internal_revenue_service department of the treasury number release date index number in re washington dc person to contact melissa arndt id telephone number refer reply to cc intl br3-plr-115040-00 date date legend taxpayer business x date a customer dear this is in response to your letter dated date requesting a ruling that the bulgarian withholding_tax described in article of the bulgarian corporate_income_tax act bcita imposed on certain income that is not derived from a permanent_establishment bulgarian withholding_tax qualifies as a tax in lieu of a tax on income under sec_903 of the internal_revenue_code code the ruling contained in this letter is 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 this ruling all of the information submitted is subject_to verification on examination further our analysis and conclusion is based upon a certified english translation of the bcita as promulgated in bulgaria’s state gazette no on date and as amended in and subsequent amendments to the bcita may change our analysis and conclusion with respect to the bulgarian withholding_tax for affected years this ruling is conditioned on the accuracy of the translation as provided by the taxpayer the internal_revenue_service has made no independent verification of the accuracy of the translation of the foreign law supplied the information submitted for consideration is summarized below taxpayer a united_states subchapter_s_corporation develops and implements standardized computer_software for customers engaged in business x taxpayer developed a software application software which it licenses worldwide in connection with licensing its software taxpayer provides implementation-related plr-115040-00 technical services and support to software licensees on date a taxpayer entered into a multi-year license and implementation agreement agreement with customer a bulgarian company engaged in business x and headquartered in sofia bulgaria pursuant to the terms of the agreement customer acquired a nonexclusive license to use taxpayer’s software for business x purposes including rights to software operating manuals future modifications enhancements supplements and alterations to the software taxpayer agreed to assist customer in the selection installation and certification of the hardware system software software security third-party software telecommunications and operational procedures finally throughout the term of the agreement taxpayer is obligated to support the most recent upgrades to the software making u s personnel available for telephone consultation or computer-to-computer diagnosis at all times taxpayer will implement the software in three phases over an month period during the implementation taxpayer’s employees will conduct all software-related activities within customer’s facilities taxpayer represents that pursuant to the agreement customer will pay to taxpayer amounts in the form of royalties and consideration for technical services that will be subject_to the bulgarian withholding_tax taxpayer further represents that bulgaria under article sec_3 and of the bcita has a tax on realized net_income that is generally imposed on bulgarian taxpayers including foreign persons doing business in bulgaria and taxpayer will not be subject_to such bulgarian tax on realized net_income because taxpayer will not be engaged in business activities in bulgaria certain entities are subject_to the bulgarian withholding_tax with respect to income eg royalties and income from technical services that is not derived from a permanent_establishment bcita art article of the bcita provides that the base for the bulgarian withholding_tax is the gross amount of income from interest payments royalties consideration for technical services and rental payments the bulgarian withholding_tax is imposed at a rate of bcita art the bcita does not contain any provisions conditioning the liability for any of the taxes imposed by it on the availability of a credit for such tax against income_tax_liability of another country article of the bcita provides that tax subjects under the bcita include local and foreign persons tax subjects are the bearers of the tax_liability bcita art sec_901 of the code allows a foreign_tax_credit for the amount of any income_war_profits_and_excess_profits_taxes paid_or_accrued during the taxable_year to any foreign_country sec_903 of the code provides that the term income_war_profits_and_excess_profits_taxes includes a tax paid in lieu of a tax on income war profits or excess profits otherwise generally imposed by a foreign_country a foreign levy is a tax in lieu of an income_tax if and only if it is a tax within the meaning of sec_1_901-2 of the regulations and it meets the substitution requirement set forth in sec_1_903-1 of the plr-115040-00 regulations sec_1_903-1 sec_1_901-2 of the regulations provides that only the person by whom the tax is considered paid for purposes of sec_901 and sec_903 of the code is the person on whom foreign law imposes legal liability for such tax even if another person remits such tax for purposes of sec_1_901-2 sec_1_901-2a and sec_1 of the regulations the person on whom foreign law imposes such liability is referred to as the taxpayer sec_1_901-2 before determining the creditability of a foreign tax under sec_901 or sec_903 of the code it must first be established that the levy is separate from others imposed by the foreign taxing authority for purposes of sec_901 and sec_903 of the code whether a single levy or separate levies are imposed by a foreign_country depends upon u s principles and not on whether foreign law imposes the levy or levies in a single or separate statutes sec_1_901-2 where the base of a levy is different in_kind and not merely in degree for different classes of persons subject_to the levy the levy is considered to impose separate levies for such classes of persons id the bulgarian withholding_tax is imposed on the gross amount of limited specifically enumerated categories of income the generally imposed levy under the bcita is imposed on a base of realized net_income the bulgarian withholding_tax and the generally imposed levy under the bcita are each computed by reference to a separate base accordingly the bulgarian withholding_tax and the generally imposed levy under the bcita are separate levies for purposes of sec_901 and sec_903 a foreign levy qualifies as a tax within the meaning of sec_1_901-2 of the regulations if it requires a compulsory payment pursuant to the authority of a foreign_country to levy taxes principles of u s law are used to determine whether a foreign levy requires a compulsory payment pursuant to a foreign country’s authority to levy taxes id a foreign levy is not pursuant to a foreign country’s authority to levy taxes and thus is not a tax to the extent a person subject_to the levy receives or will receive directly or indirectly a specific_economic_benefit from the foreign_country in exchange for payment pursuant to the levy id sec_1_903-1 of the regulations provides that a foreign tax satisfies the substitution requirement if the tax in fact operates as a tax imposed in substitution for and not in addition to an income_tax or a series of income taxes otherwise generally imposed a foreign tax satisfies the substitution requirement only to the extent that liability for the foreign tax is not dependent by its terms or otherwise on the availability of a credit for the foreign tax against income_tax_liability to another country sec_1_903-1 the bulgarian withholding_tax satisfies the substitution requirement of sec_1_903-1 because it operates as a tax imposed in substitution for and not in addition to the otherwise generally imposed bulgarian tax on realized net_income further liability for plr-115040-00 bulgaria’s withholding_tax on income from royalties and consideration for technical services does not depend on the availability of a credit for foreign tax against the income_tax_liability to another country finally taxpayer represents that pursuant to the bcita legal liability for the bulgarian withholding_tax is imposed on taxpayer even though a party other than taxpayer will be required to remit payment of such tax to the bulgarian government based solely on the information and representations submitted without opining thereon and assuming that bulgaria has a generally imposed tax on realized net_income that qualifies as an income war profits or excess_profits_tax described in sec_901 of the code taxpayer is not receiving a specific_economic_benefit as described in sec_1_901-2 taxpayer is not subject_to bulgaria’s generally imposed tax on realized net_income and the bcita is not retroactively materially amended in such a way that would change our analysis we conclude that the bulgarian withholding_tax is a tax in lieu of a tax on income war profits or excess profits for purposes of sec_903 of the code subsequent amendments to the bcita applicable to prospective taxable years may change our analysis and conclusion with respect to the bulgarian withholding_tax finally this conclusion is based on taxpayer’s representation that taxpayer is subject_to the bulgarian withholding_tax and legally liable for that tax 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 including the characterization of the payments from customer to taxpayer a copy of this letter must be attached to any income_tax return to which it is relevant this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer and the second taxpayer_representative sincerely anne o’connell devereaux assistant to the branch chief branch office of the associate chief_counsel international


t c memo united_states tax_court steven n levi and cristina levi petitioners v commissioner of internal revenue respondent docket no filed date steven n levi and cristina levi pro sese anne m craig and lauren b epstein for respondent memorandum opinion dawson judge after concessions by both parties the issues remaining for decision in this case are whether steven n levi petitioner is entitled for the because respondent has conceded that cristina levi had no federal_income_tax liability or filing requirement for the taxable_year all references to petitioner herein relate only to steven n levi taxable_year to all deductions claimed on schedule a itemized_deductions of his invalid return adjustments to gross_income of dollar_figure for a self-employed health insurance deduction and dollar_figure for an alimony paid deduction a loss deduction of dollar_figure claimed on schedule c profit or loss from business from a dog breeding business and dependency_exemption deductions for his two minor daughters in addition we must decide whether petitioner is liable for a sec_6651 addition_to_tax of dollar_figure and a sec_6662 accuracy-related_penalty of dollar_figure for federal_income_tax return for background in date petitioners hired florida attorney sarah martello to prepare their form_1040 u s individual_income_tax_return for ms martello signed the return on their behalf on date which was the extended deadline for filing the record is unclear as to when the return was mailed respondent received the return on date unless otherwise indicated all section references are to the internal_revenue_code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure petitioners reported the following on their federal_income_tax return form_1040 income line wages dollar_figure line 8a taxable interest dollar_figure line schedule e income dollar_figure adjusted_gross_income line self-employed health insurance deduction dollar_figure line 31a alimony paid deduction dollar_figure schedule a itemized_deductions line medical and dental expenses dollar_figure line state_and_local_general_sales_taxes dollar_figure line real_estate_taxes dollar_figure line home mortgage interest dollar_figure line gifts to charity by cash or check dollar_figure line unreimbursed employee_expenses dollar_figure line tax preparation fees dollar_figure line other expenses dollar_figure atty fees--defense of sh interest schedule c profit or loss from business line business loss dollar_figure tax_credits payments and refund form_1040 line exemptions dollar_figure line alternative_minimum_tax dollar_figure line withholding credits dollar_figure line 74a refund dollar_figure notice_of_deficiency on date respondent issued a notice_of_deficiency to petitioners determining a dollar_figure deficiency in their federal_income_tax a dollar_figure addition_to_tax under sec_6651 for failure to timely file and a dollar_figure accuracy-related_penalty under sec_6662 petition when petitioners filed their timely petition on date they resided in florida answer on date respondent filed an answer conceding that petitioners did not overclaim withholding credits on their return making adjustments to petitioners’ return and alleging that petitioners did not sign their return in their names and therefore they failed to file a return for that year in his amended answer filed date respondent reiterated that petitioners did not sign their return petitioners did not file a reply divorce petitioners subsequently divorced and the decree became final on date prior issue decided in this case on date respondent filed a motion for partial summary_judgment contending that petitioners did not file a valid federal_income_tax return for petitioners filed timely responses to respondent’s motion on date respondent’s motion for partial summary_judgment was granted pursuant to the court’s memorandum opinion levi v commissioner tcmemo_2015_118 on the ground that petitioners’ federal_income_tax return is invalid because it was not signed by them or their authorized agent first amendment to amended answer on date respondent filed his first amendment to amended answer stating as follows further answering the petition and in support of increasing the deficiency from dollar_figure against both petitioners as shown in the notice_of_deficiency to an amount to be determined against petitioner husband only based on total unreported income in the amount of dollar_figure including dollar_figure in unreported taxable retirement income as set forth in the notice_of_deficiency for the taxable_year claim for which is being made under the provisions of sec_6214 respondent alleges the following a petitioner husband has not filed a valid income_tax return for taxable_year b petitioner husband received dollar_figure in wages in taxable_year c petitioner husband received dollar_figure in taxable interest in taxable_year d petitioner husband received dollar_figure in schedule e income in taxable_year e accordingly respondent asserts that including the adjustments contained in the notice_of_deficiency petitioner husband failed to report taxable_income in the amount of dollar_figure for the taxable_year f petitioner husband’s filing_status should be married_filing_separately g petitioner husband is entitled to a standard_deduction of dollar_figure h petitioner husband is entitled to one personal_exemption in the amount of dollar_figure i petitioner husband’s correct_tax liability is dollar_figure j petitioner wife has not filed a valid income_tax return for taxable_year k petitioner wife has no filing requirement for taxable_year wherefore it is prayed that the relief sought in the petition be denied and that respondent’s determination as set forth in the notice_of_deficiency and as supplemented by this first amendment to amended answer be in all respects approved reply to first amendment to amended answer on date petitioners filed a reply to the first amendment to amended answer admitting as follows admits that a petitioner husband steven levi hereinafter mr levi received dollar_figure of taxable retirement income for taxable_year as set forth in the notice_of_deficiency that was not reported on the document that was intended to be mr levi’ sec_2010 tax_return as further described below b that respondent seeks an increase sic deficiency pursuant to sec_6214 and c that respondent seeks a deficiency only against mr levi and denies the remainder a admits that based on the court’s date memorandum opinion and date order mr levi did not file a valid federal_income_tax return b admits c admits d admits e denies and alleges that mr levi directed his return preparer sarah martello hereinafter ms martello to prepare and file hi sec_2010 federal_income_tax return which reported the exact items of income as outlined in paragraphs 7b 7c and 7d of respondent’s first amendment to amended answer and that such tax_return was timely filed with respondent and for which respondent relied upon when issuing the notice_of_deficiency forming the basis of this case only because ms martello signed such tax_return on behalf of the petitioners by virtue of her power_of_attorney form which was not valid authority to sign a tax_return pursuant to applicable treasury regulations this court found such tax_return was invalid thus although technically invalid a document purporting to be mr levi’ sec_2010 return and reporting the foregoing income was timely filed with respondent f admits g denies and alleges mr levi is entitled to itemized_deductions as reported on schedule a attached to the document that was intended to be mr levi’ sec_2010 tax_return but for the invalid signature of ms martello consisting of medical and dental expenses of dollar_figure general sales and real_estate_taxes of dollar_figure home mortgage interest of dollar_figure charitable_contributions of dollar_figure and miscellaneous deductions of dollar_figure these amounts may be reduced by operation of law h denies and alleges mr levi is entitled to claim personal_exemption deductions for himself and his two daughters both of whom were reported on the document that was intended to be mr levi’ sec_2010 tax_return but for the invalid signature of ms martello i denies and alleges that in addition to itemized_deductions and personal_exemption deductions as outlined above mr levi is also entitled to a a schedule c loss as reported on line of the form_1040 that was intended to be mr levi’ sec_2010 tax_return but for the invalid signature of ms martello b adjustments to gross_income of dollar_figure for self-employed health insurance deduction and dollar_figure of alimony paid as reported on line sec_29 and sec_31a of the form_1040 that was intended to be mr levi’ sec_2010 tax_return but for the invalid signature of ms martello and e withholding credits of dollar_figure j admits k admits wherefore petitioners pray that the court determine a mr levi’s correct_tax liability after accounting for all losses deductions adjustments to gross_income and withholding credits as outlined above b that mr levi has no liability for penalties additions to tax pursuant to sec_6651 and sec_6662 c determine petitioner wife mrs levi has no tax_liability or liability for penalties additions to tax and d for such other relief as the court deems just and proper date court order and subsequent events on date this court ordered the parties to file a memorandum brief regarding the burden_of_proof with respect to the issues remaining in dispute3 and to file a stipulation of facts with respect to all contested issues remaining for decision in this case by date that order also set the case for trial at a special trial session of the court on date in jacksonville florida harris l bonnette jr was petitioners’ counsel of record because petitioner failed to cooperate with his attorney mr bonnette filed a motion to the notice_of_deficiency did not disallow petitioners’ claimed schedule a deductions schedule c business loss deduction and gross_income adjustments for the health insurance deduction and alimony paid deduction accordingly the court ordered the parties to address whether petitioner or respondent has the burden_of_proof on these issues because they involve new_matter under rule a see 112_tc_183 withdraw on date the court granted mr bonnette’s motion on date for the reasons stated therein on date respondent filed a memorandum of authorities contending that petitioner bears the burden_of_proof as to all claimed deductions and adjustments to income petitioner did not file a memorandum brief regarding the burden_of_proof issue on date respondent filed a status report explaining that on date petitioner sent to respondent’s counsel a nine-page fax including some documentation in support of his position respondent attached a copy of the fax and documents to the court for filing along with his status report however on the basis of the documentation petitioner provided respondent stated that he was unable to stipulate to any facts regarding the deductions that petitioner steven n levi claims by order dated date the court agreed with respondent that petitioner continues to bear the burden of proving he is entitled to all the claimed schedule a deductions schedule c expense deductions a schedule c loss deduction dependency_exemption deductions and health insurance and alimony paid adjustments for and ordered petitioner on or before date to submit any further substantiation documents such as cancelled checks credit card statements bank and financial records to this court and respondent to prove that he personally incurred and paid all schedule a deductions and schedule c expenses adjustments to gross_income for self-employed health insurance and alimony and substantiation of dependency_exemptions for his minor daughters that he claims for the taxable_year petitioner failed to comply with the court’s order in the court’s order dated date this case was deemed submitted for opinion and decision based on the pleadings documents and concessions of the parties and the date special trial session was canceled in an order dated date this court requested the parties to show cause on or before date why a trial is necessary and should be held in this case on date respondent filed a response stating that he had no objection to this case’s being submitted for opinion and decision based on the pleadings documents and concessions of the parties petitioner failed to respond to the court’s show cause order in an order dated date the court’s order to show cause dated date was made absolute and the case was submitted for opinion and decision on the existing record based on the pleadings documents and concessions of the parties without a trial discussion i jurisdiction this court has jurisdiction to redetermine taxpayers’ separate tax_liabilities when the notice_of_deficiency is based on an invalid federal_income_tax return see eg 81_tc_634 hiramanek v commissioner tcmemo_2011_280 aff’d 588_fedappx_681 9th cir ii burden_of_proof substantiation and dependency_exemption deductions as a general_rule the commissioner’s determinations in the notice_of_deficiency are presumed correct and taxpayers bear the burden of proving that the determinations are in error rule a 290_us_111 deductions are a matter of legislative grace and taxpayers bear the burden of proving that they are entitled to all claimed deductions 503_us_79 taxpayers must comply with specific requirements for any deductions claimed see 292_us_435 taxpayers must also maintain adequate_records to substantiate the amounts of any deductions sec_6001 sec_1_6001-1 e income_tax regs under sec_7491 the burden_of_proof shifts from the taxpayer to the commissioner only if the taxpayer produces credible_evidence with respect to any factual issue relevant to ascertaining the taxpayer’s tax_liability sec_7491 116_tc_438 however sec_7491 applies with respect to an issue only if the taxpayer has complied with the internal_revenue_code requirements to substantiate any item has maintained all required records and has cooperated with reasonable requests by the commissioner see sec_7491 and b as previously stated we agree with respondent that petitioner bears the burden of proving that he is entitled to all claimed schedule a deductions schedule c expense deductions a schedule c loss deduction of dollar_figure for a purported dog breeding business dependency_exemption deductions for his two minor daughters and gross_income adjustments for health insurance of dollar_figure and alimony of dollar_figure the evidence herein does not establish that the burden_of_proof shifts under sec_7491 petitioner’s documentation regarding some claimed deductions was submitted in his date nine-page fax sent to respondent’s counsel and filed with the court the first document is an invoice from dr arthur james mowery a dentist for patient cristina levi for services rendered on date labial veneer and crown in the total amount of dollar_figure the balance due is reflected as however this document does not prove that petitioner incurred and paid the dollar_figure it appears that it was paid_by cristina levi he has failed to carry his burden_of_proof the second document is a pay stub for petitioner for the period june to date reflecting that his s_corporation tower isles frozen food ltd paid dollar_figure in health benefits for him although the s_corporation may have incurred and paid this amount the document does not substantiate that petitioner incurred and paid the dollar_figure again he has failed to carry his burden_of_proof regarding the claimed dollar_figure health insurance deduction the third document is a bank statement from cristina levi’s account for the period may to date this document does not substantiate any expense underlying a deduction that petitioner claims he is entitled to for the final document does substantiate a part of petitioner’ sec_2010 alimony payment to his former wife mary frances levi that document includes two pages of the transcript dated date in re the former marriage of mary frances levi vs steven n levi in the circuit_court of the ninth judicial circuit in and for orange county florida case no 2001-dr-012110-0 reflecting that petitioner tendered a cashier’s check for dollar_figure on that date to reduce a portion of his alimony accordingly petitioner has proved that he paid dollar_figure in alimony to his former wife mary frances levi and is therefore entitled to that portion of the total alimony claimed of dollar_figure except for this transcript reflecting dollar_figure in alimony paid petitioner has not submitted any substantiation or documentation to prove that he personally incurred and paid any schedule a expenses or schedule c expenses or that he is entitled to adjustments to gross_income for self-employed health insurance accordingly petitioner has failed to carry his burden_of_proof with respect to those issues we now turn to the claimed dependency_exemption deductions for petitioner’s daughters an individual is allowed a deduction for an exemption for each individual who is a dependent as defined in sec_152 of the taxpayer for the taxable_year sec_151 sec_152 defines dependent to include a qualifying_child or a qualifying_relative the requirement is disjunctive and accordingly satisfaction of either the qualifying_child requirement or the qualifying_relative requirement allows the individual to be claimed as a dependent we first turn to whether either of petitioner’s daughters is his qualifying_child in general a qualifying_child must bear a specified relationship to the taxpayer have the same principal_place_of_abode as the taxpayer for more than one-half of the taxable_year meet certain age requirements not have provided over one-half of his or her own support for the year in question and not have filed a joint_return other than a claim_for_refund with a spouse sec c none of petitioner’s documents show that he and his two minor daughters had the same principal_place_of_abode for more than half of the taxable_year therefore on this record we conclude that petitioner has failed to carry his burden of establishing that either daughter is a qualifying_child next we consider whether either of petitioner’s daughters is his qualifying_relative sec_152 sets forth the requirements for a dependent to be a qualifying_relative a qualifying_relative is an individual who bears a relationship to the taxpayer as described in sec_152 whose gross_income for the year is less than the exemption_amount defined in sec_151 who receives over half of his or her support from the taxpayer for the taxable_year at issue and who is not a qualifying_child of the taxpayer or of any other taxpayer for the taxable_year sec_152 none of petitioner’s documents show either the total sources of support or petitioner’s own share of support for his daughters therefore petitioner has failed to carry his burden of establishing that either daughter is his qualifying_relative in sum we conclude that petitioner’s daughters are neither his qualifying children nor his qualifying relatives thus petitioner is not entitled to a dependency_exemption deduction for either of them for petitioner has submitted no substantiation or documentation that he incurred and paid schedule a expenses in for state_and_local_general_sales_taxes dollar_figure real_estate_taxes dollar_figure home mortgage interest dollar_figure gifts to charity dollar_figure unreimbursed employee_expenses dollar_figure tax preparation fees dollar_figure and attorney’s fees dollar_figure petitioner also submitted no substantiation for a claimed net business loss of dollar_figure from a dog breeding business which had gross_receipts of dollar_figure in and total reported expenses of dollar_figure including advertising dollar_figure car and truck expenses dollar_figure legal services dollar_figure office expense dollar_figure other business property dollar_figure supplies dollar_figure and utilities dollar_figure iii sec_6651 addition_to_tax in general sec_6011 requires any person liable for tax to make a return when required and to set forth fully and clearly the information required to be included on the return see sec_301_6011-1 proced admin regs this court treats the filing of an invalid return as the equivalent of not filing a return for sec_6651 purposes see 120_tc_163 aff’d per curiam a f t r 2d ria 3d cir mcneil v commissioner tcmemo_2011_150 aff’d 451_fedappx_622 8th cir sec_6651 authorizes the imposition of an addition_to_tax for failure to timely file a return unless it is shown that such failure is due to reasonable_cause and not due to willful neglect a failure to timely file a federal_income_tax return is due to reasonable_cause if the taxpayer exercised ordinary business care and prudence but nevertheless was unable to file the return within the prescribed time see sec_301_6651-1 proced admin regs willful neglect is a taxpayer’s conscious intentional failure or reckless indifference to timely file a return 469_us_241 the addition_to_tax equal sec_5 for each month that the return is late but may not exceed in total sec_6651 respondent bears the burden of production with respect to the sec_6651 addition_to_tax see sec_7491 higbee v commissioner t c pincite to meet this burden respondent must produce sufficient evidence that it is appropriate to impose this addition_to_tax once respondent has met his burden of production the burden_of_proof regarding reasonable_cause or other mitigating factors shifts to petitioner see higbee v commissioner t c pincite the extended due_date for petitioners’ return was date having concluded in levi v commissioner tcmemo_2015_118 that petitioners’ federal_income_tax return was invalid and considering that neither petitioner filed any subsequent return for that year we hold that respondent has met his burden of production as to the sec_6651 addition_to_tax petitioner has failed to offer any evidence for his failure_to_file a valid return and he has failed to produce any evidence to establish the existence of reasonable_cause that would otherwise excuse his failure_to_file a valid_return for that year accordingly on the basis of the evidence in the record we hold that petitioner is liable for the sec_6651 addition_to_tax iv sec_6662 accuracy-related_penalty sec_6662 and b and authorizes the commissioner to impose a penalty on an underpayment_of_tax that is attributable to among other things negligence or disregard of rules or regulations or any substantial_understatement_of_income_tax the penalty under sec_6662 applies only in cases where a valid_return has been filed see sec_6664 waltner v commissioner tcmemo_2014_133 because we concluded in tcmemo_2015_118 that petitioners’ return was invalid we hold that petitioner is not liable for the sec_6662 accuracy-related_penalty v conclusion to summarize other than proving that he incurred and paid dollar_figure in alimony payments in petitioner has failed to carry his burden_of_proof with respect to the remaining schedule a deductions the schedule c business loss deduction and the dependency_exemption deductions for his daughters in addition petitioner is liable for the sec_6651 addition_to_tax but he is not liable for the sec_6662 accuracy-related_penalty cristina levi has no federal_income_tax liability or filing requirement for the taxable_year to reflect the foregoing decision will be entered pursuant to rule


internal_revenue_service number release date index number --------------------------------------- ------------------------------------ ----------------------------------- in re ----------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------------ telephone number ---------------------- refer reply to cc ita plr-103186-15 plr-103191-15 plr-103193-15 date date legend taxpayer dear ------------------- ----------------------------------------- this is in response to a recent letter requesting certain extensions of time for taxpayer specifically taxpayer requests extensions to file the original copies of three separate forms dealing with three separate automatic accounting_method changes with taxpayer’ sec_2012 u s federal_income_tax return this is required so that all three automatic method change requests will be treated as timely made for the taxable_year ended december the requests are based on sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations facts taxpayer is the corporate parent of a multinational group of companies taxpayer files form 1120-f u s income_tax return of a foreign_corporation on a calendar_year basis the un-extended due_date for taxpayer’s form 1120-f was date however because taxpayer did not have all required information necessary to file a complete and accurate form 1120-f by date the taxpayer internally prepared form_7004 application_for automatic_extension of time to file certain business income_tax information and other returns taxpayer intended to file the form_7004 for the tax_year on or before date plr-103186-15 taxpayer mailed form 1120-f for the 20----tax year to the irs on september this 20----form 1120-f was mailed prior to the date that taxpayer believed to be the filing deadline assuming that form_7004 had been timely filed providing taxpayer with an automatic 6_month extension of time to file its form 1120-f however due to an oversight by a former employee of taxpayer who was responsible for filing the extension and for ensuring taxpayer met all of its filing_requirements the form_7004 was apparently not filed with the irs for the tax_year this former employee did not alert taxpayer to any such problem prior to his departure from taxpayer when taxpayer later received notification from the irs indicating taxpayer had not timely filed form_5472 information_return of a foreign-owned u s_corporation or a foreign_corporation engaged in a u s trade_or_business for the tax_year ended december taxpayer promptly contacted the former employee taxpayer sought verification from the former employee that the 20----form had been timely filed the former employee stated that he could not specifically recollect filing the form_7004 the irs has no record of receiving taxpayer’s form_7004 nevertheless taxpayer's intention to request an automatic_extension to file it sec_2012 income_tax return is evidenced by the fact that taxpayer made an extension payment on date taxpayer attached three forms application_for change in accounting_method to it sec_2012 form 1120-f mailed on september these forms requested the following three automatic method changes automatic change number entitled cooperative advertising discussed at section dollar_figure of the appendix of revproc_2011_14 automatic change number entitled intangibles discussed at section dollar_figure of the appendix of revproc_2011_14 automatic change number entitled rebates and allowances discussed at section dollar_figure of the appendix of revproc_2011_14 section of revproc_2011_14 requires a taxpayer making a change under the automatic consent procedures to complete and file an application on form_3115 in duplicate the original form_3115 must be attached to the taxpayer’s timely filed including extensions original federal_income_tax return for the year_of_change a copy of the from application must be filed with the irs national_office or with the ogden utah office as appropriate no earlier than the 1st day of the year_of_change and no later than when the original is filed with the federal_income_tax return for the year_of_change as explained above given that one of taxpayer’s prior employees failed to file form_7004 the original three form 3115s listed above were not attached to a timely plr-103186-15 filed original federal_income_tax return for the year_of_change although copies of the three forms were timely filed with the irs national_office on date accordingly taxpayer now requests relief under sec_301_9100-3 to obtain extensions of time with respect to its filing_requirements for the three forms at issue more specifically taxpayer has requested that the forms that were previously filed by taxpayer now be considered as timely filed by the irs the examining agent does not object to the granting of taxpayer’s request that the forms that were previously filed by taxpayer now be considered as timely filed by the irs law analysis sec_446 of the internal_revenue_code and sec_1_446-1 of the income_tax regulations require a taxpayer to obtain the consent of the commissioner before changing a method_of_accounting for federal_income_tax purposes to obtain the commissioner's consent sec_1_446-1 generally requires a taxpayer to timely file a form_3115 revproc_2011_14 provides procedures by which a taxpayer may obtain the automatic consent of the commissioner for specified changes in methods_of_accounting under sec_446 section of revproc_2011_14 requires a taxpayer making a change under the automatic consent procedures to complete and file an application on form_3115 in duplicate the original form_3115 must be attached to the taxpayer’s timely filed including extensions original federal_income_tax return for the year_of_change a copy of the from application must be filed with the irs national_office or with the ogden utah office as appropriate no earlier than the 1st day of the year_of_change and no later than when the original is filed with the federal_income_tax return for the year_of_change sec_301_9100-1 through provide the standards the commissioner uses to determine whether to grant an extension of time to make a regulatory election 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 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than plr-103186-15 six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i in this case taxpayer has represented that taxpayer is not foreclosed from being granted an extension of time under section of the regulations on procedure and administration based on any condition contained in sec_301_9100-1 sec_301_9100-3 provides that requests for extensions of time for regulatory elections will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer-- i requests relief before the failure to make the regulatory election is discovered by the service ii inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise taxpayer to make the election in this case taxpayer has represented that taxpayer acted reasonably and in good_faith because taxpayer requested relief before the failure to make the regulatory election was discovered by the service thus taxpayer is not foreclosed from being granted an extension of time under section of the regulations on procedure and administration based on sec_301_9100-3 under sec_301_9100-3 a taxpayer will not be considered to have acted reasonably and in good_faith if taxpayer -- i seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time taxpayer requests relief taking into account any qualified_amended_return filed within the meaning of sec_1_6664-2 and the new position requires a regulatory election for which relief is requested plr-103186-15 ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the service will not ordinarily grant relief in this case taxpayer has represented that none of the factors set forth in sec_301_9100-3 above apply thus taxpayer is not foreclosed from being considered to have acted reasonably and in good_faith by any of the conditions contained sec_301_9100-3 sec_301_9100-3 provides that the commissioner will grant a reasonable extension of time to make a regulatory election only when the interests of the government will not be deemed to be prejudiced by the granting of relief under paragraph c i the interests of the government are deemed to be 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 under paragraph c ii the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made is closed by the period of limitations on assessment under sec_6501 before the taxpayer's receipt of a ruling granting relief under this section paragraph c ii provides that the irs may condition a grant of relief on the taxpayer providing the irs with a statement from an independent auditor certifying that the interests of the government are not prejudiced in this case taxpayer has represented that taxpayer is not foreclosed from relief by any of the conditions contained sec_301_9100-3 sec_301_9100-3 provides special rules for accounting_method regulatory elections this section provides in relevant part that the interests of the government are deemed to be prejudiced by granting an extension of time except in unusual and compelling circumstances if the accounting_method regulatory election for which relief is requested is subject_to the procedure described in sec_1_446-1 requiring the advance written consent of the commissioner or if the accounting_method regulatory election for which relief is requested requires an adjustment under sec_481 see also section d ii of revproc_2011_14 taxpayer has represented that there are unusual and compelling circumstances warranting relief taxpayer has historically timely filed its income_tax returns taxpayer’s failure to do so in this instance was the result of an inadvertent error by one of taxpayer’s former employees it was not a deliberate disregard for the filing deadline plr-103186-15 conclusion based solely on the facts and representations submitted the commissioner consents to an extension of time for taxpayer to file the original copies of forms as discussed in detail above with its united_states federal_income_tax return therefore the forms that were previously filed by taxpayer will now be considered as timely filed by the irs a copy of this letter should be associated with the forms that accompanied taxpayer's federal tax_return filed for the taxable_year ended december 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 taxpayer sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by 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 it is subject_to verification by the tax_court or by any party with jurisdiction over the matter within the internal_revenue_service sincerely __________________________ thomas d moffitt chief branch income_tax accounting


t c memo united_states tax_court central pennsylvania savings association and subsidiaries n k a great valley savings bank petitioner v commissioner of internal revenue respondent docket no filed date zachary p alexander and james f podheiser for petitioner thomas m rath for respondent supplemental memorandum opinion tannenwald judge this case is again before us because of differing computations for entry of decision under rule submitted to implement our earlier opinion t c this opinion supplements 104_tc_384 in that opinion we held that petitioner was required to take net operating losses into account in computing additions to its bad_debt_reserve under the percentage of taxable_income method set forth in sec_593 in so doing we upheld such requirement as provided in sec_1 593-6a b vi and vii income_tax regs respondent's computation is based upon the use of the percentage of taxable_income method petitioner's computation for some of the years involved is based upon the use of the experience_method an alternative method permitted by sec_593 respondent objects to petitioner's use of the experience_method on the ground that it raises a new issue not permitted under the principles governing the operation of rule we agree with respondent the prior proceeding herein involved a motion for summary_judgment by each party both motions clearly stated that the only issue remaining in the case was whether net operating losses should be taken into account in determining petitioner's taxable_income for the purpose of utilizing the percentage of taxable_income method at no time either in its pleadings motion papers or briefs did petitioner assert that the experience_method might produce a more favorable result than the percentage all statutory 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 of taxable_income method if its position that net operating losses should not be taken into account in computing taxable_income should be rejected and therefore provide the basis for applying the limitation on the addition to the bad_debt_reserve under sec_593 clearly the utilization of the experience_method raises a new issue and one which would require the reopening of the record and the taking of additional evidence raising such an issue clearly is not permissible in a rule proceeding 918_f2d_1251 6th cir affg tcmemo_1986_463 79_tc_933 taxpayer not permitted to use income_averaging raised for the first time in the rule computation after losing the issue of includability of an item in income petitioner attempts to avoid the impact of the foregoing circumstances by two assertions first it asserts that the determination of which of the two methods applies is mechanical and therefore is permitted in a rule proceeding citing 91_tc_265 affd on another issue 875_f2d_377 2d cir in making thi sec_2 sec_593 provides that the addition to the bad_debt_reserve shall not exceed the larger of the amount produced by the percentage of taxable_income and experience methods see also vest v commissioner tcmemo_1995_188 estate of street v commissioner tcmemo_1994_568 and cases discussed therein assertion petitioner overlooks an essential element namely that the mechanical application of the two methods must be preceded by a determination of the factual foundations for determining taxable_income and experience it is the foundation of petitioner's experience that is missing and would need to be supplied in this connection we note that apparently petitioner first utilized the experience_method in certain of the years involved herein in forms which it filed to claim tentative refunds those forms were never submitted in the prior proceeding and were brought to the attention of the court for the first time as attachments to petitioner's objections to respondent's computation for entry of decision moreover in its motion for summary_judgment petitioner represented that it had used the percentage of income_method in filing its tentative refund application ie its forms this representation the following is a quotation from the affidavit of its executive vice president and chief financial officer in support of petitioner's motion for summary_judgment during certain of the taxable years ended date through date petitioner calculated the annual_addition to its reserve for bad_debts under the percentage of taxable_income method provided in sec_593 of the code and deducted such addition in each such taxable_year on its federal_income_tax returns in conjunction with petitioner's filing of its tentative refund applications stemming from its carryback of the nol from the tax_year as well as nols from other tax years to the tax years at issue herein petitioner in redetermining its taxable_income and federal_income_tax for such years recomputed its allowable bad_debt deductions under the percentage of taxable_income method for such affected led to the court's inclusion of such use of the percentage of income_method in its opinion see central pennsylvania savings association v commissioner t c big_number petitioner did not move to revise our opinion under these circumstances the oblique reference to certain of the taxable years see supra note and the mere fact that the forms were filed prior to the issuance of the notice_of_deficiency herein are simply insufficient to sustain petitioner's position second petitioner asserts that it is respondent who is raising the new issue because she did not include the experience_method of calculation in her computation whatever may be the situation where there is an alternative ground for supporting a deficiency we see no reason to impose on respondent after winning the case an obligation to construct a lesser deficiency on a basis other than that represented to the court as the sole issue for decision cf 849_f2d_393 9th cir affg 85_tc_754 we think it was incumbent upon petitioner to raise the use of the experience_method as an alternative basis for calculating the additions to its bad_debt reserves in the event that its position as to the invalidity of respondent's regulations in tax years in accordance with sec_1 6a b vi and vii which requires that taxable_income reflect any nol_carryback before deduction for the addition to the bad_debt_reserve is computed this recomputation resulted in a smaller loan loss reserve deduction respect of the impact of net operating losses on the percentage of income_method was rejected if petitioner had done so respondent and the court would have had an opportunity to consider the appropriateness of a motion for summary_judgment by either party and the possibility that the issue of the validity of respondent's regulations should have been disposed of by way of a motion to sever such issue the long and the short of the matter is that it is simply too late for petitioner to claim the use of the experience_method of calculating the additions to its bad_debt reserves for purposes of computing the deficiencies for the years at issue in view of the foregoing respondent's computation for entry of decision is adopted additionally petitioner's motion to amend its petition to raise the experience_method issue will be denied decision will be entered in accordance with respondent's computation


t c memo united_states tax_court superior proside inc petitioner v commissioner of internal revenue respondent docket no filed date joseph h o’donnell jr for petitioner linda p azmon for respondent memorandum findings_of_fact and opinion cohen judge the petition in this case was filed in response to a notice_of_determination concerning worker classification under sec_7436 notice_of_determination regarding petitioner’s liabilities pursuant to the federal_insurance_contributions_act fica and the federal_unemployment_tax_act futa for and the issues for decision - - are whether thomas l murdock murdock was an employee of petitioner for federal employment_tax purposes during through and if so whether petitioner is entitled to relief under sec_530 of the revenue act of publaw_95_ 92_stat_2885 as amended sec_530 unless otherwise indicated all 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 for convenience fica and futa taxes are collectively referred to as employment_taxes findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioner’s organization and operations petitioner is an s_corporation that was incorporated in pennsylvania on or about date at all relevant times petitioner’s principal_place_of_business was located in levittown pennsylvania since its organization petitioner has operated as a siding contractor and residential remodeling service this activity was and is petitioner’s only business and only source_of_income murdock has been the sole shareholder of petitioner from the time of its incorporation and throughout and - - murdock has at all times also served as petitioner’s president during and murdock performed the following services for petitioner solicited business on behalf of petitioner ordered petitioner’s supplies entered into verbal and or written agreements on behalf of petitioner oversaw the finances of petitioner collected moneys owed petitioner managed petitioner obtained clients for petitioner hired and fired independent contractors on behalf of petitioner maintained customer satisfaction and supervised all work done on behalf of petitioner no other person performed any services on behalf of petitioner during and petitioner did not make regular payments to murdock for his services rather murdock obtained funds from petitioner as his needs arose there were no set intervals at which murdock would take these moneys from petitioner petitioner neither classified any payment as a dividend nor distributed any dividends to shareholders from through petitioner’s tax reporting petitioner timely filed forms 1120s u s income_tax return for an s_corporation and related schedules for the through taxable years on these returns petitioner did not report - treating murdock or any other individual as an employee of petitioner petitioner filed a form_1120s for each of the years and petitioner reported ordinary_income from its trade_or_business of dollar_figure dollar_figure and dollar_figure for and respectively petitioner claimed no deduction either for compensation of officers or for salaries and wages schedules k-1 shareholder’s share of income credits deductions etc attached to the returns show dollar_figure for dollar_figure for and dollar_figure for as the pro_rata share of and as a property distribution other than a dividend to murdock petitioner’s forms 1120s were signed by murdock as president and by joseph m grey grey as preparer during the period from to petitioner did not issue any forms 1099-misc miscellaneous income or forms w-2 wage and tax statement to murdock since petitioner’s incorporation in petitioner has not reported paying murdock a salary or wages for work he performed on behalf of petitioner petitioner did not file a form_941 employer’s quarterly federal tax_return for any quarters in or ora form_940 employer’s annual federal unemployment futa_tax return for or throughout this period petitioner did not treat any individual as an employee murdock’s tax reporting for each of the years and murdock and his wife filed a joint form_1040 u s individual_income_tax_return on these returns murdock reported as ordinary_income from rental real_estate royalties partnerships s_corporations trusts etc dollar_figure dollar_figure and dollar_figure for and respectively attached schedules e supplemental income and loss characterize the foregoing amounts as nonpassssive income from schedules k-1 the notice_of_determination prior to the audit underlying the instant case covering and respondent neither audited petitioner for employment_tax purposes nor challenged petitioner’s treatment of murdock as other than an employee thereafter on date respondent sent to petitioner the notice_of_determination at issue in this proceeding the notice was based on a determination that murdock was to be legally classified as an employee for purposes of federal employment_taxes and that petitioner was not entitled to relief from such classification pursuant to sec_530 enclosed with the notice was a schedule setting forth petitioner’s liabilities for fica and futa taxes the parties have stipulated that if the court decides that murdock is to be classified as an employee for federal employment_tax purposes for all periods in and the amounts -- - of taxes due and owing are as set forth in the notice_of_determination conversely if the court decides that murdock should not be classified as an employee for any of the periods in issue the parties agree that petitioner owes no employment_taxes ultimate findings_of_fact murdock as president of petitioner performed more than minor services and received remuneration therefor petitioner did not have a reasonable basis for failing to treat murdock as an employee during the years in issue opinion i statutory and regulatory provisions a subtitle c of the internal_revenue_code subtitle c of the internal_revenue_code governs payment of employment_taxes in particular sec_3111 and sec_3301 impose taxes on employers under fica pertaining to social_security and futa pertaining to unemployment respectively based on wages paid to employees the term wages as used in these statutes generally encompasses all remuneration for employment sec_3121 sec_3306 employee is defined for purposes of fica_taxes in sec_3121 and with modifications not germane here sec_3306 1i1 makes this definition applicable for purposes of futa taxes as well sec_3121 provides - jj - sec_3121 employee --for purposes of this chapter the term employee means--- any officer of a corporation or any individual who under the usual common_law rules applicable in determining the employer-employee relationship has the status of an employee or any individual other than an individual who is an employee under paragraph or who performs services for remuneration for any person-- a as an agent-driver or commission-- driver b as a full-time insurance salesman c as a home worker or d as a traveling or city salesman xk kk ke under specified conditions or any individual who performs services that are included under an agreement entered into pursuant to sec_218 of the social_security act regulations promulgated under sec_3121 clarify the scope of the inclusion in paragraph for corporate officers as follows generally an officer of a corporation is an employee of the corporation however an officer of a corporation who as such does not perform any services or performs only minor services and who neither receives nor is entitled to receive directly or indirectly any remuneration is considered not to be an employee of the corporation sec_31 d - b employment_tax regs - - identical language is also included in regulations promulgated under sec_3306 sec_31 -l1 e employment_tax regs b sec_530 of the revenue act of sec_530 operates in enumerated circumstances to afford relief from employment_tax liability notwithstanding the actual relationship between the taxpayer and the individual performing services the statute provides in part sec_530 controversies involving whether individuals are employees for purposes of the employment_taxes a termination of certain employment_tax liability -- in general --if-- a for purposes of employment_taxes the taxpayer did not treat an individual as an employee for any period and b in the case of periods after date all federal tax returns including information returns required to be filed by the taxpayer with respect to such individual for such period are filed on a basis consistent with the taxpayer’s treatment of such individual as not being an employee then for purposes of applying such taxes for such period with respect to the taxpayer the individual shall be deemed not to be an employee unless the taxpayer had no reasonable basis for not treating such individual as an employee statutory standards providing one method of satisfying the requirements of paragraph -- for purposes of paragraph a taxpayer shall in any case be treated as having a reasonable basis for not treating an individual as an employee for a period if the taxpayer’s treatment of such individual for such period was in reasonable reliance on any of the following --- - a judicial precedent published rulings technical_advice with respect to the taxpayer or a letter_ruling to the taxpayer b a past internal_revenue_service audit of the taxpayer in which there was no assessment attributable to the treatment for employment_tax purposes of the individuals holding positions substantially_similar to the position held by this individual or c long-standing recognized practice of a significant segment of the industry in which such individual was engaged in specified circumstances sec_530 places the burden_of_proof on the commissioner with respect to certain issues under sec_530 but this provision does not affect our analysis here sec_530 applies only to periods after date so has no bearing on petitioner’s liabilities for and small_business job protection act of publaw_104_188 sec b 110_stat_1767 for subsequent periods a taxpayer desiring to take advantage of sec_530 first must establish a prima facie case that it was reasonable not to treat an individual as an employee and must have fully cooperated with the secretary because as explained in detail below petitioner did not establish a prima facie case that its treatment of murdock was reasonable the burden_of_proof remains on petitioner with respect to as well -- - ti classification of murdock for employment_tax purposes a status under fica and futa provisions in contending that murdock should not be classified as an employee under the fica and futa provisions of the internal_revenue_code petitioner focuses on murdock’s status as an s_corporation shareholder and alleged lack of status as a common_law_employee we briefly address these contentions seriatim contentions regarding s_corporation shareholders petitioner cites sec_1366 sec_1372 and sec_6037 and 70_f3d_548 9th cir presumably in support of an argument that s_corporation shareholders should not be deemed employees sec_1366 and sec_6037 generally require that income items of s_corporations be passed through to shareholders on a pro_rata basis and reported by such shareholders in a manner consistent with treatment on the corporate return these rules however pertain to calculation of income_tax_liability under subtitle a and have no bearing on computation of federal employment_taxes 117_tc_141 affd sub nom 54_fedappx_100 3d cir furthermore an employer cannot by the expedient of characterizing moneys paid in remuneration for services as distributions of net_income rather than as wages avoid fica and futa liabilities id pincite thus as in veterinary surgical consultants p c v commissioner supra pincite and 119_tc_121 we reject any suggestion that petitioner’s passing through of its net_income to murdock precludes the finding of an employer-employee relationship between petitioner and murdock we likewise reject as not germane to the guestion before us petitioner’s reliance on sec_1372 addressing fringe_benefits under subtitle a and the reference to that statute in durando v united_states supra pincite see veterinary surgical consultants p c v commissioner supra pincite contentions regarding common_law employment petitioner contends that employee as used throughout sec_3121 must be construed in a manner consistent with its use in sec_3121 such that the usual common_law rules for determining existence of an employer-employee relationship are to be taken into account in support of this position petitioner quotes the following passage from tex carbonate co v phinney 307_f2d_289 5th cir the statutory definition of employees as including officers of a corporation will not be so construed as to mean that an officer is an employee per se only such officers as work for it in fact are to be so included and in determining whether an officer is an employee within the meaning of the statutes the usual employer-employee tests are to be applied petitioner further emphasizes that common_law focuses on whether the alleged employer held the right to control the details of the work performed by the individual and argues that petitioner did not exercise control_over murdock during any part of or there exist however at least two fatal defects in petitioner’s arguments in this regard first from the standpoint of statutory construction the premise underlying petitioner’s position finds no support either in the structure of the text or in the tex carbonate co v phinney supra decision sec_3121 is written in the disjunctive with each of the four paragraphs expressly separated from the next by or accordingly each paragraph affords a separate and independent basis for deeming one engaged to perform services an employee individuals described in paragraphs and of sec_3121 are therefore frequently referred to as statutory employees subject_to fica and futa regardless of their status under common_law see joseph m grey pub accountant p c v commissioner supra pincite moreover tex carbonate co v phinney supra is not authority to the contrary significant regulatory and statutory developments have occurred since the years in issue in that case given that sec_31_3121_d_-1 and sec_31 -l e employment_tax regs were promulgated after those years and that the futa definition of employee then in effect appears to have contemplated a corporate officer who could be an independent_contractor under common_law see eg sec i r c the court of appeals’ statements concerning common_law rules may no longer be relevant joseph m grey pub accountant p c v commissioner supra pincite n the opinion in tex carbonate co v phinney supra pincite recognized that regardless of the test purportedly being applied such officers as work for a corporation in fact are included as employees the court also addressed the impact of an alleged absence of control in that case as follows even though an absence of control is shown and this as we have noted has not been done the force of the factor is diminished to near de_minimis by the fact that the service provider himself was a member of the board_of directors a vice president and the executive of the company in charge of its sales and the development of its markets id pincite hence critical components of the analysis in tex carbonate co v phinney supra are consistent with the current regulatory approach to officers and contrary to petitioner’s position second from a factual standpoint even if the common_law control factor were pertinent to our evaluation petitioner has failed to establish a lack of control_over murdock in the performance of his services as in joseph m grey pub accountant p c v commissioner supra pincite to accept petitioner’s contentions in this regard would be the equivalent of disregarding the corporate form in which murdock chose to conduct his business caselaw does not permit a taxpayer to use his or her dual role as a shareholder of and service provider to a corporation as grounds for ignoring the legal ramifications of the business construct so selected 319_us_436 joseph m grey pub accountant p c v commissioner supra pincite application of sec_3121 d on the basis of the foregoing analysis application of sec_3121 is not precluded or limited here by considerations pertaining to murdock’s status as an s_corporation shareholder or under the common_law sec_3121 and sec_31_3121_d_-1 and sec_31 -l1 e employment_tax regs specify that corporate officers are to be classified as employees if they perform more than minor services and receive or are entitled to receive remuneration the overwhelming weight of the evidence here shows that murdock’s activities vis-a-vis petitioner met these criteria accordingly considerations with respect to burden_of_proof do not affect our analysis on this point murdock at all relevant times served as petitioner’s president and worked for petitioner in all significant aspects of petitioner’s business operations as murdock testified no other person performed services for petitioner during or murdock also obtained remuneration from petitioner as his needs arose -- - furthermore although sec_3121 may be inapplicable to the extent that an officer performs services in some other capacity i as an independent_contractor petitioner has neither contended nor offered evidence that murdock worked for or was engaged by petitioner in a capacity other than president see joseph m grey pub accountant p c v commissioner t c pincite revrul_82_83 1982_1_cb_151 hence we conclude that murdock was an employee of petitioner for employment_tax purposes in accordance with sec_3121 b availability of sec_530 relief sec_530 affords relief from employment_tax liability notwithstanding an adverse classification where the following three requirements are satisfied the taxpayer has not treated the individual or any individual holding a substantially_similar position as an employee for any period the taxpayer has consistently treated the individual as not being an employee on all tax returns for periods after date and the taxpayer has a reasonable basis for not treating the individual as an employee sec_530 with respect to the case at bar respondent has conceded that petitioner meets the first of the above regquirements and does not argue that petitioner fails to meet the second rather the parties dispute whether petitioner had a reasonable basis for not treating murdock as an employee - concerning the existence of a reasonable basis for purposes of sec_530 sec_530 sets forth three statutory safe havens reliance upon any of the circumstances enumerated in subparagraph a b or c of sec_530 is deemed sufficient to establish the requisite reasonable basis subparagraph a lists judicial precedent published rulings technical_advice with respect to the taxpayer ora letter_ruling to the taxpayer the second amended petition alleges for reasonable basis for petitioner’s reliance on the non-employee status of thomas l murdock in reference to his services performed on behalf of petitioner during and petitioner asserts judicial precedent in 307_f2d_289 5th cir cert_denied u s wherein that court’s opinion stated that an officer of a corporation is not an employee per se and that an employer and employee master and servant relationship must exist between a corporation and an officer of the corporation for which an officer performs services on brief petitioner reiterates reliance on tex carbonate co v phinney 307_f2d_289 5th cir and cites as well to 527_fsupp_515 b d wis in support of the premise that petitioner reasonably looked to common_law control concepts in classifying murdock for the reasons previously discussed tex carbonate co v phinney supra does not afford a reasonable basis for disregard of the explicit rules of sec_3121 and sec_31_3121_d_-1 and sec_31 -l e employment_tax regs equally unavailing in this regard is automated typesetting inc v united_states supra the district_court in that case simply evaluated the employment relationship of the involved individuals both through a common_law analysis and through application of the provisions relating to corporate officers id pincite in deciding that the individuals qualified as employees under either rubric the court did not repudiate the statutory treatment of corporate executives id pincite see also joseph m grey pub accountant p c v commissioner supra pincite n moreover even if we were to assume arguendo that the cited cases could offer a reasonable basis for treating an officer as a nonemployee petitioner has failed to establish reliance on the claimed precedent as a factual matter to fall within the safe harbors of sec_530 the taxpayer must have relied on the alleged authority during the periods in issue at the time the employment decisions were being made the statute does not countenance ex post facto justification see 181_f3d_272 2d cir reversing and remanding because it was unclear from the record whether the taxpayer in fact relied on any specific industry practice in reaching its decision to treat its workers as non-employee tenants let alone whether such reliance was reasonable 205_fsupp2d_376 m d pa the taxpayer must show that it relied upon those grounds alleged as a reasonable basis and that the reliance was reasonable w va pers servs inc v united_states aftr 2d pincite8 ustc par big_number at big_number s d w va the plain meaning of sec_530 is that only evidence known to and relied upon by the taxpayer is relevant facts that are learned after the incorrect treatment of the employees are not facts that a taxpayer relied upon in making its original decision regarding how to treat its employees until shortly before trial petitioner did not purport to rely on sec_530 or the bases described therein and expressly disclaimed any dependence on the statute petitioner’s present claim of reliance is not credible the following colloquy transpired at trial between murdock and counsel for respondent q counsel for respondent mr murdock are you familiar with a case texas carbonate versus phinney a murdock no i’m not q no one ever discussed that case with you a no petitioner proposed to call grey the accountant who advised petitioner and prepared petitioner’s tax returns grey was not allowed to testify in this case because he had not been listed as a witness in petitioner’s trial memorandum in violation of this court’s standing pre-trial order see rule b his testimony in any event would not have made a difference see veterinary surgical consultants p c v commissioner tcmemo_2003_48 where grey testified that he was unaware of the tex carbonate co v phinney supra case until posttrial briefing during the fall of in 119_tc_121 petitioner failed to establish that it relied on judicial precedent or for that matter on any of the other sources specified in sec_530 a accordingly we conclude that subparagraph a does not aid petitioner here the same result obtains with respect to subparagraphs b and c the parties have stipulated that respondent did not audit petitioner for employment_tax purposes prior to the examination underlying the present case petitioner therefore cannot show reliance on a past audit under sec_530 b likewise petitioner has adduced no evidence of conventions in the siding and remodeling industry to establish longstanding industry practice under sec_530 c the safe havens of sec_530 are therefore inapplicable on the record before us in seeking to establish a reasonable basis for murdock’s treatment apart from the safe havens petitioner quotes the following definition of employment status in sec_530 the term ‘employment status’ means the status of an individual - - under the usual common_law rules applicable in determining the employer-employee relationship as an employee or as an independent_contractor or other individual who is not an employee petitioner apparently believes that the purported lack of common_law control makes its treatment of murdock reasonable within the meaning of sec_530 and that the above definition supports this view again however petitioner’s approach is contrary to controlling statutes and to the facts of this case as a matter of construction sec_530 defines employment status for purposes of certain provisions of sec_530 not germane here it does not purport to override or interpret the definition of employee in sec_3121 and related regulations hence sec_530 does not render it rational for petitioner to have ignored the statutory mandate regarding corporate officers and to have taken a position that was not otherwise supported by authority petitioner also does not claim in actuality to have relied on sec_530 in deciding not to treat murdock as an employee in or we conclude and have found as a fact that petitioner did not have a reasonable basis for failing to characterize murdock as an employee consequently relief from employment_tax liability is not available to petitioner under sec_530 c conclusion we hold that murdock is an employee of petitioner pursuant to sec_3121 and that petitioner is not entitled to relief under sec_530 accordingly petitioner is liable for fica and futa taxes for the periods in issue as set forth in respondent’s notice_of_determination and the parties’ stipulations to reflect the foregoing decision will be entered for respondent and in accordance with the parties’ stipulations as to amounts


internal_revenue_service number release date index number ---------------------- ---------------------------------- ---------------------------------------- in re department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no telephone number --------------------- refer reply to cc psi b04 plr-123334-06 date april re --------------------------------------------------- legend husband --------------------------------------------------------------------------------------------------------- ---------------------- ------------------ ------------------------------------------------------------------------ wife trust - - - date year year x ---------------------------------------------------- -------------------------- ------- ------- ----------------------------------------------------------------------- - - - - ----------------------------------------------------------------------------- ------------------------------------------ y cpa state - - - ----------- ------------------------------ --------- dear ------------- this is in response to a letter dated date submitted by your authorized representative requesting rulings under sec_2642 and sec_2632 of the internal_revenue_code and sec_301 of the procedure and administration regulations with respect to trust husband and wife reside in state on date husband established an irrevocable_trust trust for the primary benefit of his children and descendants on date husband contributed_property x to trust plr-123334-06 cpa prepared form sec_709 united_states gift and generation-skipping_transfer_tax return for the transfer and husband and wife elected to split_gifts under sec_2513 however in the preparation of the form sec_709 cpa inadvertently failed to allocate any of husband’s and wife’s gst_exemption to trust on their respective form sec_709 the errors were discovered in a recent review of husband’s and wife’s estate plan in year husband transferred y to trust and a gift-split election was made the transfer to trust was reported on schedule a part gifts subject only to gift_tax and no allocation of husband’s and wife’s gst_exemption was made to trust husband requests i an extension of time to allocate his gst_exemption to the year transfer to trust ii such allocation is to be based on the value of the property transferred to trust on the date of the transfer and iii that the year transfer to trust is subject_to the automatic allocation rules under sec_2632 sec_2601 imposes a tax on every generation-skipping_transfer a generation- skipping transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 as in effect for the tax years at issue provided that for purposes of determining the gst tax 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 his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 effective for transfers subject_to the gift and estate_tax after date provides in part that if any individual makes an indirect_skip during such individual’s lifetime any unused portion of such individual’s gst_exemption shall be allocated to the property transferred to the extent necessary to make the inclusion ration for such property zero sec_2632 provides that the term indirect_skip means any transfer of property other than a direct_skip subject_to the gift_tax made to a gst_trust sec_2632 provides in part that the term gst_trust means a_trust that could have a generation-skipping_transfer with respect to the transferor unless the trust falls within any of six enumerated exceptions sec_2632 provides that an individual may elect to have this subsection not apply to an indirect_skip or any or all transfers made by such individual to a particular trust plr-123334-06 sec_2652 and sec_26_2652-1 of the generation-skipping_transfer_tax regulations provide that if under sec_2513 one-half of a gift is treated as made by an individual and one-half is treated as made by the spouse of the individual then for purposes of the gst tax each spouse is treated as the transferor of one-half of the entire value of the property transferred by the donor spouse regardless of the interest the electing spouse is actually deemed to have transferred under sec_2513 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_26_2632-1 provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 and such allocation shall be effective on the date of such transfer sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute see notice_2001_50 2001_2_cb_189 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i plr-123334-06 sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted based on the facts submitted and the representations made we conclude that 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 the requirements of sec_301_9100-3 have been satisfied under sec_26_2652-1 wife is treated for gst purposes as the transferor of one-half of the entire value of the property transferred by husband regardless of the interest wife is actually deemed to have transferred under sec_2513 for gst purposes husband and wife are each treated as the transferor of one-half of the value of the entire property transferred to trust therefore husband is granted an extension of time of days from the date of this letter to make an allocation of husband’s available gst_exemption with respect to husband’s transfer to trust in year the allocation will be effective as of the date of the transfer and the value of the transferred assets to trust as of the date of the original transfer to trust will be used in determining the amount of husband’s gst_exemption to be allocated to trust trust’s inclusion_ratio will be determined under sec_2642 and sec_2642 a gst_trust is defined in sec_2632 in general any trust that could have a generation-skipping_transfer is a gst_trust unless it meets one of the exceptions described in sec_2632 through vi where a sufficient possibility exists based on the statutory criteria that the trust corpus will not be distributed to lower generations based upon the facts submitted and representations made none of the exceptions in sec_2632 apply to trust and accordingly trust is a gst_trust for purposes of sec_2632 therefore we conclude that the automatic allocation rules under sec_2632 apply to the year transfer to trust plr-123334-06 husband should make the allocation on a supplemental form_709 for year the form should be filed with the cincinnati service_center at the following address internal_revenue_service cincinnati service_center - stop cincinnati oh a copy of this letter should be attached to the form 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 tax consequences of the transaction under the cited provisions or under any other provisions of the code except as specifically ruled herein we express or imply no opinion on the federal this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely enclosures copy for sec_6110 purposes copy of this letter william o’shea associate chief_counsel passthroughs and special industries


internal_revenue_service date number release date index nos cc dom it a b9 plr-105209-00 attention ein dear this is in reference to a form_1128 application to adopt change or retain a tax_year submitted on behalf of the above-named taxpayers requesting permission to change their accounting_period for federal_income_tax purposes from a taxable_year ending to a taxable_year ending effective the taxpayers have requested that the form_1128 be considered timely filed under the authority contained in sec_301_9100-3 of the procedure and administration regulations the taxpayers’ form_1128 requesting a change in accounting_period to a tax_year ending date was due on or before the information furnished indicates that the application_for the change in accounting_period was filed late because of an error or misunderstanding however the form was filed within days of the due_date sec_1_442-1 of the income_tax regulations provides that in order to secure the commissioner's consent to a change in accounting_period the taxpayer must file an application on form_1128 with the commissioner on or before the 15th day of the second calendar month following the close of the short_period sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the instant case must be made under the rules of sec_301_9100-3 requests for relief subject_to 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 the granting of relief will not prejudice the interests of the government based on the facts and information submitted and the representations made it is held that the taxpayers have acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government accordingly the requirements of the regulations for the granting of relief have been satisfied in this case and the taxpayers late filed form_1128 requesting permission to change to a tax_year ending effective for the short_period of is considered timely filed the ruling contained in this letter is based upon facts and representations submitted by the taxpayers 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 part of an examination process this ruling addresses the granting of sec_301_9100-3 relief only no opinion is expressed regarding the tax treatment of the instant transaction under the provisions of any other sections of the code or regulations that may be applicable thereto or regarding the tax treatment of any conditions existing at the time of or effects resulting from the instant transaction specifically no opinion is expressed as to whether the taxpayers are permitted under the code and applicable regulations to change to the tax_year requested in the subject form_1128 in accordance with the provisions of a power_of_attorney currently on file we are sending a copy of this ruling letter to the taxpayers’ authorized representatives this ruling is directed only to the taxpayers that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent sincerely yours acting assistant chief_counsel income_tax and accounting heather maloy enclosures copy of this letter copy for sec_6110 purposes


number release date id office uilc cca-706002-10 from ------------------- sent friday date pm to ------------------- cc -------------------- subject ------------------- ------------comments --------- ---------------has no objections to the plan but we wanted to point out a few things that exam might want to consider going forward the discussion in the plan and the disclosure statement regarding the form of the bankruptcy ‘reorganization’ transaction is very generic making it difficult for us to discern the tax effects for --------------------------------------------- the debtors the disclosure statement indicates that the debtors do not expect to incur any substantial tax_liability as a result of the implementation of the plan ultimately we cannot tell whether it will be a nontaxable reorganization maybe under sec_368 or g a taxable sale of the assets or some other_disposition the plan and disclosure statement do not address this so there may be some uncertainty the debtors anticipate that they will have to reduce their net operating losses nols and perhaps other tax_attributes as a result of excluded cod income which is not otherwise taxable while debtors are in bankruptcy to the extent that any nols remain the debtors anticipate that sec_382 will apply to limit use of the pre-reorganization losses going forward the plan predicts that the debtors will invoke sec_382 in valuing the stock for purposes of determining the annual sec_382 limitation we don’t have any issues with this discussion lastly it is unclear from the documents whether the debtors are filing a consolidated_return if that is the case there may be issues under the consolidated regulations including the attribute reduction rules of -28 and the intercompany obligation rules of -13 g with respect to any pension-related claims we had coordinated with ----------- ---- ---------------------------------- who are pursuing with ---------- irs potential claims regarding the excise_tax attributable to under-funding of multi-employer pension plans to which certain debtor subsidiaries must contribute ---------------defers to - ----------as the subject matter experts on those issues please let us know if we can do anything more to assist you and should the form of the transaction become more definitive we’d be happy to take another look at it ------------------------------------- -------------------- -------------------