t c memo united_states tax_court estate of charles a lippitz deceased michael lippitz administrator and rhita s lippitz petitioners v commissioner of internal revenue respondent docket nos filed date p-wife moved to amend the petitions to assert a claim for innocent spouse relief under sec_6015 and f i r c subsequently p-wife moved for summary_judgment and r conceded p-wife now seeks litigation costs under sec_7430 i r c on the basis that she was the prevailing_party and r’s position was not substantially justified and because she submitted a qualified_offer to r and p-wife’s liability was determined to be less than if r had accepted her offer held while p-wife was the prevailing_party r was substantially justified in opposing p-wife’s motion to amend the petitions to assert a claim for innocent spouse relief held further r was not substantially justified in continuing to oppose p-wife’s claim for relief after receiving a recommendation that p-wife be granted relief from r’s office that specializes in sec_6015 i r c cases held further p-wife submitted a qualified_offer under sec_7430 and g i r c during the qualified_offer_period and p-wife’s liability was determined to be less than if r had accepted the qualified_offer held further r’s concession was not a settlement for purposes of sec_7430 i r c karen l hawkins for petitioner rhita s lippitz paul e shick for the estate of charles lippitz james m klein for respondent memorandum opinion goeke judge this matter is currently before the court on petitioner rhita lippitz’s motion for the recovery_of litigation costs in relevant part petitioner1 alleged and respondent ultimately conceded that she is entitled to relief under sec_6015 c from any additional joint liability determined for her and her late husband charles lippitz for taxable years through petitioner moves for the recovery_of litigation 1for convenience references to petitioner in the singular are to rhita lippitz 2unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure costs under sec_7430 on the grounds that she is the prevailing_party and because the judgment in this matter is less than the liability would have been had respondent accepted petitioner’s qualified_offer because we find that respondent was substantially justified initially in opposing petitioner’s claim for innocent spouse relief we rule in part for respondent however because it took too long for respondent to concede the issue and because petitioner’s liability pursuant to this court’s judgment was less than her qualified_offer and respondent’s concession was not a settlement we also rule in part for petitioner background these cases involve taxable years through and relate to deficiencies determined by respondent that petitioner and her late husband charles lippitz assigned income taxable to them to various trusts formed by mr lippitz while he was a practicing attorney a separate petition was filed for each tax_year petitioners resided in evanston illinois at the time the petitions were filed the cases were ultimately consolidated 3the parties agree no hearing on petitioner’s motion is necessary docket no relates to tax_year docket no relates to tax_year docket no relates to tax_year docket no relates to tax_year docket no relates to tax_year and docket no relates to tax_year on date for all but taxable_year these cases were calendared for trial on date the cases were then continued petitioners’ case for taxable_year was first set for trial on date mr lippitz and respondent reached an agreement for resolving remaining issues in date according to respondent the only items that remained after this agreement was signed were computations and then completion of a final stipulation of settled issues and decision documents the stipulation of settled issues and decision documents were not however filed with the court until date it was sometime in when petitioner alleges she first became aware that respondent had asserted deficiencies in tax against her and mr lippitz for tax years through and that petitions on her behalf had been filed relating to the through tax years according to petitioner prior to the petitions filed on her behalf had been handled entirely by mr lippitz and at various points as many as different lawyers who had entered appearances for petitioner after mr lippitz passed away in date petitioner hired karen hawkins to represent her in date ms hawkins entered her appearance as counsel for petitioner in date on date petitioner filed a motion to amend the petitions to assert a claim for relief under sec_6015 and f respondent opposed petitioner’s motion on grounds that all issues had been settled in date and that it was too late to assert such a claim on date petitioner sent to respondent a separate letter for each of the docketed cases indicating that she was making a qualified settlement offer pursuant to sec_7430 and g petitioner offered to settle each case for relief from any additional joint liability under sec_6015 in addition petitioner offered to make a payment of dollar_figure against any additional joint liability determined by respondent for each of the tax years at issue respondent did not respond to these offers on date the court granted petitioner’s motion for leave to amend and petitioner’s amended petitions were filed in each docketed_case respondent forwarded petitioner’s file to the internal_revenue_service cincinnati centralized innocent spouse operation cciso for evaluation of her claim petitioner submitted a completed questionnaire to cciso and on date cciso determined that petitioner was entitled to complete relief from any deficiencies asserted in the docketed cases on date respondent filed his answer denying petitioner’s claim for relief under sec_6015 cciso’s determination_letter was eventually disclosed to petitioner on date on date petitioner sent respondent another settlement offer this time offering to settle for full relief under sec_6015 from any additional joint liability in the same letter petitioner indicated to respondent that she intended to file a motion for summary_judgment if respondent did not agree to the settlement respondent did not agree to the settlement and on date petitioner filed a motion for summary_judgment on date respondent moved for additional time to respond to petitioner’s motion and indicated an intention to concede petitioner’s entitlement to the relief recommended from cciso respondent sought additional time in order to pursue a stipulation of settled issues reflective of his concession at this point petitioner refused to enter into a stipulation of settled issues in a subsequent filing related to respondent’s motion to extend time respondent indicated to the court that he in fact conceded the innocent spouse issue on date this court determined that petitioner’s motion for summary_judgment was moot because respondent conceded petitioner now moves for the recovery_of litigation costs petitioner argues that for the period of date to the present she is entitled to an award of litigation fees because she is the prevailing_party and respondent was not substantially justified for the period date to the present petitioner argues that she is entitled to litigation fees because she is the prevailing_party within the meaning of sec_7430 because the judgment is less than her qualified_offer a prevailing_party generally discussion sec_7430 authorizes the award of reasonable_litigation_costs paid_or_incurred in a court_proceeding which is brought by or against the united_states in connection with the determination collection_or_refund_of_any_tax interest or penalty under the internal_revenue_code the taxpayer must establish that she is the prevailing_party has exhausted the available administrative remedies has not unreasonably protracted the court proceedings and has claimed litigation costs that are reasonable sec_7430 and b the taxpayer bears the burden of proving that these requirements are met rule e a taxpayer is generally the prevailing_party if the taxpayer substantially prevailed with respect to either the amount in controversy or the most significant issue or set of issues sec_7430 under sec_7430 even if the taxpayer meets the requirements of a prevailing_party under sec_7430 the taxpayer will not be treated as a prevailing_party if the commissioner’s position in the proceeding was substantially justified in general the commissioner’s position is substantially justified if based on all of the facts and circumstances and the legal precedents relating to the case the commissioner acted reasonably 487_us_552 89_tc_79 affd 861_f2d_131 5th cir in other words to be substantially justified the commissioner’s position must have a reasonable basis in both law and fact pierce v underwood supra 900_f2d_655 3d cir affg in part and revg in part on other grounds 92_tc_510 a position is substantially justified if the position is justified to a degree that could satisfy a reasonable person pierce v underwood supra pincite construing similar language in the equal_access_to_justice_act thus the commissioner’s position may be incorrect but nevertheless be substantially justified ‘if a reasonable person could think it correct’ 108_tc_430 quoting pierce v underwood supra pincite n the relevant inquiry is whether the commissioner’s position was reasonable given the available facts and circumstances at the time that the commissioner took his position as well as any applicable legal precedents id pincite 85_tc_927 the fact that the commissioner eventually concedes or loses a case does not establish that his position was unreasonable 931_f2d_1044 5th cir 92_tc_760 however the commissioner’s concession is a factor to be considered 100_tc_457 affd in part revd in part and remanded on another issue 43_f3d_172 5th cir respondent argues that petitioner should not be treated as the prevailing_party because respondent’s position was substantially justified the first opportunity respondent had to take a position with respect to petitioner’s claim for innocent spouse relief was in response to petitioner’s motion to amend the petitions respondent opposed petitioner’s motion on the grounds that the matter had been litigated for almost years and that all the issues in the matter had been resolved by agreement of the parties in date respondent argued that petitioner should be bound by that agreement after we allowed petitioner the opportunity to amend her petitions to assert innocent spouse relief respondent denied petitioner’s new allegations we find respondent’s initial position with respect to petitioner’s claim for innocent spouse relief in opposing the motion to amend to have been substantially justified reason 5respondent denied petitioner’s new factual allegations for lack of information and denied petitioner’s legal conclusions generally suggests that it would have been difficult for mr lippitz to litigate a joint personal tax_liability for nearly years and not at some point have alerted petitioner to the fact that such a litigation was ongoing moreover after learning of the outstanding litigation petitioner took at least a year to seek leave to amend her petitions finally respondent believed he had resolved all of the issues in the matter by an agreement reached in april of thus we find respondent’s position opposing petitioner’s motion to amend to have been reasonable while respondent’s position was reasonable at the start it does not necessarily follow that respondent’s position continued to be reasonable especially when additional facts came to light on date cciso issued a determination_letter recommending that petitioner be granted innocent spouse relief despite cciso’s determination respondent persisted in his denial of petitioner’s claim and filed his answer to this effect respondent does not point to any substance such as an error in cciso’s determination or other legal or factual basis upon which he maintained his denial of relief pierce v underwood supra pincite instead respondent simply maintains that he needed to develop more fully the facts related to petitioner’s claim 6we note that while petitioner denied being bound by the date agreement she did not deny her knowledge of the litigation or the agreement at the time it was reached instead petitioner has averred vaguely that she did not learn of the litigation until sometime in respondent was free to do so however in the absence of any legal or factual basis to make his position reasonable he did so at his peril we find that respondent was not substantially justified in denying petitioner’s claim for relief after receiving cciso’s recommendation for relief and filing his answer to petitioner’s amended petitions b qualified_offer under sec_7430 a party shall also be treated as the prevailing_party if the liability of the taxpayer pursuant to the judgment in the proceeding determined without regard to interest is equal to or less than the liability of the taxpayer which would have been so determined if the united_states had accepted a qualified_offer of the party under subsection g the qualified_offer provision of sec_7430 applies without regard to whether respondent’s position in the matter is substantially justified see 117_tc_48 affd 55_fedappx_476 9th cir mcgowan v commissioner tcmemo_2005_80 sec_7430 provides that the qualified_offer subparagraph shall not apply to a party which is a prevailing_party under any other provision of this paragraph for the period prior to respondent’s answer to the amended petitions petitioner was not a prevailing_party with respect to any of the docketed cases thus it is necessary to determine whether petitioner was a prevailing_party based on having submitted a qualified_offer during the period prior to respondent’s answer a qualified_offer is defined in sec_7430 as a written offer which a is made by the taxpayer to the united_states during the qualified_offer_period b specifies the offered amount of the taxpayer’s liability determined without regard to interest c is designated at the time it is made as a qualified_offer for purposes of this section and d remains open during the period beginning on the date it is made and ending on the earliest of the date the offer is rejected the date the trial begins or the 90th day after the date the offer is made respondent argues that petitioner’s offers were not qualified offers because they were not made during the qualified_offer_period and because they do not specify the amount of petitioner’s liability qualified_offer_period respondent argues that petitioner’s offers could not be a qualified_offer because they were not made within the qualified_offer_period the qualified_offer_period begins on the date respondent informs the taxpayer of a proposed deficiency and ending on the date which i sec_30 days before the date the case is first set for trial sec_7430 respondent interprets this respondent does not argue and thus we do not consider that petitioner’s offer not be considered a qualified_offer because petitioner failed to provide respondent with the substantiation and legal and factual arguments necessary for informed consideration of petitioner’s claim for relief as required by sec_301_7430-7 proced admin regs provision to mean that if a case is not removed from the trial calendar more than days before the case is set for trial then a continuance will not serve to extend the qualified_offer_period sec_301_7430-7 e example proced admin regs respondent thus concludes pursuant to sec_301 e proced admin regs that because all but one of petitioner’s docketed cases were not removed from the trial calendar more than days before the date set for trial the qualified_offer_period for those cases expired before petitioner’s offers petitioner on the other hand argues that it is possible to interpret the qualified_offer_period to mean days before the case is first set for trial after the effective date of the enactment of sec_7430 and g thus according to petitioner the relevant question is whether congress intended taxpayers such as petitioner to enjoy the benefit of the qualified_offer provision when their case had been calendared for trial and then continued long before the code was amended to add the qualified_offer_rule congress defined the qualified_offer_period as ending on the date which i sec_30 days before the date the case is first set for trial sec_7430 further congress made sec_7430 effective for costs incurred more than days after enactment_date internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_685 it is apparent congress understood the qualified_offer provision would apply to cases already pending before the court however if congress intended the qualified_offer_period to extend to the first time a case was set for trial after enactment it did not say as much we strictly construe in favor of the government the waiver of sovereign immunity in sec_7430 simpson v commissioner tcmemo_1995_194 see 502_us_129 accordingly the qualified_offer_period had expired at the time petitioner submitted her qualified_offer with respect to taxable years through however respondent concedes that petitioner submitted an offer within the qualified_offer_period with respect to taxable_year whether the offer clearly states the amount offered respondent next argues that petitioner’s alleged qualified_offer fails because petitioner did not clearly specify the amount being offered sec_301_7430-7 proced admin 9respondent did not argue that petitioner’s offer was in bad faith or lacked a reasonable relationship to the amount in issue see 600_f2d_699 7th cir affd on other grounds 450_us_346 the plain language of fed r civ p makes it unnecessary to read a reasonableness requirement into the rule although the plain language of sec_7430 does not include any requirement that a taxpayer’s qualified_offer be made in good_faith or with a reasonable relationship to the amount in controversy respondent did not raise the issue and we do not consider it here regs provides that a qualified_offer specifies the offered amount if it clearly specifies the amount for the liability of the taxpayer the offer may be a specific dollar amount of the total liability or a percentage of the adjustments at issue in the proceeding at the time the offer is made the specified amount must be an amount the acceptance of which by the united_states will fully resolve the taxpayer's liability and only that liability for the type or types of tax and the taxable_year or years at issue in the proceeding id petitioner sent respondent a letter for each of the years at issue offering to settle the case petitioner’s offers included the following terms of settlement for each year any adjustment the service proposes to make with respect to the joint tax_return filed by taxpayer and her husband shall not be made with respect to rhita s lippitz the taxpayer shall be granted relief from any additional joint liability in its entirety pursuant to sec_6015 solely for purposes of this qualified_offer rhita s lippitz shall make a payment of dollar_figure against any final adjustment determined by decision or stipulation with respect to the joint tax_return for the tax_year no other adjustments shall be made in connection with the income_tax return as it relates to rhita s lippitz we find petitioner’s offer to clearly state the amount offered petitioner offered to settle each docketed_case for relief from any additional joint liability pursuant to sec_6015 in addition petitioner offered to make a payment of dollar_figure against any final adjustment determined with respect to the joint tax_return for each of the years at issue thus we find clear that petitioner was offering to settle the petitions by paying dollar_figure for each tax_year and being relieved of any additional joint liability under sec_6015 whether respondent’s concession is a settlement finally with respect to petitioner’s qualified_offer respondent argues that petitioner cannot be a prevailing_party under sec_7430 because this matter was resolved by a settlement sec_7430 provides that the qualified_offer_rule shall not apply to any judgment issued pursuant to a settlement after petitioner filed a motion for partial summary_judgment respondent indicated to the court that he was conceding petitioner’s entitlement to innocent spouse relief under sec_6015dollar_figure respondent argues that his concession means that judgment was entered pursuant to a settlement respondent interprets sec_7430 to mean that the qualified_offer provision does not apply where a taxpayer’s liability is determined exclusively pursuant to a settlement sec_301_7430-7 proced admin regs previously in 120_tc_446 we addressed 10petitioner’s motion was then denied as moot whether a settlement following several legal determinations precluded the recovery_of litigation fees pursuant to sec_7430 in gladden only after the parties litigated and this court and the court_of_appeals for the ninth circuit decided legal issues integral to the adjustments at issues were the parties able to enter into a settlement agreement we found that judgment was not entered exclusively pursuant to the settlement we have not however previously had the opportunity to address facts such as those before us to decide whether respondent’s concession of an issue constitutes a settlement for purposes of sec_7430 we apply the ordinary meaning of the term settlement as used in sec_7430 and find that respondent’s concession in this case was not a settlement see 127_tc_96 507_us_380 courts properly assume absent sufficient indication to the contrary that congress intends the words in its enactments to carry ‘their ordinary contemporary common meaning’ quoting 444_us_37 on the facts before us we find respondent’s concession was not a settlement petitioner first submitted her qualified_offer to respondent on date this offer would have resolved the asserted deficiencies against petitioner for an increase in her liability of dollar_figure for each of the taxable years at issue respondent did not respond to petitioner’s offer later after receiving the recommendation of respondent’s cciso office that she was entitled to innocent spouse relief petitioner again submitted a settlement offer to respondent this time petitioner offered to settle the case for full relief from the asserted liabilities under sec_6015 in the same letter petitioner informed respondent that in the absence of an agreement resolving the matter she intended to move for summary_judgment respondent did not accept petitioner’s offer instead respondent offered to settle the matter if the agreement included a statement by petitioner that she had no interest in the assets of the trusts true to her word in the absence of respondent’s accepting her offer petitioner filed a motion for partial summary_judgment on the day after respondent was to file a response to petitioner’s motion respondent instead filed a motion for additional time in which he expressed his intent to concede in the light of petitioner’s multiple offers to settle and eventual dispositive motion we find respondent’s concession occurred too late to be treated as a settlement this is not to say that in all cases a concession could not be a settlement we can imagine scenarios where a concession would be difficult to differentiate from an agreement to settle however that is not the case here it was not until after petitioner actively litigated the issue--by filing a motion for summary judgment--that respondent conceded she was entitled to innocent spouse relief we find this akin to a concession after trial we do not believe congress intended to grant respondent the latitude to wait until just before the resolution of a dispositive motion or the end of a trial to concede a matter and still benefit from the settlement exclusion of sec_7430 sec_7430 was designed to emulate rule of the federal rules of civil procedure and encourage settlement by imposing litigation costs on the party unwilling to settle gladden v commissioner supra pincite respondent was unwilling to settle this case on the terms and at the times offered by petitioner respondent cannot sidestep the consequences of such refusal by conceding the issues after petitioner had effectively presented the case for disposition by the court c net_worth requirements respondent also argues that petitioner has not established that she meets the net_worth requirements required to claim litigation fees to qualify for an award of litigation costs the prevailing taxpayer cannot have a net_worth that exceeded dollar_figure million at the time the petition was filed sec_7430 u s c sec d b petitioner has filed affidavits averring that her net_worth was less than dollar_figure million at the time her amended petitions were filed as well as when the original petitions were filed we find petitioner’s submissions to be credible and respondent has offered no evidence to contradict petitioner’s statements accordingly we are satisfied that petitioner meets the net_worth requirements d whether petitioner protracted the proceedings respondent argues that petitioner is not entitled to an award of litigation costs because she unreasonably protracted the proceedings sec_7430 no award for reasonable costs may be made with respect to any portion of the court_proceeding during which the prevailing_party has unreasonably protracted such proceeding respondent faults petitioner for not complying with a summons originally dated date respondent attempted to resurrect the summons in date in a letter to petitioner according to respondent’s records the summons issued to petitioner was served by leaving a copy at the abode of mr lippitz the other evidence before the court suggests that before petitioner was not in a position to play an active role in responding to the summons in question accordingly we cannot find fault in petitioner’s failure to comply with the year old summons where there is no evidence that petitioner even knew of the summons until date we find that petitioner has not unreasonably protracted the proceedings e reasonable_litigation_costs finally respondent argues that the fees claimed by ms hawkins are unreasonable we agree with respondent that no departure from the statutory rates is called for in this case the award of attorney’s fees under sec_7430 is generally limited to the statutory rate11 unless the court determines that a special factor such as the limited availability of qualified attorneys for such proceeding the difficulty of the issues presented in the case or the local availability of tax expertise justifies a higher rate sec_7430 ms hawkins claims that an upward departure to her billing rate of dollar_figure an hour is warranted because of her extensive experience dealing with innocent spouse relief and because the lawyers who had previously represented petitioner were unable to obtain such relief while we do not question that ms hawkins has a wealth of experience that in some case might justify an upward departure from the statutory rate this is not such a case we find nothing particularly complex about the law or the 11an award for fees incurred in and is limited to dollar_figure per hour revproc_2003_85 sec_3 2003_2_cb_1184 revproc_2004_71 sec_3 2004_2_cb_970 an award of fees incurred in is limited to dollar_figure an hour revproc_2005_70 sec_3 2005_2_cb_979 facts of petitioner’s claim ms hawkins moved to amend the petitions and asserted a claim for innocent spouse relief under sec_6015 ms hawkins on behalf of petitioner sent respondent two offers to settle the case and asked that petitioner’s claim be evaluated by cciso upon respondent’s failure to settle the case and upon receipt of cciso’s determination ms hawkins drafted and filed a motion for partial summary_judgment arguing that in accordance with cciso’s determination there was no evidence to suggest that petitioner had any actual knowledge of the erroneous items respondent was ultimately unable to discover facts supportive of his position that petitioner did have knowledge of the items giving rise to the deficiency thus while ms hawkins achieved a successful result for her client there is nothing that convinces this court that a similar result would not also have been achieved by an attorney with a more limited knowledge of the internal_revenue_code generally and sec_6015 specifically accordingly we find no reason to depart from the statutory rate further as respondent points out it appears ms hawkins billed her client for associate time at dollar_figure an hour but seeks recovery_of fees for her associate at dollar_figure an hour we find that petitioner is only entitled to recover fees for the amount actually incurred for the associate’s time f conclusion we find that petitioner is entitled to an award of litigation costs for all of the docketed cases from the date respondent filed his answer to the amended petitions as petitioner was the prevailing_party and respondent was not substantially justified petitioner is also entitled to an award of litigation costs for the period before respondent filed his answer on the basis that petitioner submitted a qualified_offer for taxable_year and petitioner’s liability for was found by this court to be less than if respondent had accepted this offer we note however that the record is insufficient to distinguish petitioner’s litigation costs related to the tax_year from those related to the through tax years petitioner will bear the burden of demonstrating which costs incurred between the qualified_offer and respondent’s answer should be allocated to the tax_year additionally petitioner is entitled to an award of the costs associated with the current motion see 496_us_154 to reflect the foregoing an appropriate order will be issued


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to plr-104931-00 cc psi date date number release date index number legend fund fund fund fund fund fund d1 d2 d3 d4 d5 manager state dear this letter responds to your date letter and subsequent correspondence on behalf of fund requesting certain rulings under the internal_revenue_code facts plr-104931-00 according to the information submitted fund formed on d1 fund formed on d2 fund formed on d3 and fund formed on d4 collectively the funds are separate master fund portfolios in a master-feeder investment structure the funds are series of registered investment companies sponsored by manager specifically fund fund and fund are subtrusts of fund and fund is a subtrust of fund fund and fund are trusts organized under state law and are open-end management investment companies under the investment_company act of the act fund has substantially the same investment objective as fund investments in fund and fund may only be made by certain institutional investors such as regulated_investment_companies rics and segregated_asset accounts generally no individual s_corporation partnership or grantor_trust beneficially owned to any extent by an individual s_corporation or partnership may invest in any portfolio of fund or fund the interest of the holders in any portfolio or series is limited to the net assets of that portfolio or series and does not extend to the assets of any other investment vehicles of fund or fund a portfolio_interest entitles the holder to receive a pro_rata share of distributions of income and capital_gain and an allocable share of any losses the portfolio experiences holders’ capital accounts are maintained by the portfolio and any increases or decreases in a holder’s investment are made by adjusting the capital_account balance the allocations of taxable_income gain loss deductions and credits under each agreement transferring a beneficial_interest have been drafted with the intent to comply with the regulations promulgated under sec_704 and c of the internal_revenue_code each holder is entitled to a pro_rata share in proportion to its capital_account of the assets of a separate portfolio upon its liquidation and may only look to the assets of the separate portfolio on liquidation redemption or termination of the separate portfolio on d5 fund contributed all of its assets to fund and fund the fund contributions and fund contributed all of its assets to fund the fund contribution collectively the contributions in exchange for interests in those funds thereafter both fund and fund liquidated distributing the interests in fund and fund they received to their feeder funds in complete redemption of the interests in fund and fund held by those funds the purpose of these contributions was to consolidate the assets of what were four master funds with substantially_similar investment objectives into two master funds ie fund and fund thereby eliminating duplicative expenses and achieving economies of scale with regard to its contributions fund represents that it contributed to each of fund and fund and fund and fund represent that they held immediately after the contributions a diversified portfolio of stocks and securities for purposes of this representation a portfolio of stocks and securities is diversified if it satisfies plr-104931-00 sec_368 applying the relevant provisions of sec_368 except that in applying sec_368 government securities are included in determining total assets unless the government securities are acquired to meet sec_368 the funds also represent that none of their respective investors acquired their interests in any of the funds in exchange for any asset other than cash or other permissible investments of investment partnerships within the meaning of sec_731 rulings requested fund requests rulings that fund will not recognize any gain_or_loss as a result of the contributions specifically fund requests a ruling that fund and fund are not investment companies as defined by sec_721 and sec_351 fund also requests rulings concerning its bases in its fund and fund interests no investor in fund will recognize any gain_or_loss in connection with the issuance or receipt of interests in fund or fund in exchange for and in liquidation of interests in fund if the contributions qualify as nonrecognition transactions fund requests that the investors' bases and holding periods in their new respective properties be determined accordingly discussion a pursuant to sec_721 no gain_or_loss shall be recognized to fund as a result of the fund contribution sec_721 provides that neither a partner nor a partnership will recognize gain_or_loss on a contribution of assets to a partnership in exchange for a partnership_interest sec_721 provides that subsection a shall not apply to gain realized on a transfer of property to a partnership which would be treated as an investment_company within the meaning of sec_351 if the partnership were incorporated sec_351 provides that no gain_or_loss will be recognized if one or more persons transfers property to a corporation solely in exchange for stock_or_securities in the corporation and immediately_after_the_exchange the transferors control the transferee corporation sec_351 provides that sec_351 will not apply to a transfer of property to an investment_company plr-104931-00 sec_1_351-1 of the income_tax regulations provides that a transfer to an investment_company will occur when i the transfer results directly or indirectly in diversification of the transferors’ interests and ii the transferee is a regulated_investment_company ric real_estate_investment_trust reit or a corporation more than percent of the value of whose assets excluding cash and non-convertible debt obligations from consideration are held for investment and are readily marketable stocks or securities or interests in rics or reits sec_1002 of the taxpayer_relief_act_of_1997 pub_l_no 111_stat_788 the act amends sec_351 for transfers after date in taxable years ending after such date subject_to certain transitional relief provisions sec_1002 of the act is intended to expand the types of assets considered in determining whether a transfer is to a transferee described in sec_1_351-1 to include certain assets in addition to readily marketable stocks or securities and interests in rics or reits however the act is not intended to alter the requirement of sec_1_351-1 that a transfer of property will be considered to be a transfer to an investment_company under sec_351 only if the transfer results directly or indirectly in diversification of the transferors' interests see s rep no 105th cong 1st sess h_r rep no 105th cong 1st sess h_r rep no 105th cong 1st sess sec_1_351-1 provides that a transfer ordinarily results in diversification of the transferors' interests if two or more persons transfer nonidentical assets to a corporation in the exchange it further provides that if a transfer is part of a plan to achieve diversification without recognition of gain such as a plan which contemplates a subsequent transfer however delayed of the corporate assets or of the stock_or_securities received in the earlier exchange to an investment_company in a transaction purporting to qualify for nonrecognition treatment the original transfer will be treated as resulting in diversification revrul_87_9 1987_1_cb_133 provides that a transfer to a corporation of shares of corporation y stock by one transferor and a transfer of cash by another transferor will be treated as a transfer of nonidentical assets under sec_1 c sec_1_351-1 provides that a transfer of stocks and securities will not be treated as resulting in a diversification of the transferors' interests if each transferor transfers a diversified portfolio of stocks and securities and a portfolio of stocks and securities is considered to be diversified if it satisfies the and 50-percent tests of sec_368 applying the relevant provisions of sec_368 except that government securities are included in total assets for purposes of the denominator of the and 50-percent tests unless acquired to meet the and 50-percent tests but are not treated as securities of an issuer for purpose of the numerator of the and 50-percent tests an investment_company is diversified within the meaning of sec_368 if not more than percent of the value of its assets is invested in the stock and plr-104931-00 securities of any one issuer and not more than percent of the value of its total assets is investment in the stock and securities of five or fewer issuers after applying the relevant law to the facts submitted and the representations made we conclude that the respective transfers of property by fund to fund and fund would not be transfers to an investment_company within the meaning of sec_351 and sec_1_351-1 if fund and fund were incorporated provided that these are the only transfers to fund and fund aside from the transfer from fund therefore under sec_721 no gain_or_loss shall be recognized by fund as a result of the contributions b fund sec_1's basis in its interest in fund and fund shall be determined accordingly sec_722 provides that the basis of an interest in a partnership acquired by a contribution of property including money to the partnership shall be the amount of such money and the adjusted_basis of such property to the contributing_partner at the time of the contribution increased by the amount if any of gain recognized under sec_721 to the contributing_partner at such time sec_723 provides that the basis_of_property contributed to a partnership by a partner shall be the adjusted_basis of such property to the contributing_partner at the time of the contribution increased by the amount if any of gain recognized under sec_721 to the contributing_partner at such time based on the finding that fund recognized no gain_or_loss on its contributions fund will have bases in the interests received in fund and fund equal to the amount of money and aggregate adjusted bases determined immediately prior to the contribution to fund and fund of the other_property contributed to fund and fund respectively a pursuant to sec_731 no investor in fund will recognize any gain_or_loss under sec_731 in connection with fund 1's receipt of interests in fund or fund in exchange for and in liquidation of interests in fund sec_731 provides that in the case of a distribution by a partnership to a partner gain shall not be recognized to such partner except to the extent that any money distributed exceeds the adjusted_basis of such partner's_interest_in_the_partnership immediately before the distribution loss shall not be recognized to such partner except that upon a distribution in liquidation_of_a_partner's_interest in a partnership where no property other than that described in sec_731 or b is distributed to such partner loss shall be recognized to the extent of the adjusted_basis of such partner's interest over the sum of - a any money distributed and b the basis to the distributee as determined under sec_732 of any unrealized_receivables as defined in sec_751 and inventory as defined in sec_751 plr-104931-00 sec_731 provides that for purposes of sec_731 and sec_737 - a the term money includes marketable_securities and b such securities shall be taken into account at their fair_market_value as of the date of the distribution sec_731 provides that for the purposes of sec_731 the term marketable_securities means financial instruments and foreign_currencies which are as of the date of the distribution actively_traded within the meaning of sec_1092 sec_731 provides that for the purposes of sec_731 the term marketable_securities includes any financial_instrument the value of which is determined substantially by reference to marketable_securities sec_731 provides that the term financial_instrument includes stocks and other equity interests evidences of indebtedness options forward or futures contracts notional_principal_contracts and derivatives sec_731 provides that sec_731 shall not apply to the distribution from a partnership of a marketable_security to a partner if such partnership is an investment_partnership and such partner is an eligible_partner thereof sec_731 provides that the term investment_partnership means any partnership which has never been engaged in a trade_or_business and substantially_all of the assets by value of which have always consisted of i money ii stock in a corporation iii notes bonds debentures or other evidences of indebtedness iv interest rate currency or equity notional_principal_contracts v foreign_currencies vi interests in or derivative financial instruments including options forward or futures contracts short positions and similar financial instruments in any asset described in any other subclause of this clause or in any commodity traded on or subject_to the rules of a board_of trade or commodity exchange vii other assets specified in regulations prescribed by the secretary or viii any combination of the foregoing sec_731 provides that for the purposes of sec_731 a partnership shall not be treated as engaged in a trade_or_business by reason of i any activity undertaken as an investor trader or dealer in any asset described in sec_731 or ii any other activity specified in regulations prescribed by the secretary sec_731 provides that the term eligible_partner means any partner who before the date of the distribution did not contribute to the partnership any property other than assets described in sec_731 fund represents that none of its investors acquired their interests in any of the funds in exchange for any asset other than cash or other permissible investments of investment partnerships within the meaning of sec_731 plr-104931-00 sec_751 provides in part that for the purposes of subchapter_k the term unrealized_receivables includes goods delivered or to be delivered to the extent the proceeds therefrom would be treated as amounts received from the sale_or_exchange of property other than a capital_asset or services rendered or to be rendered sec_751 provides that for the purposes of subchapter_k the term inventory means - property of the partnership of the kind described in sec_1221 any other_property of the partnership which on sale_or_exchange by the partnership would be considered property other than a capital_asset and other than property described in sec_1231 any other_property of the partnership which if sold or exchanged by the partnership would result in a gain taxable under sec_1246 relating to gain on foreign_investment_company_stock and any other_property held by the partnership which if held by the selling or distributee partner would be considered property of the type described in sec_751 - after applying the relevant law to the facts submitted and the representations made we conclude that all of the contributions and related distributions involved the distribution_of_property from investment partnerships to eligible partners as those terms are used in sec_731 thus under sec_731 no money was distributed by or to fund or its investors therefore no investor in fund shall recognize any gain as a result from the contributions or the related distributions further we conclude that no unrealized_receivables or inventory as those terms are used in sec_731 were distributed to any investor in fund therefore under sec_731 no investor in fund shall recognize any loss as a result from the contributions or the related distributions b the investors' bases and holding periods in their new properties shall be determined accordingly sec_732 provides that the basis_of_property other than money distributed by a partnership to a partner in liquidation of the partner's interest shall be an amount equal to the adjusted_basis of such partner's_interest_in_the_partnership reduced by any money distributed in the same transaction sec_735 provides that in determining the period for which a partner has held property received in a distribution from a partnership other than for purposes of sec_735 there shall be included the holding_period of the partnership as determined under sec_1223 with respect to such property sec_1223 provides that in determining the period for which the taxpayer has held property however acquired there shall be included in the period for which such property was held by any other person if under this chapter such property has for the purpose of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in his hands as it would have in the hands of such other person plr-104931-00 based on the findings that no investor in any of the funds recognized gain_or_loss upon the contributions each investor in fund receiving an interest in fund or fund as the case may be will have a basis in such interest in fund or fund equal to its adjusted_basis determined immediately prior to the distribution of such interest in fund furthermore provided that any such interest in fund or fund is a capital_asset each investor will have a holding_period as determined under sec_1223 for such interest conclusions as stated above after applying the relevant law to the facts submitted and the representations made we find that neither fund nor any of its interest holders will recognize gain_or_loss as result of the contributions furthermore the bases and holding periods of all of the assets involved to fund and its investors will be determined under sec_722 sec_723 sec_732 sec_735 and sec_1223 as applicable 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 specifically we express no opinion about whether subsequent transfers of property to fund or fund by any transferor would be considered to be part of the original transfers thereby potentially affecting the tax consequences of the original transfers additionally we express no opinion about whether the above- referenced transfers are part of a plan to achieve diversification without recognition of gain under sec_1_351-1 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 pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to the taxpayer this ruling is directed only to the taxpayer requesting it fund sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours robert honigman acting assistant to the chief branch office of the associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index number -------------------------------- -------------------- -------------- ----------------------------------- ---------- ------------ - department of the treasury washington dc person to contact ------------------------ id no ------------- telephone number -------------------- refer reply to cc psi b01 - plr-121607-05 date january ------------ -------------------------- -------------------------------- legend x ----------------------------------------------------------- country date ------------------ dear --------------- this letter responds to the letter dated date and related correspondence written on behalf of x requesting a ruling that it be granted an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations in which to elect to be treated as a partnership for federal tax purposes under sec_301_7701-3 facts according to the information submitted x was validly formed under country law on date x represents that as of date x was eligible to make an election under sec_301_7701-3 to be a partnership for federal income purposes however the form_8832 entity classification election inadvertently was not timely filed law and analysis sec_301_7701-3 provides that a business_entity not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect plr-121607-05 its classification for federal tax purposes sec_301_7701-3 provides that except as provided in sec_301_7701-3 unless the entity elects otherwise a foreign eligible_entity is classified as a partnership if it has two or more members and at least one member does not have limited_liability an association if all members have limited_liability or disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301 b by filing form_8832 entity classification election with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i 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 sec_301_9100-2 provides automatic_extension of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that x has satisfied the requirements of sec_301_9100-3 as a result x is granted an extension of time of sixty days from the date of this letter to file a properly executed form_8832 with the appropriate service_center to elect to be treated as a partnership for federal tax purposes effective date a copy of this letter should be attached to the election a copies is enclosed for that purpose except as specifically set forth above we express no opinion concerning the federal tax consequences of the above described facts under any other provision of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent plr-121607-05 pursuant to a power_of_attorney on file with this office a copy of this letter is being forwarded to the taxpayer’s authorized representative heather maloy sincerely heather maloy associate chief_counsel passthroughs and special industries enclosures cc copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ---------------------- ------------------------------------------------------------ --------- ---------------------------- ------------------------- -------------------------------- - - department of the treasury washington dc person to contact ---------------------- id no --------------- telephone number --------------------- refer reply to cc intl plr-113521-06 date date -------------------------------------------------------------- -------------------- ------------------------ -------------------------- ----------------------------- -------------------------------------- taxpayer ----------------------------------------------------------------------------- branch branch entity entity entity ---------------------------------------------------------------------------------------------------------------- entity year year year year year year year ------------------- ------- ------- ------- ------- ------- ------- ------- --------- --------- ----------- ------------ ------------ ------------ ------------ ------------ in re plr-113521-06 year aa bb cc dd ee ff gg firm country a country b country c country d country e country f dear ------------- this is in response to a letter dated date requesting an extension of time under sec_301_9100-3 to file certain elections under sec_1 g i or sec_1_1503-2t g i as applicable and annual certifications under sec_1_1503-2 or sec_1_1503-2t g vi b as applicable for year sec_1 through additional information was received in letters dated march june june and september and and date the information submitted for consideration is substantially as set forth below -------------------------- -------------- ------------ ------------ ---------- ------- ----- in re plr-113521-06 the ruling contained in this letter is predicated upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process during year sec_1 and firm was engaged to review the federal corporate tax_return of taxpayer firm failed to advise taxpayer of the need to make the required elections under sec_1_1503-2 for the losses_incurred by entitie sec_1 and in year or for the loss incurred by branch in year as a consequence of such failure the required elections were not made for entitie sec_1 and in year or for branch in year taxpayer’s director tax failed to advise taxpayer to make the required elections under sec_1_1503-2 with respect to the losses_incurred by branche sec_1 and in year as a consequence of such failure the required elections were not made for branche sec_1 and in year taxpayer submitted its ruling_request concerning the loss incurred by entity in year before the service had discovered that the required election under sec_1_1503-2t g i had not been made branch is a foreign_branch within the meaning of sec_1_367_a_-6t of a domestic subsidiary of taxpayer and a separate_unit described in sec_1 c i a located in country a dual consolidated losses of amount aa and bb were incurred by branch in country a in year sec_2 and respectively branch is a foreign_branch within the meaning of sec_1_367_a_-6t of a domestic subsidiary of taxpayer and a separate_unit described in sec_1 c i a located in country c dual consolidated losses of amount dd were incurred by branch in year entity is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1_1503-2 entity has activities in country b that constitute a foreign_branch entity branch within the meaning of sec_1_367_a_-6t entity branch is a separate_unit described in sec_1_1503-2 dual consolidated losses of amount cc for year are attributable to entity branch no dual consolidated losses are attributable to the interest in entity entity is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1_1503-2 entity has activities in country d that constitute a foreign_branch entity branch within the in re plr-113521-06 meaning of sec_1_367_a_-6t entity branch is a separate_unit described in sec_1_1503-2 dual consolidated losses of amount ee for year 1are attributable to entity branch no dual consolidated losses are attributable to the interest in entity entity is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1_1503-2 entity has activities in country e that constitute a foreign_branch entity branch within the meaning of sec_1_367_a_-6t entity branch is a separate_unit described in sec_1_1503-2 dual consolidated losses of amount ff for year are attributable to entity branch no dual consolidated losses are attributable to the interest in entity entity is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1_1503-2 entity has activities in country f that constitute a foreign_branch entity branch within the meaning of sec_1_367_a_-6t entity branch is a separate_unit described in sec_1_1503-2 dual consolidated losses of amount gg for year are attributable to entity branch no dual consolidated losses are attributable to the interest in entity the income_tax laws of country c and country d do not deny the use of losses expenses or deductions of branch and entity to offset income of another person because the dual_resident_corporation or separate_unit is also subject_to income_taxation by another country on its worldwide income or on a residence basis sec_301 -1 b provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 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 in re plr-113521-06 in the present situation the filings described in sec_1_1503-2 or sec_1_1503-2t g as applicable are regulatory elections as defined in sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the rules set forth in sec_301_9100-3 based on the facts and information submitted we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file the elections for the dual consolidated losses described in this letter attributable to branch and branch and entity branch entity branch entity branch and entity branch for year sec_1 through taxpayer is not required to file annual certifications under the facts described herein because the taxpayer’s dual consolidated losses are attributable to separate units described in sec_1_1503-2 and therefore an extension of time is not necessary in this regard sec_1_1503-2 the granting of an extension of time is not a determination that taxpayer is otherwise eligible to file the election agreements sec_301_9100-1 for example a taxpayer that is subject_to mirror legislation enacted by a foreign_country may be ineligible to file election agreements pursuant to sec_1_1503-2 a copy of this ruling letter should be associated with the election agreements that are the subject of this ruling this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented sincerely in re plr-113521-06 pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to taxpayer’s authorized representative enclosure copy for purpose--s _______________ michael a difronzo deputy associate chief_counsel international


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b02-plr-159793-02 date date legend x a d1 year dear this responds to your letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year a the president of x represents that the shareholders of x intended for x to be an s_corporation a form_1120s u s income_tax return for an s_corporation was filed for the year taxable_year indicating the shareholders’ intention that x be an s_corporation however x’s accountant inadvertently failed to file form_2553 election to be a small_business_corporation for year sec_1362 of the code provides that if - a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year plr-159793-02 based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s year taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically ruled upon above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions of the code including whether x was or is a small_business_corporation under sec_1361 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 sincerely yours carolyn hinchman gray senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c summary opinion united_states tax_court blaney h howle iii and polly t howle petitioners v commissioner of internal revenue respondent docket no 6702-00s filed date blaney h howle iii and polly t howle pro sese amy dyar seals for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure - - the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined a deficiency of dollar_figure in petitioners’ federal_income_tax the issues for decision are whether respondent subjected petitioners to multiple audits for their taxable_year in violation of sec_7605 and whether respondent determined petitioners’ federal_income_tax correctly background the stipulation of facts and the accompanying exhibits are incorporated herein by reference petitioners resided in florence south carolina at the time their petition was filed with the court petitioners are husband and wife petitioner blaney h howle iii mr howle turned on date and petitioner polly t howle mrs howle turned on date mr howle has been retired on disability from railroad employment since the age of in mr howle received tier railroad retirement benefits of dollar_figure and mrs howle received tier railroad retirement benefits of dollar_figure mr howle also received dollar_figure in tier railroad retirement benefits and dollar_figure in supplemental annuity benefits mr howle’s employee contributions toward tier benefits total dollar_figure in mrs howle received dollar_figure in tier railroad retirement benefits mrs howle has no employee contributions to recover petitioners reported their dollar_figure of tier railroad retirement benefits and supplemental annuity benefits as social_security_benefits and the dollar_figure of tier railroad retirement benefits as the taxable_amount on their joint form_1040 u s individual_income_tax_return return petitioners made a dollar_figure math error in adding their itemized_deductions on their schedule a itemized_deductions the internal_revenue_service irs corrected this math error and as a result petitioners received a refund of dollar_figure for rather than the dollar_figure they claimed for a refund on their return by letter dated date mr howle asked the irs to explain how social_security and railroad retirement benefits are taxed the irs responded by letter dated date with corrected copies of petitioners’ form_1040 schedule d capital_gains_and_losses and social_security_benefits worksheet the irs determined petitioners’ tax_liability based on dollar_figure of tier railroad retirement benefits received and adjustments to petitioners’ tax computations using maximum capital_gains rates as a result petitioners received an additional refund for of dollar_figure however the irs did not account for the tier railroad retirement and supplemental annuity benefits received by petitioners q4e- by notice dated date september notice the irs proposed to change petitioners’ return to include unreported pension income the proposed changes appear to have been brought about by review of petitioners’ return and the information returns submitted to the irs by the railroad retirement board petitioners disagreed with the proposed changes set forth and the irs realized that the proposed changes failed to include dollar_figure of the taxable tier railroad retirement benefits by letter dated date the irs acknowledged that the changes proposed in its september notice were incorrect and proposed revised changes to petitioners’ return december proposed changes the december proposed changes are the basis for the statutory_notice_of_deficiency issued petitioners on date discussion since railroad retirees have been taxed on two categories of benefits see railroad retirement solvency act of publaw_98_76 97_stat_411 tier benefits are taxed in the same manner as social_security_benefits under the provisions of sec_86 see sec_86 tier benefits are taxed in the same manner as pension benefits provided under an employer plan that meets the requirements of sec_401 see sec_72 - - petitioners challenge the validity of respondent’s notice_of_deficiency claiming that they have been subjected to multiple audits for their tax_year although they concede that their railroad retirement benefits are taxable they challenge respondent’s calculations there is no express limit on the number of examinations that may be pursued by the irs for the same taxable_year see 103_tc_441 sec_7605 however protects taxpayers from repetitive investigations undertaken by the irs as a means of harassment see 84_tc_1349 61_tc_693 it provides no taxpayer shall be subjected to unnecessary examination or investigations and only one inspection of a taxpayer’s books of account shall be made for each taxable_year unless the taxpayer requests otherwise or unless the secretary after investigation notifies the taxpayer in writing that an additional inspection is necessary sec_7605 in petitioners’ case respondent has not violated either of the two prohibitions contained in sec_7605 petitioners have not been subjected to an unnecessary examination or investigation nor have their books_and_records been reexamined without written notice thereof nothing in the record suggests that petitioners were subjected to an unnecessary examination sec_7605 was not meant to restrict the scope of respondent's legitimate effort to protect the revenue see 379_us_48 collins v commissioner supra it is not to be read so liberally as to defeat the powers granted to the irs to examine the correctness of taxpayers’ returns see 313_f2d_79 9th cir petitioners did not include any of their tier railroad retirement benefits in the gross_income reported on their return and they incorrectly included all of their tier benefits they now acknowledge that percent of their tier benefits are includable in gross_income and they do not dispute that their tier benefits are taxable in the same manner as pension benefits petitioners do not suggest that the irs properly accounted for these items in its previous adjustments to their return therefore respondent did not subject petitioners to an unnecessary examination further nothing in the record suggests that respondent ever examined or inspected petitioners’ books of account the irs first corrected a mathematical error made by petitioners on their return in response to petitioners’ request for assistance the irs then attempted to provide petitioners with a completed form_1040 calculating their income_tax_liability it appears that the irs realized that the return it had completed was incorrect when it matched petitioners’ return with information returns received from the railroad retirement board based on this review the irs sent a notice proposing changes to petitioners’ return after petitioners objected to the proposed changes the irs recognized it had failed to include dollar_figure of the dollar_figure petitioners now acknowledge is the portion of their tier benefit which is includable in their gross_income the irs corrected this error and sent petitioners a new notice of proposed changes the irs’ reconsideration of petitioners’ tax_return and accompanying schedules does not constitute an inspection of their books of account see curtis v commissioner supra pincite 66_tc_1084 affd 592_f2d_1259 5th cir likewise respondent’s comparison of petitioners’ return with the information returns of a third party does not constitute an inspection of petitioners’ books of account see digby v commissioner supra pincite there is no evidence that petitioners’ books of account were ever examined much less that they were examined for a second time without the notice required by sec_7605 thus respondent has not violated sec_7605 we now turn to respondent’s computation of petitioners’ income_tax_liability petitioners have conceded that dollar_figure percent of their tier_1_railroad_retirement_benefit is includable in their gross_income petitioners do not dispute that their tier and supplemental annuity benefits are --- - taxable however they have challenged the amount of the deficiency determined by respondent therefore an examination of the taxable_amount of petitioners’ tier and supplemental annuity benefits is necessary tier railroad retirement benefits are treated for tax purposes as provided under an employer plan that meets the requirements of sec_401 see sec_72 sec_402 provides that such benefits are subject_to tax to the extent provided in sec_72 which relates to annuities sec_72 generally requires any amount_received_as_an_annuity to be included in gross_income sec_72 however allows taxpayers to exclude the benefits which represent a return of their own investment in their employer’s plan the method for recovery_of investment provided for in sec_72 b excludes from gross_income the amount of any monthly annuity_payment that does not exceed the amount obtained by dividing the taxpayer’s contribution to the plan by the number of anticipated payments sec_1_72-15 income_tax regs provides that sec_72 does not apply to any amount received as an accident or health benefit the pension benefits petitioners received as a result of petitioner’s disability are accident or health benefits within the meaning of sec_1_72-15 income_tax regs see sec_1 a income_tax regs if a plan provides that any portion of - an accident or health benefit is attributable to the contributions of the employee then that portion of the benefit is excludable from gross_income under sec_104 see sec_1_72-15 income_tax regs if however the plan does not expressly provide that the accident or health benefits are to be provided with employee contributions and the portion of employee contributions to be used for such purpose it will be presumed that none of the employee contributions is used to provide such benefits see sec_1_72-15 income_tax regs absent disability no railroad retirement benefits are paid until the employee reaches age or is at least years old and has completed years_of_service see railroad retirement act of publaw_93_445 88_stat_1312 currently codified pincite u s c sec a petitioners have not presented any evidence regarding mr howle’s length of service we thus conclude that mr howle was not eligible for retirement until he turned on date and that the railroad retirement benefits petitioners received in were on account of disability until such date we have found no provision in the railroad retirement act expressly stating that disability benefits are to be provided with employee contributions see u s c therefore all of the tier benefits received by petitioners through date are to be included in gross_income - petitioners however are entitled to exclude from gross_income the portion of mr howle’s benefits received in november and december that is attributable to his contributions mr howle’s total employee contributions are dollar_figure the number of anticipated monthly payments is see sec_72 b thus petitioners may exclude dollar_figure dollar_figure divided by and multiplied by of their tier benefits see id because mrs howle had no employee contributions all of her tier benefits are taxable no part of an employee’s contribution is allocable to a supplemental annuity see sec_72 thus the dollar_figure mr howle received as a supplemental annuity benefit is fully includable in petitioners’ gross_income in view of the discrepancies among respondent’s computations of petitioners’ income for we direct that a computation under rule be made reviewed and adopted as the report of the small_tax_case division decision will be entered under rule


internal_revenue_service number release date index number ------------------ ---------------- ---------------------------- ------------------------------------- legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ------------ telephone number -------------------- refer reply to cc psi b01 plr-112158-14 date date x -------------------------------------------------- ------------------------------------------------------------------------------------------ country date ------------ ---------------- dear ------------- this is in response to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts according to the information submitted x was formed under the laws of country on date x represents that it is a foreign_entity eligible to elect to be classified as a disregarded_entity for federal tax purposes effective date x intended to be classified as a disregarded_entity effective date however due to inadvertence x failed to timely file form_8832 entity classification election to elect to be treated as a disregarded_entity for federal tax purposes x represents that granting relief to allow it to file a late election to be treated as a disregarded_entity will not prejudice the interests of the government in addition x represents that it acted reasonably and in good_faith law and analysis plr-112158-14 sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single owner having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election to be treated as a disregarded_entity for federal tax purposes effective date x must make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form this ruling is contingent on the owners of x filing by the earlier of days from the date of this letter or the expiration of the period of limitations for any year at issue in this plr-112158-14 ruling all required federal_income_tax and information returns including amended returns consistent with the requested relief being effective on date except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely associate chief_counsel passthroughs special industries joy c spies by joy c spies senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc