondent does not contend that petitioner received dollar_figure in a lump sum rather respondent contends that petitioner received and deposited that amount in her bank accounts throughout used it for personal expenses and did not report it on her income_tax return - dollar_figure or more as income petitioner did not have adequate books_and_records if a taxpayer does not maintain adequate books_and_records the commissioner may reconstruct a taxpayer's income by any reasonable method which clearly reflects income sec_446 348_us_121 including the bank_deposits method 94_tc_654 64_tc_651 affd 566_f2d_2 6th cir bank_deposits are prima facie evidence of income 102_tc_632 87_tc_74 estate of mason v commissioner supra if the taxpayer suggests a nontaxable source the commissioner must either connect the bank_deposits to a likely source of taxable_income or negate the nontaxable source alleged by the taxpayer 389_f2d_236 7th cir affg tcmemo_1966_234 respondent has connected the bank_deposits to a likely source of taxable_income because petitioner admits that she deposited gambling winnings in her bank accounts we conclude that respondent properly reconstructed petitioner’s additional income for and using the modified bank_deposits method thus petitioner bears the burden of proving that the deposits were not taxable_income to her but were instead derived from a nontaxable source 204_f3d_1228 9th cir affg tcmemo_1998_121 591_f2d_1243 9th cir clayton v commissioner supra 96_tc_858 affd on other grounds 959_f2d_16 2d cir parks v commissioner supra petitioner contends that some of the funds that she deposited in her bank accounts were not taxable to her because those funds belonged to the photo shop and not to her she contends that as a favor to the photo shop she deposited photo shop funds in her bank accounts at the close of the day and withdrew them the next business_day to return those funds to the photo shop we disagree petitioner’s testimony is the only evidence supporting her contention we decide whether a witness is credible based on objective facts the reasonableness of the testimony and the demeanor and consistency of statements made by the witness 140_us_417 338_f2d_602 9th cir affg 41_tc_593 330_f2d_119 5th cir 89_tc_105 ndollar_figure we may discount testimony which we find to be unworthy of belief but we may not arbitrarily disregard testimony that is competent relevant and uncontradicted 39_f3d_658 6th cir affg and remanding on another ground 99_tc_370 and tcmemo_1992_616 322_f2d_530 8th cir affg in part and remanding in part on another ground tcmemo_1961_237 petitioner’s testimony was implausible she was not consistent in explaining how she allegedly deposited and repaid photo shop funds she testified about only one instance in which she repaid the photo shop describing that instance she testified that she repaid the photo shop with a dollar_figure check that was paid on date however that check was paid to american express rather than to the photo shop the record contains no checks written by petitioner to the photo store ’ petitioner contends for the first time in her answering brief that the payments and transfers to credit card and bank card companies that correspond to her large deposits were for the photo store because the charges on those cards were for photo store expenses she contends that the photo store gave her the money that she deposited in her accounts to pay those bank and credit card bills petitioner’s statement in her answering brief is not evidence we can base our findings only on properly admitted evidence sec_7453 rule 90_tc_684 united_states v state of even if there were checks written to petitioner that she cashed for the photo store the result would not change because respondent did not include in the bank_deposits analysis any deposits for which there were corresponding checks to petitioner washington 459_fsupp_1020 w d wash there is no evidence to support petitioner’s contention petitioner did not testify that the photo shop charged expenses on her credit cards and her claim after trial that the photo shop charged its expenses on her credit cards is reason to disbelieve her trial testimony another reason for disbelieving petitioner’s trial testimony is the fact that she said in her answering brief that we should disregard her trial testimony relating to her photo store salary it is not clear what parts of petitioner’s testimony we should believe under these circumstances petitioner contends that some of the money that she deposited was her own money that she had withdrawn for gambling and redeposited afterwards petitioner’s testimony in this regard was very general she provided us no basis to decide which of the bank_deposits were redeposits of money she had withdrawn we conclude that in addition to the dollar_figure salary that petitioner earned each year from the photo store petitioner had unreported income of dollar_figure for and dollar_figure for cc whether petitioner is liable for the addition_to_tax for failure_to_file her income_tax return respondent determined that petitioner is liable for the addition_to_tax under sec_665l1 a for failure to filea return for petitioner contends that she timely filed her return we disagree petitioner stipulated and testified that she did not file a return she contends that we should ignore her stipulation and trial testimony we disagree there is no evidence contrary to her stipulation and testimony that she did not file a return petitioner attached to her answering brief a copy of a form letter from respondent which shows her account information for she contends that the form letter establishes that she filed a return in we disagree the form letter was not admitted into evidence and even if it had been it would not establish that she filed a return the form letter shows that she did not report any income deductions or tax for it does not state that petitioner filed a return for petitioner contends that respondent’s agent who sent her the form letter told her that someone had erased all the numbers for to make it appear that she had not filed a return there is no evidence to support this contention petitioner has at trial petitioner did not present any substantiation or financial records in her answering brief petitioner contends that she does not have records for because her basement where she stored her files flooded in there is no testimony or other evidence to support this statement we do not consider assertions of fact made in a party’s brief that are not in evidence rule b 90_tc_684 not convinced us that we should disregard her stipulation or trial testimony that she did not file a return we conclude that petitioner did not file a return for a taxpayer is not liable for the addition_to_tax if his or her failure_to_file a return was due to reasonable_cause and not willful neglect sec_665l1 a rule a 469_us_241 petitioner contends that if she did not file her income_tax return it was because she had health difficulties in and or because she had a difficult pregnancy in we disagree petitioner’s ability to work full time in and shows that she should have been able to file her return for we conclude that petitioner is liable for the addition_to_tax under sec_665l1 a for failure_to_file her return d whether petitioner is liable for the addition_to_tax for failure to pay estimated_tax in respondent determined that petitioner is liable for the addition_to_tax under sec_6654 for failure to pay estimated_tax for petitioner did not file a return for we have jurisdiction to review the commissioner’s determination of this addition_to_tax if the taxpayer did not file a return for the taxable_year sec_6665 meyer v commissioner 97_tc_555 a taxpayer is liable for the addition_to_tax under sec_6654 for failure to pay estimated_tax unless the taxpayer shows - - that he or she meets one of the exceptions provided in sec_6654 none of which apply here petitioner offered no evidence to show why she did not pay estimated_tax we conclude that petitioner is liable for the addition_to_tax for failure to pay estimated_tax under sec_6654 for br whether petitioner is liable for the accuracy-related_penalty for respondent contends that petitioner is liable for the accuracy-related_penalty for negligence under sec_6662 for taxpayers are liable for a penalty equal to percent of the part of the underpayment attributable to negligence or disregard of rules or regulations sec_6662 and b negligence includes failure to make a reasonable attempt to comply with internal revenue laws or to exercise ordinary and reasonable care in preparing a tax_return sec_6662 petitioner bears the burden of proving that she is not liable for the accuracy-related_penalty rule a 92_tc_501 petitioner made no argument and offered no evidence that she is not liable for the accuracy-related_penalty we conclude that petitioner is liable for the accuracy-related_penalty for to reflect the foregoing decision will be entered for respondent


t c memo united_states tax_court karson c kaebel petitioner v commissioner of internal revenue respondent docket no 18917-14l filed date karson c kaebel pro_se marty jane dama for respondent memorandum findings_of_fact and opinion paris judge this case is before the court on a petition for review of a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination dated date sustaining a proposed 1unless otherwise indicated all section references are to the internal continued collection by levy of petitioner’s unpaid federal_income_tax liability the court must consider whether respondent’s determination to sustain the collection action was proper findings_of_fact some of the facts have been stipulated and are so found the first stipulation of facts and the attached exhibits are incorporated by this reference petitioner resided in texas when he timely filed his petition petitioner did not file a federal_income_tax return for pursuant to sec_6020 the internal_revenue_service irs prepared a substitute for return for petitioner for at the time of trial petitioner also had not filed federal_income_tax returns for through i notice_of_deficiency respondent issued to petitioner a notice_of_deficiency dated date determining a deficiency in petitioner’s federal_income_tax of dollar_figure and additions to tax of dollar_figure for the notice_of_deficiency was addressed to continued revenue code in effect at all relevant times 2the record contains certifications of lack of record for and the record also contains account transcripts reflecting that substitutes for returns were prepared for and a street address in lewisville texas lewisville address and that same address is petitioner’s address of record with the court petitioner has not asserted that he had or used a different address in petitioner did not petition this court for redetermination of the amounts determined in the notice_of_deficiency the form prepared for the notice_of_deficiency dated date states s tatutory notices of deficiency have been sent to the following taxpayers and shows petitioner’s name with his lewisville address followed by a certified mail article number there is a space labeled notices listed hereon were issued by but the space is blank the form_3877 includes a rectangular stamp that reads irs ogden ut usps-84201 with a date stamp of date and a partially illegible signature although the form_3877 indicates that the irs was sending pieces of certified mail the space in which the u s postal service usps employee should have marked the number of pieces it received is blank ii notice_of_intent_to_levy on date respondent issued to petitioner at the lewisville address a letter final notice--notice of intent to levy and notice of your 3although the form is titled substitute usps form and is not a certified copy the court will refer to the document as form_3877 right to a hearing for petitioner timely responded to the letter by sending to respondent a form request for a collection_due_process or equivalent_hearing dated date cdp hearing request in the cdp hearing request petitioner showed his address as the same lewisville address and checked the box for proposed levy or actual levy as the basis for the hearing in the space for the reason for his cdp hearing request petitioner wrote see attached petitioner attached a one-page outline of his requests and positions he requested a face-to-face cdp hearing so he could address among other issues the following irs compliance with all proper procedures as required_by_law the alleged liability because he did not have a prior opportunity to challenge it and alternatives to collection if the alleged liability is indeed a proper assessment iii cdp hearing petitioner’s case was assigned to so penny from the irs appeals_office appeals so penny noted in his case activity record that petitioner was contesting the liability accordingly he requested the revenue agent’s report and 4settlement officer penny so penny noted in his case activity record that the revenue_officer taped the letter to petitioner’s door the form prepared for the notice_of_deficiency on date so penny noted that he received a copy of the notice_of_deficiency and the revenue agent’s report on date so penny went to the usps web site and viewed the certified mail article tracking information that was on the notice_of_deficiency and the form_3877 so penny noted that the usps web site tracking reported that the notice_of_deficiency was delivered to petitioner’s lewisville address on date also on date so penny issued a letter to petitioner at his lewisville address scheduling a telephone cdp hearing for date in the letter so penny requested from petitioner a form 433-a collection information statement for wage earners and self-employed individuals form sec_1040 u s individual_income_tax_return for and proof that estimated_tax payments for the current_year had been paid and his proposal to resolve the outstanding liabilities so penny explained he could not consider alternative collection methods without that information and requested that petitioner provide 5so penny referred to the form_3877 as a certified mailing list see supra note 6the court has previously noted that the usps web site tracking system stores certified mail records for up to two years see garrett v commissioner tcmemo_2016_179 at so penny’s query was within two years the completed form 433-a proof of payments and his proposal within days from the date of the letter and the form sec_1040 within days from the date of the letter in the letter so penny also stated that petitioner would be unable to dispute the underlying liability because of his prior opportunity to contest it however so penny also stated that any new information in regard to the liability that petitioner submitted would be sent to the collection function to review so penny attached to the letter a copy of the notice_of_deficiency and verification of proper mailing to petitioner’s last_known_address petitioner sent so penny a letter dated date but did not attach any of the requested documents or financial information petitioner typed his lewisville address in the heading of his letter and reiterated the same requests from his cdp hearing request petitioner also stated in the letter that he would be unavailable for the date and time of the cdp hearing and requested that so penny pick three possible future dates for a face-to-face cdp hearing so penny noted in his case activity record that he received petitioner’s letter on date one day before the scheduled cdp hearing 7so penny did not note in his case activity record the date he received the form_3877 but he was able to send petitioner a copy of it with the date letter on date petitioner did not call so penny for the cdp hearing so penny spent the time reviewing petitioner’s case file so penny noted in his case activity record that he had already provided petitioner a copy of the notice_of_deficiency and the certified mailing list along with verification of delivery from usps so penny also noted that petitioner might be able to challenge his underlying liability but he had not provided any documentation disputing the assessment so penny performed an internet search on petitioner and found that he was a coach for an ice hockey team in dallas and the name of the team matched the third-party reporting information after reviewing the case file so penny sent petitioner at his lewisville address a letter informing him that the requested documents and financial information had not been received and giving him another days from the date of the letter to provide information if he wanted his issues considered petitioner did not send so penny the requested documents and financial information or any new information on his underlying liability on date appeals sent to petitioner at his lewisville address the notice_of_determination sustaining the proposed levy collection action so penny stated in the discussion and analysis attached to the notice_of_determination that he had verified that all legal and administrative requirements were met in the assessment and issuance of the letter to verify that a notice_of_deficiency was mailed to petitioner’s last_known_address so penny relied on the copy of the notice_of_deficiency in the administrative file the form_3877 showing petitioner’s name and lewisville address and usps web site tracking showing delivery at petitioner’s lewisville address iv proceedings before the court petitioner petitioned the court for review of respondent’s determination and used his lewisville address as his address of record with the court this case was tried on date at the dallas texas trial session of the court petitioner was sworn in to testify and present evidence and he stated his address as the lewisville address when the court asked whether he would like to testify as to his last_known_address and the income reported by his hockey team employer or anything regarding the notice_of_deficiency which was included as exhibit 16-j in the first stipulation of facts petitioner replied i have no comment there on cross-examination petitioner confirmed his address was the lewisville address when respondent’s counsel asked him how long he had lived at the lewisville address petitioner replied okay no comment the court reminded petitioner that he had requested a trial by filing a petition with this court and that he could participate in his trial petitioner replied my answer stands on what i said earlier not relevant to my--i decline to answer that question when respondent asked whether petitioner had received a copy of the notice_of_deficiency from so penny he replied i never received any notice_of_deficiency for the remaining questions that respondent’s counsel asked petitioner replied i decline to answer that question v parties’ arguments on brief petitioner argued only that respondent had failed to verify that the requirements of any applicable law and administrative procedure were met because respondent did not prove that a notice_of_deficiency was mailed to him on brief respondent argued that so penny properly verified that the requirements of any applicable law and administrative procedure were met that a notice_of_deficiency was properly mailed to petitioner’s last_known_address that petitioner’s tax_liability was properly assessed and that so penny did not abuse his discretion in sustaining the notice_of_intent_to_levy opinion sec_6331 authorizes the secretary to levy upon the property and property rights of a taxpayer who fails to pay a tax within days after notice_and_demand before the secretary may levy upon the taxpayer’s property the secretary must notify the taxpayer of the secretary’s intention to make the levy sec_6331 the secretary must also notify the taxpayer of his right to a cdp hearing sec_6330 if the taxpayer requests a cdp hearing the hearing is conducted by appeals sec_6330 at the hearing the taxpayer may raise any relevant issue relating to the unpaid tax or the proposed levy sec_6330 relevant issues include any collection alternatives challenges to the appropriateness of the collection action and spousal defenses id after the cdp hearing appeals must determine whether proceeding with the proposed levy is appropriate in making that determination appeals is required to consider relevant issues raised by the taxpayer and also whether the proposed levy action appropriately balances the need for efficient collection_of_taxes with the taxpayer’s concerns regarding the intrusiveness of the proposed collection action sec_6330 in addition the appeals officer must verify that the requirements of any applicable law or administrative procedure have been met sec_6330 once the settlement officer makes a determination the taxpayer may appeal the determination to this court sec_6330 where the validity of the underlying tax_liability is at issue the court reviews the determination de novo 114_tc_176 where the underlying tax liability is not properly at issue the court reviews the determination for abuse_of_discretion id pincite appeals abuses its discretion if it acts arbitrarily capriciously or without sound basis in fact or law 112_tc_19 i challenge to the underlying liability when as here the irs prepares a substitute for return pursuant to sec_6020 the taxpayer may raise his underlying liability in an administrative hearing if he did not receive a notice_of_deficiency or otherwise have a prior opportunity to contest the liability see sec_6320 sec_6330 see also 114_tc_604 but this court considers a taxpayer’s challenge to his underlying liability in a collection action case only if he properly raised that challenge at his administrative hearing see 129_tc_107 sec_301_6320-1 q a-f3 f q a-f3 proced admin regs an issue is not properly raised at the administrative hearing if the taxpayer fails to request consideration of that issue by appeals or if he requests consideration but fails to present any evidence after being given a reasonable opportunity to do so giamelli v commissioner t c pincite in the cdp hearing request petitioner asserted that he did not have a prior opportunity to contest the underlying liability so penny determined that petitioner had had a prior opportunity to contest his underlying liability because he was sent and received a notice_of_deficiency and therefore could not contest the underlying liability at the cdp hearing however so penny offered to send to the collections function for consideration any new information that petitioner would provide petitioner declined the opportunity and did not provide the twice- requested documents or financial information additionally when the court provided petitioner an opportunity to discuss the notice_of_deficiency and his last_known_address he declined it petitioner only provided self-serving testimony that he did not receive the notice_of_deficiency he then refused to answer any other questions or submit any evidence at trial in the absence of corroborating evidence the court is not required to accept petitioner’s self-serving testimony see 87_tc_74 petitioner may not challenge the underlying liability because he failed to make any specific contentions or to proffer any evidence before so penny additionally petitioner failed to present the court with any documents to address his underlying liability or to show why the notice_of_deficiency was incorrect ii abuse_of_discretion petitioner asserts that so penny abused his discretion because petitioner never received a notice_of_deficiency and respondent improperly assessed an income_tax_liability respondent disagrees generally the commissioner may not assess a deficiency in tax unless he first sends a notice_of_deficiency to the taxpayer’s last_known_address sec_6212 sec_6213 the commissioner bears the burden of proving by competent and persuasive evidence that the notice_of_deficiency was properly mailed 94_tc_82 54_tc_1535 the act of mailing may be proven by documentary_evidence of mailing or by evidence of the commissioner’s mailing practices corroborated by direct testimony coleman v commissioner t c pincite exact compliance with form_3877 mailing procedures raises a presumption of official regularity in favor of the commissioner 131_tc_197 coleman v commissioner t c pincite where as here a taxpayer identifies an irregularity in the assessment procedure an appeals officer cannot rely solely on the tax transcripts to verify that a notice_of_deficiency was sent see hoyle v commissioner t c pincite n w here a taxpayer alleges no notice_of_deficiency was mailed he has ‘ identified an irregularity ’ alteration in original quoting chief_counsel notice cc- date instead the appeals officer is directed to examine underlying documents in addition to the tax transcripts such as the taxpayer’s return a copy of the notice_of_deficiency and the certified mailing list see id marlow v commissioner tcmemo_2010_113 wl at n petitioner argues that the form_3877 has too many irregularities to be reliable evidence of mailing because it does not indicate the number of items received by the usps office is not properly stamped and is not properly signed or initialed by the irs employee who issued the notices and a usps employee the court has found in other cases that such infirmities may not be fatal if the evidence adduced is otherwise sufficient to prove mailing 119_tc_183 coleman v commissioner t c pincite meyer v commissioner tcmemo_2013_268 at the commissioner may still prevail however if evidence of mailing is otherwise sufficient see coleman v commissioner t c pincite while not sufficient to create a presumption of official regularity the incomplete form_3877 serves as evidence that the notice_of_deficiency was mailed to petitioner see portwine v commissioner tcmemo_2015_29 at aff’d __ f app’x __ wl 10th cir date see also 89_tc_321 n massie v commissioner tcmemo_1995_173 wl at aff’d without published opinion 82_f3d_423 9th cir the form_3877 bears a date stamp with the same date as the notice_of_deficiency and shows petitioner’s name his lewisville address and the certified mail article number of the corresponding notice_of_deficiency petitioner has not argued that the lewisville address on the certified mailing list was not his last_known_address the address on the form_3877 is the same address that petitioner reported on his cdp hearing request and on other correspondence to so penny and is his address of record with this court additionally petitioner has not asserted that he had a different address when respondent mailed the notice_of_deficiency nor has he filed federal_income_tax returns for through to provide respondent with any other address furthermore so penny did not rely solely on the form_3877 to verify that the notice_of_deficiency had been mailed to petitioner so penny also reviewed a copy of the notice_of_deficiency for and the notice_of_deficiency bore the same mailing date mailing address and certified mail article number as the corresponding entry on the form_3877 in addition so penny reviewed the tracking information for the mail corresponding to the certified mail article numbers on the notice_of_deficiency and verified through usps web site tracking that the article of mail was reported delivered although respondent is not entitled to a presumption of proper mailing here the court concludes that the dated copy of the notice_of_deficiency combined with the dated form_3877 are sufficient to show that the notice_of_deficiency for was mailed to petitioner at his last_known_address consequently the court holds that it was not an abuse_of_discretion for so penny to rely on this information to verify that valid assessments had been made and that so penny properly verified pursuant to sec_6330 that the requirements of any applicable law or administrative procedure have been met iii conclusion the court finds that so penny properly based his determination on the required factors so penny verified that all legal and procedural requirements had been met considered the issues petitioner raised and determined that the proposed collection action appropriately balanced the need for the efficient collection_of_taxes with the legitimate concern of petitioner that the collection action be no more intrusive than necessary the court has considered all of the arguments made by the parties and to the extent they are not addressed herein they are considered unnecessary moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-148062-02 date date legend x a b d1 d2 state dear this letter responds to a letter dated date by your authorized representative on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts x was organized as a limited_liability_company under state law on d1 x's shareholders a and b decided that x would be an s_corporation effective d2 x timely filed form_8832 entity classification election requesting that x be classified as an association_taxable_as_a_corporation effective d2 a and b believed that x's tax adviser had filed x's form_2553 election by a small_business_corporation however x's form_2553 was not filed timely plr-148062-02 x requests a ruling under sec_1362 that its sec_1362 election will be treated as timely made for its taxable_year that began on d2 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective generally if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the taxable_year in which the election is made sec_1362 provides that if an s election is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year and sec_1362 shall not apply conclusion based on the facts submitted and representations made we conclude that x has established reasonable_cause for failing to make a timely s election and that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 containing an effective date of d2 for the election within days following the date of this letter then such election will be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center a copy is enclosed for that purpose except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether x is otherwise eligible to be an s_corporation for federal tax purposes pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative plr-148062-02 this ruling 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 sincerely s jeanne sullivan senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes