significant index number l kkk kkk keke kkk kr kk kr kk kk kkk kkk rrr kr ek kerr eere frr rr erk eh ll d eeaeeeee kkk kr rr kr ri kee rrr kkekkkkkkkekkeekkkkkkeke attn kkk kkekkekkekkkeek kkk kkk ker kkk keke t ep rat jan legend state a plan x rb kkkkekkekkekker kr rrr kkk kkk keke re kkk kkk eker krkkehekee kkkkkke board m srk kkk kkk keke keke kkk kekekkekkkkekekekrkekeer kkkkkkek regulation n ke kkkkke keke kkee keke kr kekrkekekkekrkekkekeee kkk erk keeikekkekrerekkekekekkekkek krkekkk kkk kkekrekkekekkkeekkekekkkrkkekkkkkkeke kekkekek regulation kkk kk kek kkkkkkekkekkkkkekkreekekekrkkkke kr kkk kkekkkkkkekekekkekkekekekkekekkekekkeer kkkekkkr ke kkk krkekekekkeekkekrkkkekekeeke form p it ito erik rick ker ke eir ek kkk ker er kk kkk kkk rkekr kek kkeekekkrekekkekekekekekkekkekekkkekkekee kkk rrr kkk ree rk form r rrr kkk kkk kk kk rr kr keke kek k kerr keir rk kr rr kk ke kek kek kkk keke kk kr ke kek dear kkk kkk kek this is in response to a ruling_request submitted by your authorized representative dated september supplemented by correspondence dated date as date date date date date date december and date with respect to the federal_income_tax treatment of certain contributions to plan x under sec_414 of the internal_revenue_code the following facts and representations have been submitted on your behalf plan x is a contributory retirement_system established q23e krkekkkkekrkrk kkk kk krkkkekekekkkekkekkkrkkkkkke kkk board m and is administered by board m for teachers and administrators of public schools in state a is comprised of five members the commissioner of education or his or her designee who shall be a member ex officio and shall serve as chairman a member appointed by the governor who shall be a retired former public school teacher within state a the members in or retired from the service in the system from among their number and a fifth member chosen by the other four program which assumed to be qualified under sec_401 of the code for purposes of this ruling_request is board m administers plan x two members who shall be elected by a defined benefit the governing provisions for plan x are statutorily promulgated by the state a legislature m has established administrative rules in accord with the statutory requirements ie relevant sections of state a general laws and regulations in addition board plan x provides retirement disability and survivor benefits to state a public school teachers administrators and their families contributions to plan xk are mandatory for all members in service and are made by payroll deductions equal to a percentage of each member's regular compensation ranging from five percent to nine percent depending upon the member's date of service payroll deductions equal to an additional two percent of each member's regular compensation over dollar_figure are required pursuant to chapter sec_22 of state a that is each governmental_unit to which a statutes each employer shall pick up all of the members’ contributions system pertains shall assume and pay the contributions which would be payable by the employees as members contributions although designated as employee contributions will be paid_by the applicable government unit in lieu of contributions by the employee employee will have the option of choosing to receive such contributed amounts directly instead of having them paid_by the employing governmental_unit assumed shall be treated as employer contributions in determining tax treatment under the internal_revenue_code creditable service is defined as time that an individual has worked as public employee and for which the individual has paid or transferred retirement contributions to plan x a teacher administrator or other state a the contributions so further no and also such kkekekekkkkkekkkekkkekrekekkekekrekekekekkkkkkeeek creditable service is employees automatically receive credit includes certain military service earned by all teachers and administrators who are employed on at least a half-time basis and who are contributing members of plan x for regular state a public school teaching authorized leave of absence and active military service during membership governmental_unit as defined in state a statutes is state a except that a teacher who is membership in plan x shall the requirements in connection therewith be deemed to be employed by the same governmental_unit for purposes of membership and or any political_subdivision thereof or eligible for a member of additionally employees may choose to pay an additional_amount into the fund either in one sum or installments for the purpose of providing an additional annuity subject_to limitations and such terms and conditions as board m may prescribe in addition to creditable service received as a result a member pursuant to of mandatory_contributions to plan x state a statutes may also purchase credit for prior substitute teaching teaching in an out-of-state public school certain non-public teaching other state a public service active military service and maternity leave if member withdrew retirement account amounts from plan x or any other state a contributory retirement_system the member may also receive creditable service upon repaying the amount withdrawn plus interest prior to the date of retirement a the cost of purchasing past service is based on what the member would have paid in contributions during that period plus interest to date or what the member actually paid and withdrew plus interest to date ereditable service must be purchased prior to the member's date of retirement all forms of pursuant to state a statutes board m has authority to promulgate regulations and to establish terms and conditions for the purchase of prior service_credit m has adopted regulations n and o for the purpose of providing a pick-up of employee contributions under sec_414 the purpose of purchasing service_credit or service buybacks regulation n of the code for contributions that are made for or to provide a pick-up of board o2 hy kkk kkk eker kr keke rr ekkrerekekekeerekkkkekek employee contributions for up to five years of accelerated contributions regulation the alternative superannuation retirement benefit provisions of sec_104 of chapter that are made pursuant to of state a statutes the purpose of regulation n is to provide a pick-up of a member in under regulation n the contributions so members in service who elect to purchase or so through a binding irrevocable payroll reduction employee contributions for contributions that are made for the purpose of purchasing service_credit or service buybacks buyback service under regulation n through installments in accordance with a schedule established by board m may elect to do authorization form p service having executed a binding irrevocable payroll reduction authorization with respect to any such contributions shall not be entitled to any option of choosing to receive the contributed amounts directly instead of having them paid_by that employer to board m such contributions although designated as employee contributions will be paid_by the employer in lieu of contributions by the employee assumed shall be paid_by the employer in lieu of contributions by the employee and shall be treated as tax- deferred employer pick-up contributions pursuant to sec_414 of the code subject_to a favorable letter_ruling by the internal_revenue_service service members in service may elect to pay all or part of any service purchase or buyback through such payroll reduction the amounts and the duration of the reduction shall be specified on form p as prescribed by board m and the amounts and duration shall be irrevocable and binding once made authorization is permitted n shall prevent a member from paying any amounts not covered by the authorization with after-tax_dollars such payroll reduction shall begin unless and until the member in service executes the payroll reduction authorization form p as prescribed by board m employer shall continue such reductions for the number of weeks or months specified on the form and shall treat these reductions as picked-up contributions will cease only after the authorization has expired by its terms or upon the member's death or termination of employment shall last no longer than five years payroll reductions and installment agreements no prepayment of amounts covered by the however nothing in regulation such reductions the no kkkkkeke keke ke ker kekekrekkekkekkekrkekkrekrekrkree the purpose of regulation o is to provide a pick-up of unless such contributions a member in service having members who have elected to participate in the employee contributions for retirement plus accelerated contributions that are made pursuant to the alternative superannuation retirement benefits provisions of state a statutes alternative superannuation program may also elect to accelerate their contributions to this program paid directly to plan x these accelerated contributions must be made in accordance with a schedule established by board m through a binding irrevocable payroll reduction authorization form r executed a binding irrevocable payroll reduction authorization with respect to any such contributions shall not be entitled to any option of choosing to receive the contribution amounts directly instead of having them paid_by the employer to board m such contributions shall be remitted to board m in the same manner as all other contributions made thereunder and shall be credited to the member's annuity savings account although designated as employee contributions will be paid_by the employer in lieu of contributions by the employee the contributions so assumed shall be paid_by the employer in lieu of contributions by the employee contributions so assumed shall be treated as tax-deferred employer pick-up contributions pursuant to sec_414 the service part of the accelerated contributions through such payroll reduction the amounts and the duration of the reduction shall be specified on form r as prescribed by board m and the amounts and duration shall be irrevocable and binding once made authorization is not permitted prevent a member from paying any amounts not covered by the authorization with after-tax_dollars reduction shall begin unless and until the member in service executes the payroll reduction authorization described as form r prescribed by board m shall continue to make such reductions for the period specified on the form and shall treat these reductions as picked-up contributions after the authorization has expired by its terms or upon the member's death or termination of employment reductions and installment agreements shall last no longer than five years members in service may elect to pay all or prepayment of amounts covered by the such reductions shall cease only a favorable letter_ruling of the code subject_to however nothing shall no such payroll the employer payroll the keke keke keke kekekekkkkekkekekkrkekkekrkkr kr kkekkk members in service may elect to purchase or buyback form p service through installments under an elective binding irrevocable payroll reduction authorization used in conjunction with regulation n provides in pertinent part that a member in service of board m who is entitled under state a statutes to buyback creditable service through the deposit of additional contributions desires to make those contributions through payroll reductions and directs the employer to make specific dollar-amount reductions from his her salary each pay_period for such purpose beginning with the pay_period immediately after the employer receives form p and continuing for a specific length of time as with respect to the reduction form p states that the as member understands that the authorization is irrevocable and has a maximum duration of five years that after the execution of the authorization there is no option of receiving the reduction amounts directly instead of having them paid_by the employer to board m that the a contributions are being picked-up by the employer and result although designated as employee contributions they are being paid directly to board m in lieu of contributions by the member that more than one irrevocable binding payroll reduction authorization may be made so long as subsequent reduction authorization does not amend the outstanding binding irrevocable authorization that while the agreement is service being purchased by the contribution designated on form p board m will only accept payment from the employer and not directly from the member that if the members terminates employment or dies prior to completion of the installment payments the authorization shall expire and that the member or survivor's right to finish the payment or whether board m will pro-rate credit is governed by state a statute that the authorization form p effective until signed by the member and an authorized representative of the member's employer and that the pick-up is only applicable to contributions to the extent the contribution is deducted from compensation earned for services after the effective date of the pick-up in effect with respect to the buyback or is not a form r as used in conjunction with regulation provides that a member in service with board m may elect to participate in the alternative superanuation retirement ol keke kkkkr keke kerr kkk ere kkk kek kekekkeekekkkek a rate of percent of form r also provides that a program by paying contributions at all regular compensation member may elect to pay accelerated contributions and that such accelerated contributions can be made through payroll reductions form r directs the employer to make specified reductions from the member's salary per pay_period for the purpose of receiving the superannuation retirement benefit and to remit such contributions to board m will begin with the pay_period immediately after the employer receives form r and continuing for a specified period of time the reductions with respect to the reduction form r provides that the as a that the payroll reduction authorization is irrevocable that the maximum duration of the authorization is five years that after execution of form r the member does not have the option of receiving the reduction amounts directly instead of having them paid_by the employer to board m contributions are being picked up by the employer and result although designated as employee contributions are being paid directly to board m in lieu of contributions by the member that the member can make more than one irrevocable binding payroll reduction authorization so long as subsequent reduction authorizations do not amend the outstanding binding irrevocable authorization that while form r in effect with respect to the accelerated contributions board m will only accept payments from the employer and not directly from the member that if terminated employment with the employer or dies before completion of the installment payments the authorization shall expire that form r the member and an authorized representative of the employer and that the pick-up is only applicable to contributions to the extent the contribution is deducted from compensation earned for services after the effective date of the pick-up is not effective until signed by is a member based on the foregoing facts and representations you have requested the following rulings that the amount deducted by employers from an employee's compensation and paid to plan x in order to contributions credit or accelerated cost of the alternative a redeposit previously withdrawn c pay the regular cost and the b purchase additional service 23h keke kkrkkkeekrkekekrkekkkkkkkkk kkk kkk kkkkr ka kkek superannuation retirement benefit program qualify as contributions that are picked-up by the employer under sec_41 and that the picked-up contributions will not be treated as annual_additions for purposes of sec_415 of the code of the code with respect to ruling requests one sec_414 h of the code provides that contributions otherwise designated as employee contributions shall be treated as employer contributions if such contributions are made to a plan described in sec_401 established by a state government or a political_subdivision thereof and are picked up by the employing unit the federal_income_tax treatment to be accorded in that revenue of the code is specified contributions which are picked up by the employer within the meaning of sec_414 in revrul_77_462 c b ruling the employer school district agreed to assume and pay the amounts employees were required by state law to contribute to a state pension_plan concluded that the school district's picked-up contributions to the plan are excluded from the employees' gross_income until such time as they are distributed to the employees the revenue_ruling held further that under the provisions of sec_3401 school district's contributions to the plan are excluded from wages for purposes of the collection of income_tax at source on wages therefore no withholding is required from the employees' salaries with respect to such picked-up contributions a a of the code revrul_77_462 the the issue of whether contributions have been picked up of by an employer within the meaning of sec_414 h the code is addressed in revrul_81_35 1981_1_cb_255 and revrul_81_36 c b revenue rulings established that the following two criteria must be met contributions although designated as employee contributions are being paid_by the employer in lieu of contributions by the employee and the employee must not be given the option of choosing to receive the contributed amounts directly instead of having them paid_by the employer to the pension_plan the employer must specify that the furthermore it these is a aa krkekkkekekekrkerkekkkkkeekaekkkkekkkekkkkkkkkek immaterial for purposes of the applicability of sec_414 whether an employer picks up contributions through a reduction in salary an offset against future salary increases or a combination of both if not 1987_1_cb_136 provides that the required in order to satisfy revenue rulings and with respect to particular contributions revrul_87_10 specification of designated employee contributions must be completed before the period to which such contributions relate being paid_by the employer are actually employee contributions paid_by the employee and recharacterized at later date designated employee contributions as paid_by the employing unit employee contributions by a governmental employer is not permitted under sec_414 the retroactive pick-up of designated the designated employee contributions the retroactive specification of of the code ie thus a with respect to the pick up of employee contributions further form p for the purpose of purchasing service_credit or service buybacks regulation n satisfies the criteria set forth in revrul_81_35 and revrul_81_36 by providing that the employer will make contributions on behalf of members participating in plan x in lieu of contributions by the members and that no member will have the option of receiving the contributions directly instead of having them contributed to plan x is irrevocable and ‘provides that the contributions are being picked up by the employer and paid directly by the employer to board m administrator of plan x and that the member does not have the option of receiving the contributed amounts directly instead of having them paid to plan x employee contributions to purchase service_credit or service buybacks is not effective until form r the member and an authorized representative of the employer purchase service_credit or service buy backs is only applicable to contributions to the extent the contribution is deducted from compensation earned for services after the effective date of the pick-up the pick-up of employee contributions to the pick-up of is signed by as with respect to the pick-up of employee contributions for retirement plus accelerated contributions that are made pursuant to the alternative superannuation retirement benefit provisions regulation o satisfies the criteria set o2yo kekreeekerekrkkekkkekrerkkkkekekkekkekk kkk kkk kk ek nnee further form r forth in revrul_81_35 and revrul_81_36 by providing that the contributions although designated as employee contributions will be paid_by the employer in lieu of contributions by the member and that the member shall not have any option of choosing to receive the contribution amounts directly instead of having them paid is irrevocable and provides to plan x that the contributions although designated as employee contributions are being paid directly to board m administrator of plan x members and that the members do not have the option of receiving the amounts directly instead of having them paid to plan x both the member and an authorized representative of the employer contributions to the extent the contribution is deducted from compensation earned for services after the effective date of the pick-up additionally the pick-up is only applicable to in lieu of contributions by the is not effective until it is signed by form r as accordingly we conclude with respect to ruling_request one that the amount deducted by employers from an employee's compensation and paid to plan x in order to a redeposit previously withdrawn contributions b purchase additional service_credit or c pay the regular cost and the accelerated cost of the alternative superannuation retirement benefit program qualify as contributions that are picked-up by the employer under sec_414 the code of with respect to ruling_request two sec_1 sec_1 d further provides of the income_tax regulations provides that where d a defined_benefit_plan provides for mandatory employee contributions the annual_benefit attributable to such contributions is not taken into account for purposes of applying the limitations on benefits described in sec_415 of the code that the mandatory employee contributions are considered a separate defined_contribution_plan maintained by the employer that is subject_to the limitations on contributions and other annual_additions described in code sec_415 employee contributions that are picked up by employers pursuant to sec_414 employer contributions and additions to purposes of code sec_415 a separate defined_contribution_plan for are treated as are not annual as such ay kkk ke ker kekrek err ekrekeeekrerekkkkekkekkrk kkk kkk a accordingly with respect to ruling_request two conclude that picked-up contributions under the facts proposed will not be treated as annual_additions for purposes of sec_415 of the code we our conclusions with respect to ruling_request one apply only if the effective date for the commencement of any proposed pick up as specified in the final resolutions can not be any earlier than the later of the date the final resolutions are signed or the date they are put into effect these rulings are based upon regulation n and regulation o and form p and form r as set forth in your letters dated date and date in accordance with revrul_87_10 this ruling does not apply to any contribution to the extent it relates to compensation earned before the later of the effective date of the relevant statutes the date the pick-up election is executed or the date it is put into effect no opinion is expressed as to whether the amounts in question are subject_to tax under the federal_insurance_contributions_act the amounts in question are being paid pursuant to a salary reduction agreement within the meaning of sec_3121 b no opinion is expressed as to whether of the code by letter dated date you through your authorized representative withdrew that part of the above ruling requests relating to the inclusion of accrued sick_pay as compensation available for an employer pick-up therefore our conclusions with respect to ruling requests one accrued sick_pay as compensation and two do not apply with respect to the pick-up of this ruling is directed only to the taxpayer who requested it it may not be used or cited by others as precedent sec_6110 of the code provides that these rulings express no opinion as to the impact of these proposed transactions upon the qualified nor the continuing qualified status of the plan involved rulings are based on the assumption that plan x will be qualified under sec_401 of the code at all relevant these oe kkk kkk kee kkk kkekkkekeke kek ker kkkkekkekkk kk kkk k times further this ruling is not a ruling with respect to the tax effects of the pick-up on employees of participating employers however in order for the tax effects that follow from this ruling to apply to those a particular participating employer described employees of in the preceding sentence the pick-up arrangement must be adopted and implemented by that participating employer in the manner described herein a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office sincerely yours signed joxgs b floyd joyce e floyd manager employee_plans technical group tax_exempt_and_government_entities_division enclosures deleted copy of this letter notice of intention to disclose a


t c memo united_states tax_court john thomas warren petitioner v commissioner of internal revenue respondent docket no filed date r determined deficiencies in p’ sec_2002 and federal_income_tax r also determined additions to tax pursuant to sec_6651 i r c for p’ sec_2002 and tax years and accuracy-related_penalties pursuant to sec_6662 i r c for p’ sec_2002 and tax years after r’s concessions the parties dispute whether p’s federal_income_tax liabilities were finally determined in a ch bankruptcy proceeding held p’s federal_income_tax liabilities were not finally determined in a ch bankruptcy proceeding p is liable for federal_income_tax deficiencies additions to tax and penalties john thomas warren pro_se laura a price lauren epstein and robert w dillard for respondent memorandum findings_of_fact and opinion wherry judge this case is before the court on a petition for redetermination of federal_income_tax deficiencies that respondent determined for petitioner’ sec_2002 and tax years respondent also determined additions to tax pursuant to sec_6651 for petitioner’ sec_2002 and tax years and accuracy-related_penalties pursuant to sec_6662 for petitioner’ sec_2002 and tax years after respondent’s concessions the issues remaining for decision are whether petitioner’s federal_income_tax liabilities were finally determined in a chapter bankruptcy proceeding and whether petitioner is liable for the additions to tax and penalties 1all section references are to the internal_revenue_code_of_1986 as amended and in effect for the tax years at issue the rule reference is to the tax_court rules_of_practice and procedure 2in the notice_of_deficiency respondent determined that petitioner had dollar_figure in unreported capital_gains in and dollar_figure in unreported capital_gains in at trial respondent’s counsel informed the court that respondent had received evidence of petitioner’s basis in stock_options that he sold in and and that the unreported capital_gains should be dollar_figure in and dollar_figure in on brief respondent concedes reduced deficiencies for and as a result of the substantiated basis findings_of_fact some of the facts have been stipulated and the stipulated facts and accompanying exhibits are hereby incorporated by reference into our findings on date petitioner filed a voluntary petition under chapter of the bankruptcy code with the tampa division of the u s bankruptcy court for the middle district of florida bankruptcy court during the course of those proceedings respondent filed a proof_of_claim and multiple amended proofs of claim regarding federal_income_tax liabilities for tax years including those at issue petitioner objected to respondent’s claim but withdrew his objection on date the bankruptcy court dismissed petitioner’s bankruptcy case in an order dated date the bankruptcy court did not discharge any_tax liabilities during the course of petitioner’s bankruptcy case 3while those proceedings were ongoing petitioner filed hi sec_2002 and federal_income_tax returns using form sec_1040 u s individual_income_tax_return he filed hi sec_2002 return on date he filed his return on date he filed his return on date 4on date the bankruptcy trustee had filed a motion to dismiss on the ground that petitioner had been delinquent in making payments to the trustee pursuant to the ch repayment plan that petitioner had filed with his voluntary ch bankruptcy petition the bankruptcy court had reserved ruling on that motion in an order dated date respondent issued petitioner a notice_of_deficiency on date the notice_of_deficiency reflects federal_income_tax deficiencies of dollar_figure for dollar_figure for and dollar_figure for those deficiencies stem from adjustments for the following unreported interest_income of dollar_figure in and dollar_figure in unreported capital_gains of dollar_figure in and dollar_figure in disallowed itemized_deductions of dollar_figure in dollar_figure in and dollar_figure in disallowed exemptions of dollar_figure in dollar_figure in and dollar_figure in a disallowed dollar_figure deduction for moving_expenses in unreported dividend income of dollar_figure in dollar_figure in sec_401 plan distributions in and dollar_figure of 5respondent has conceded reduced deficiencies attributable to capital_gains see supra note 6the notice_of_deficiency improperly characterized the distributions as coming from an individual_retirement_account the distributions apparently comprised some small dividend distributions a dollar_figure participant_loan distribution during date and an dollar_figure distribution in date in unreported income cases the court_of_appeals for the eleventh circuit to which an appeal of the decision in this case would lie absent a stipulation to the contrary has held that the presumption of correctness applies once the commissioner introduces some substantive evidence reflecting that the taxpayer received unreported income see 994_f2d_1542 11th cir affg tcmemo_1991_636 if the commissioner introduces such evidence the burden shifts to the taxpayer to show by a preponderance_of_the_evidence that the deficiency was arbitrary or erroneous id respondent has introduced sufficient evidence reflecting that petitioner received sec_401 plan distributions in petitioner does not argue that distributions were not made out of his sec_401 continued percent additional tax under sec_72 for an early distribution from a qualified_retirement_plan in it also reflects additions to tax pursuant to sec_6651 of dollar_figure and dollar_figure for petitioner’ sec_2002 and tax years respectively and sec_6662 accuracy-related_penalties of dollar_figure dollar_figure and dollar_figure for petitioner’ sec_2002 and tax years respectively on date petitioner filed a timely petition with this court at the time he filed his petition petitioner resided in florida a trial was held on date in tampa florida i parties’ contentions opinion in his petition petitioner asserts as part o sic chapter filing jan this case came before the department of treasury it’s my understanding that the cout sic was satisfied with my filing and that i sic did not owe any additional taxes petitioner did not file a pretrial memorandum as was required by the court’s standing_pretrial_order and although he was afforded the opportunity petitioner did not file a brief continued plan account that year only that he should not be taxed on them because they went to his former wife we address that argument later in this opinion see infra note respondent contends that the bankruptcy court’s dismissal returned petitioner and respondent to the position they were in prior to the filing of the bankruptcy petition and that respondent may determine additional tax_liabilities for the tax years at issue respondent asserts that petitioner has not assigned error to any of respondent’s determinations and that petitioner is liable for the deficiencies additions to tax and penalties ii res_judicata federal_income_tax deficiencies a bankruptcy court has jurisdiction to determine the amount or legality of any_tax any fine or penalty relating to a tax or any addition_to_tax whether or not previously assessed whether or not paid and whether or not contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction u s c sec_505 if a bankruptcy court renders a final judgment as to a debtor’s tax_liability res_judicata may apply to prevent the matter from being relitigated see fla peach corp v commissioner 90_tc_678 if a bankruptcy court does not render a final judgment as to the tax_liability res_judicata is inapplicable the commissioner is not precluded from determining a deficiency the preclusive effect of a judgment is defined by claim preclusion and issue preclusion which are collectively referred to as ‘res judicata ’ taylor v sturgell u s __ __ 128_sct_2161 and assuming we otherwise possess jurisdiction we can decide the matter see 118_tc_348 in the present case there is no indication that the bankruptcy court inquired into the merits of petitioners’ tax_liability in the process of confirmation petitioners did not object to respondent’s proof_of_claim and there was no need for an u s c sec_505 hearing to determine the merits of the underlying tax claim without a final judgment on the merits res_judicata cannot apply the bankruptcy court dismissed petitioner’s case without rendering a final_determination as to hi sec_2002 and federal_income_tax liabilities res_judicata is therefore inapplicable aside from his res_judicata argument petitioner has not assigned error to respondent’s deficiency determinations with the exception of respondent’s concession 8at trial there was some discussion regarding the unreported sec_401 plan distributions in petitioner appeared to contend that his former spouse should be required to pay tax on the sec_401 plan distributions because the money was paid to her pursuant to a qualified_domestic_relations_order qdro that contention is unavailing as petitioner cannot escape the federal_income_tax consequences of the withdrawal because the funds were transferred to his wife see vorwald v commissioner tcmemo_1997_15 because the transfer of funds from the ira to petitioner’s former spouse at least partially discharged a legal_obligation he owed to her the transfer to her is the equivalent of receipt by him we note however that any payment to his former spouse might if it meets certain requirements constitute deductible_alimony see sec_215 in the case of an individual there shall be allowed as a deduction an amount equal to the alimony or separate_maintenance continued as to petitioner’s basis in stock_options sold in and we have no ground for finding error in respondent’s deficiency determinations iii sec_6651 additions to tax under sec_7491 the commissioner bears the burden of production with respect to a taxpayer’s liability for penalties or additions to tax this means that the commissioner must come forward with sufficient evidence indicating that it is appropriate to impose the relevant penalty 116_tc_438 in instances where an exception to the penalty or addition_to_tax is afforded for example upon a showing of reasonable_cause or substantial_authority the taxpayer bears the burden of coming forward with evidence sufficient to persuade a court that the commissioner’s determination is incorrect id pincite sec_6651 imposes an addition_to_tax of percent per month or a fraction thereof up to a maximum of percent for failure_to_file a timely return unless it is shown that such continued payments paid during such individual’s taxable_year we also note that distributions from qualified_retirement_plans are not subject_to the additional 10-percent tax under sec_72 if they are made pursuant to a qdro within the meaning of sec_414 see sec_72 unfortunately we have nothing but petitioner’s reference to a qdro and his naked assertion that the distribution from his sec_401 plan was associated with my divorce failure is due to reasonable_cause and not to willful neglect respondent has satisfied his burden of production with respect to the sec_6651 additions to tax for petitioner’ sec_2002 and tax years petitioner filed hi sec_2002 federal_income_tax return on date and he filed his federal_income_tax return on date he has not even attempted to demonstrate reasonable_cause for his failure_to_file those returns on time accordingly we sustain the additions to tax under sec_6651 iv sec_6662 penalties subsection a of sec_6662 imposes an accuracy-related_penalty equal to percent of any underpayment attributable to a list of causes contained in subsection b among the causes justifying the imposition of the penalty are negligence or disregard of rules or regulations and any substantial_understatement_of_income_tax sec_6662 and sec_6662 defines negligence as any failure to make a reasonable attempt to comply with the provisions of this title d isregard is defined to include any careless reckless or intentional disregard id under caselaw ‘negligence is a lack of due care or the failure to do what a reasonable and ordinarily prudent person would do under the circumstances ’ 89_tc_849 quoting marcello v commissioner 380_f2d_499 5th cir affg on this issue 43_tc_168 and t c memo affd 904_f2d_1011 5th cir affd 501_us_868 there is an exception to the sec_6662 penalty when a taxpayer can demonstrate reasonable_cause for the underpayment and that the taxpayer acted in good_faith with respect to the underpayment sec_6664 regulations promulgated under sec_6664 further provide that the determination of reasonable_cause and good_faith is made on a case-by-case basis taking into account all pertinent facts and circumstances sec_1_6664-4 income_tax regs on brief respondent asserts that petitioner did not adequately explain why he failed to report stock sales in and and distributions from his sec_401 plan in respondent further asserts that the record contains no evidence to substantiate his claimed dollar_figure deduction for moving_expenses in petitioner has not attempted to explain his underpayments let alone demonstrate reasonable_cause and good_faith with respect to them accordingly we sustain the sec_6662 penalties the court has considered all of petitioner’s contentions arguments requests and statements to the extent not discussed herein we conclude that they are meritless moot or irrelevant to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi br 1-plr-130965-00 date date legend x d1 this letter responds to the ruling_request dated date which you submitted on behalf of x and which requests relief under sec_1362 of the internal_revenue_code facts x was incorporated on d1 x intended to be treated as an s_corporation for federal_income_tax purposes effective on d1 but the s election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if the election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such an election as timely made for such taxable_year and effective as of the first day of that tax_year x did not file a timely election to be treated as an s_corporation under sec_1362 effective on d1 x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 plr-130965-00 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center except as specifically set forth above no opinion is expressed as to the federal tax consequences of the transaction described above under any other provision of the internal_revenue_code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent s dianna k miosi sincerely yours chief branch associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc tege eb qp 2-plr-111467-03 date date employer ein plan dear this is in response to your letter dated date and subsequent correspondence on behalf of the above-referenced employer requesting a ruling on the tax consequences of employer’s deferred_compensation plan employer represents that it is a tax-exempt_organization under sec_501 of the internal_revenue_code the plan will be offered to a select group of management and highly compensated employees as an additional opportunity to defer compensation_for retirement the plan is intended to be an eligible_deferred_compensation_plan described in sec_457 of the code under the terms of the plan participants may annually defer compensation up to the applicable_dollar_amount so long as the agreement to defer is entered into before the month for which compensation is deferred the plan also provides that pursuant to sec_457 of the code a participant may make deferrals in excess of the applicable_dollar_amount during the participant’s three taxable years ending before attainment of normal_retirement_age the plan permits participants to specify a normal_retirement_age within the range of age sec_65 to ½ the plan does not provide for employer contributions distributions of a participant’s account will be made no earlier than upon a severance_from_employment upon an unforeseeable_emergency upon the participant’s reaching age ½ or in accordance with the small account balance provision of the plan but in all cases distributions will be made in accordance with sec_401 of the code the plan provides that within sixty days of a severance_from_employment the participant must make an initial election as to the time and form of distribution in the plr-111467-03 absence of such an election a participant’s account will be deemed to have been made available as of the sixty first day after the occurrence of the distributable event however participants are permitted to make an additional one-time election to defer commencement and or to change the form of distribution so long as these additional elections are made at least thirty days prior to the date distributions are to commence if a distribution is made on account of an unforeseeable_emergency only an amount sufficient to meet the emergency will be distributed the plan also provides that either the participant or the plan_administrator may initiate an in-service distribution of a small amount such in service distributions will be made only if the account balance including gains and losses but excluding any transfer amounts does not exceed dollar_figure the participant has not made any deferral under the plan during the two year period ending on the date of distribution and the participant has not already received a similar in-service distribution sec_457 of the code provides rules for the deferral of compensation by an individual participating in an eligible_deferred_compensation_plan as described in sec_457 sec_457 of the code provides that the case of a participant in an eligible_deferred_compensation_plan any amount of compensation deferred under the plan and any income attributable to the amount so deferred shall be includible in gross_income only for the taxable_year in which such compensation or other income is paid or otherwise made available to the participant or beneficiary sec_1_457-1 states that amounts deferred including amounts previously deferred under an eligible_plan will not be considered made available to the participant solely because the participant is permitted to choose among various investment modes under the plan for the investment of such amounts whether before or after any payments have commenced under the plan sec_457 states that a participant shall not be required to include in gross_income any portion of the entire amount payable to such participant solely by reason of the transfer of such portion from one eligible_deferred_compensation_plan to another eligible_deferred_compensation_plan based upon the provisions of the plan summarized above we conclude as follows the plan constitutes an eligible_deferred_compensation_plan as described in sec_457 of the code amounts of compensation deferred pursuant to the plan including any income attributable to the deferred_compensation will be includible in the gross_income of the recipient only for the taxable_year or years in which amounts are paid or otherwise made available to a participant or beneficiary under the plan plr-111467-03 except as specifically ruled upon above no opinion is expressed as to the federal_income_tax consequences of the plan under any other provision of the code if the plan is significantly modified this ruling will not necessarily remain applicable this ruling is directed only to employer and applies only to the plan submitted by a transmittal letter dated date as revised by amendments submitted on date sec_6110 of the code provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling may be modified or revoked if the adopted temporary or final regulations are inconsistent with any conclusions in this ruling see sectiondollar_figure of revproc_2003_1 2003_1_irb_1 however when the criteria in section dollar_figure of revproc_2003_1 2003_1_irb_1 are satisfied a ruling is not revoked or modified except in rare or unusual circumstances sincerely yours robert d patchell chief qualified_plans branch two office of the division counsel associate chief_counsel tax exempt and government entities enclosure copy of letter copy for sec_6110 purposes


department of the treasury_department of the treasury internal_revenue_service internal_revenue_service washington d c washington d c date number release date cc ebeo wta-n-106817-99 uil memorandum for district_director from subject senior technician reviewer branch office of the assistant counsel employee_benefits exempt_organizations cc ebeo labor leasing company client trucking company common_law employer determination this chief_counsel_advice responds to your memorandum dated date chief_counsel_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent issue whether a truck driver is an employee of a labor leasing company or the trucking company that is the leasing company’s client conclusion whether workers are employees of a particular entity depends on the facts and circumstances of the particular case we have recommended that you contact district_counsel for assistance in making the determination of employee status in a particular case we can however provide a general discussion of this area law and discussion sec_3121 of the internal_revenue_code provides that the term employee means any individual who under the usual common_law rules applicable in determining the employer-employee relationship has the status of an employee the question of whether an individual is an employee under the common_law rules or an independent_contractor is one of fact to be determined after consideration of the facts and the application of the law and regulations in a particular case guides for determining the existence of that status are found in three substantially_similar wta-n-106817-99 sections of the employment_tax regulations namely sec_31_3121_d_-1 sec_31 i - and c -1 relating to the federal_insurance_contributions_act fica the federal_unemployment_tax_act futa and federal_income_tax withholding respectively sec_31_3121_d_-1 of the regulations provides that generally the relationship of employer and employee exists when the person for whom the services are performed has the right to control and direct the individual who performs the services not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished that is an employee is subject_to the will and control of the employer not only as to what shall be done but as to how it shall be done in this connection it is not necessary that the employer actually direct or control the manner in which the services are performed it is sufficient if the employer has the right to do so the supreme court summarized the common_law test for employee as follows in determining whether a hired party is an employee under the general common_law of agency we consider the hiring party's right to control the manner and means by which the product is accomplished among the other factors relevant to this inquiry are the skill required the source of the instrumentalities and tools the location of the work the duration of the relationship between the parties whether the hiring party has the right to assign additional projects to the hired party the extent of the hired party's discretion over when and how long to work the method of payment the hired party's role in hiring and paying assistants whether the work is part of the regular business of the hiring party whether the hiring party is in business and the tax treatment of the hired party 503_us_318 quoting 490_us_730 the court added since the common-law test contains no shorthand formula or magic phrase that can be applied to find the answer all of the incidents of the relationship must be assessed and weighed with no one factor being decisive nlrb v united insurance co of america 390_us_254 pincite nationwide pincite in 89_tc_225 aff'd 862_f2d_751 9th cir the tax_court stated that the principles used in determining whether a person is an employee or an independent_contractor apply equally to determine by whom an individual is employed wta-n-106817-99 in revrul_87_41 1987_1_cb_296 the service identified twenty factors under which evidence would be analyzed for purposes of the common_law test the twenty factors were developed based upon an examination of cases and rulings considering whether an individual is an employee the degree of importance of each factor varies depending upon the occupation and the factual context in which the services are performed because of the difficulty in applying the twenty-factor test and because business trends have changed over the years the service has recently begun using a new approach with respect to worker classification rather than listing items of evidence under the twenty factors the approach now is to group the items of evidence into the following three main categories behavioral control financial control and the relationship of the parties behavioral control evidence in this category includes facts regarding whether the business has the right to direct and control how the worker performs the specific tasks for which the worker is hired facts that show behavioral control include the type and degree of instructions given to the worker and the training the business gives the worker in determining the behavioral control of a truck driver certain questions should be asked who determines the job to which a truck driver is assigned who provides instructions to a truck driver as to a particular job what are the methods of evaluating a truck driver’s work what procedures are in place for handling customer complaints if an agreement provides that a truck driver can be trained by the client trucking company or the labor leasing company how much training is provided by each entity were any particular training courses prerequisites to being assigned jobs financial control evidence under this category includes facts regarding whether there is a right to direct and control how the business aspects of the worker's activities are conducted facts that show financial control include whether the worker has a significant investment or incurs significant expenses in the business and whether the worker provides services to the relevant market in determining the financial control of a truck driver certain questions should be asked who owns the trucks who incurs costs for permits insurance damage waivers and bonds which are expenses normally incurred by an employer does a truck driver perform similar services for other persons are there restrictions on a truck driver’s ability to do outside work is a truck driver paid based upon a percentage of the rate billed or an hourly rate is a truck driver allowed to negotiate contract_price wta-n-106817-99 relationship of the parties evidence under this category includes facts which illustrate how the parties perceive their relationship relevant facts include those which show the intent of the parties with respect to their relationship and whether the parties were free to terminate their relationship at will the permanency of the relationship between the worker and the business is also relevant in assessing the relationship in determining the relationship of the parties certain questions should be asked does a truck driver perceive himself to be an employee of the labor leasing company or the client trucking company does a truck driver have the right to quit and is the truck driver subject_to discharge by the labor leasing company or the client trucking company how long has a truck driver worked for the labor leasing company or a particular client trucking company what is the frequency and duration of assignments of a particular truck driver to a particular client trucking company are there contracts between the client trucking company and a truck driver which address methods of compensation expenses that will be incurred the rights and obligations of each party with respect to how the work will be performed and the ability to discharge and a party’s rights upon discharge does a truck driver receive any benefits from the client trucking company for further information on worker-classification see the training materials on employee versus independent_contractor status independent_contractor or employee training tpds 84238i rev for further information on the trucking industry see the market_segment_specialization_program on trucking industry training tpds 83186h release date date


coueeionen tax_exempt_and_government_entities_division department of the treasury internal_revenue_service washington d c xvosns uniform issue list set epr t legend taxpayer a decedent b ira c trust d account e ira f financial_institution g financial_institution h amount dear this is in response to your request dated date as supplemented by correspondence dated date and date in which you request through your authorized representative a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalties of perjury in support of the ruling requested taxpayer a represents that on date her deceased husband’s estate received a distribution from ira c equal to amount taxpayer a the executor of his estate asserts that her failure to roll over the distribution from ra c to her own ira within the 60-day period described in sec_408 was due to emotional distress following the untimely death of her spouse decedent b and the stress of serving as executor of estate taxpayer a was married to decedent b on date the date of decedent b's death prior to his death decedent b owned ira c an individual_retirement_arrangement ira described in sec_408 of the code ira c was maintained by financial_institution g and decedent b’s estate was the beneficiary of ira c taxpayer a and decedent b were the trustees of trust d until decedent b’s death at which time taxpayer a became the sole trustee of trust d decedent b’s last will and testament provided that his estate pass through to the trustee of trust d you represent that on decedent b’s death taxpayer a as sole trustee and beneficiary under trust d had full authority under governing law to distribute the assets of ira c to herself on date taxpayer a requested a lump sum distribution from ira c equal to amount on date a date within the 60-day rollover period taxpayer a deposited amount into account e a non-ira account held in the name of decedent b’s estate and maintained by financial_institution h on date after the expiration of the 60-day rollover period taxpayer a requested that amount be transferred into her own ira ira f ira f was also maintained by financial_institution h amount was deposited into ira f on date taxpayer a represents that amount has not been used for any other purpose based on the above facts and representations taxpayer a requests that the service waive the 60-day rollover requirement with respect to the distribution of amount from ira c sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 sec_408 of the code provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money or any other_property is paid into an ira for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides that the rollover rules of sec_408 do not apply to inherited iras sec_408 of the code provides that the term inherited ira means an ira obtained by an individual other than ira owner's spouse as a result of the death of the ira owner sec_1_408-8 of the income_tax regulations question and answer provides that a surviving_spouse of an ira owner may elect to treat the spouse’s entire_interest as a beneficiary of an individual's ira as the spouse’s own ira in order to make this election the spouse must be the sole beneficiary of the ira and have an unlimited right to withdraw amounts from the ira named as beneficiary of the ira this requirement is not satisfied even if the spouse is the sole beneficiary of the trust ifa trust is sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the roliover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary_of_the_treasury may waive the 60-day requirement under sec_408 and sec_408 where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred generally if the proceeds of a decedent's ira are payable to a_trust or estate or both and are paid to the trustee of the trust who then pays them to the decedent's surviving_spouse as the beneficiary of the trust the surviving_spouse is treated as having received the ira proceeds from the trust and not from the decedent accordingly such surviving_spouse in general is not eligible to roll over the disturbed ira proceeds into her own ira however the general_rule will not apply where the surviving_spouse is the sole trustee of the decedent's trust and has the sole authority and discretion under trust language to pay the ira proceeds to herself the surviving_spouse may then receive the ira proceeds and roll over the amounts into an ira set up and maintained in her name in this case decedent b designated his estate as the beneficiary of his ira and taxpayer a was the executor of his estate which passed through to trust d taxpayer a was also the sole trustee of trust d and had the power to distribute the assets of ira c from trust d to herself thus taxpayer a could have taken a distribution from ira c and rolled it over into an ira in her name however taxpayer a was emotionally distraught following her husband’s untimely death and overwhelmed by the responsibility of handling his estate the information and documentation submitted by taxpayer a are consistent with her assertion that the failure to accomplish a rollover of amount from ira c into her own ira within the 60-day period prescribed by d a of the code was due to the emotional distress following her husband’s death and the stress of administering his estate therefore pursuant to sec_408 i of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira c provided all other requirements of sec_408 except the 60-day requirement are met with respect to such contribution the contribution of amount to ira f will be considered a rollover_contribution within the meaning of sec_408 this ruling does not authorize the rollover of amounts that are required to be distributed by sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative if you wish to inquire about this ruling please contact at please address all correspondence to se t ep ra t1 sincerely yours cariton a watkins manager employee_plans technical group enclosures notice of intention to disclose deleted copy of this letter cc


internal_revenue_service department of the treasury number release date index numbers re washington dc person to contact telephone number refer reply to cc psi b09-plr-137303-02 date date legend taxpayer taxpayer date trust a_trust b daughter a daughter b date x a corporation y b year date plr-137303-02 dear this is in response to a letter dated date on behalf of taxpayer and the estate of taxpayer and subsequent correspondence requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to make allocations of generation-skipping_transfer gst_exemption the facts and representations submitted are summarized as follows on date taxpayer established trust a an irrevocable_trust for the benefit of daughter a and her descendants and trust b an irrevocable_trust for the benefit of daughter b and her descendants article fourth of trust a provides that daughter a is the initial beneficiary of trust a article fifth paragraph a of trust a provides that during daughter a’s lifetime the trustee shall at any time pay or apply so much of the principal or so much of the net_income of trust a as is required for the health education maintenance and support of daughter a article fifth paragraph b of trust a provides that upon the death of daughter a the trustee shall hold administer or distribute the then remaining principal and undistributed_income of the trust to or for the benefit of such persons corporations or organizations whether outright or in trust and upon such terms and conditions as daughter a shall appoint by a will duly admitted to probate and specifically referring to and exercising this power_of_appointment however daughter a may not appoint to or for the benefit of herself her creditors her estate or the creditors of her estate to the extent that daughter a does not exercise this exclusive special power to appoint by will then upon the death of daughter a the trustee shall divide trust a into as many equal shares as there are children of daughter a then living and children of daughter a then deceased but leaving issue then living each share of each trust shall constitute and be held administered and distributed by the trustee as a separate trust article fifth paragraph b c of trust a provides that if there are no issue of daughter a then living the trust estate shall be distributed one-half ½ to the persons who would be the heirs of taxpayer and the other one-half ½ to the persons who would be the heirs of taxpayer and if either taxpayer or taxpayer have no heirs then all to the heirs of the other the terms of trust b are identical to trust a except that the primary beneficiaries of trust b are daughter b and her descendants on date taxpayer and taxpayer funded trust a with x shares of corporation common_stock with a total reported value of dollar_figurea and funded trust b with y shares of corporation common_stock with a total reported value of dollar_figureb taxpayer and taxpayer each reported the transfers to trust a and trust b on timely filed year plr-137303-02 form sec_709 united_states gift and generation-skipping_transfer_tax return taxpayer and taxpayer each consented to have the gifts made by them to third parties during the calendar_year as made one-half by each of them taxpayer and taxpayer relied on an accountant to prepare their year gift_tax returns the accountant incorrectly reported the year transfers to trust a and trust b and did not effectively allocate taxpayer 1's and taxpayer 2's respective gst exemptions to trust a and trust b taxpayer died on date no additional transfers have been made to trust a or trust b taxpayer and the estate of taxpayer have requested the following rulings an extension of time under sec_2642 of the internal_revenue_code and sec_301_9100-1 and sec_301_9100-3 to make allocations of taxpayer 1’s and taxpayer 2's gst exemptions for the transfers to trust a and trust b in year and as a result of such allocations trust a and trust b will each have an inclusion_ratio of zero sec_2601 imposes a tax on every generation-skipping_transfer gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 that may be allocated by such individual or his executor to any property with respect to which such individual is the transferor 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_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 or is deemed to be made under sec_2632 or c 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 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period its value at the time of the close of the estate_tax_inclusion_period and such allocation shall be effective on and after the date of such transfer or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be plr-137303-02 granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 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 notice_2001_50 2001_34_irb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 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 sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute 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 or b or an election described in sec_2632 or c 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 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 plr-137303-02 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore taxpayer and the estate of taxpayer are granted an extension of time of days from the date of this letter to make allocations of taxpayer 1’s and taxpayer 2's available gst exemptions with respect to the transfers to trust a and trust b in year the allocations will be effective as of date the date of the transfers to the trusts and the gift_tax value of the transfers to the trusts will be used in determining the amount of gst_exemption to be allocated to trust a and trust b provided the amount of gst_exemption allocated to trust a and trust b is equal to the value of the property transferred to trust a and trust b for federal gift_tax purposes trust a and trust b will each have an inclusion_ratio of zero the allocations should be made on supplemental form sec_709 united_states gift and generation-skipping_transfer_tax return and filed with the internal_revenue_service center cincinnati oh a copy of this letter should be attached to the supplemental form sec_709 a copy is enclosed for this purpose 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 except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code in addition we express or imply no opinion regarding the value of the property transferred to trust a and trust b in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to taxpayer and the estate of taxpayer this ruling is directed only to the taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


internal_revenue_service number release date index number ------------- -------------------------- ------------------ -------------------------------------- - legend department of the treasury washington dc person to contact -------------------- telephone number --------------------- refer reply to cc tege eb qp2 - plr-123646-06 date november taxpayer company year y year z -------------------------------------------- ---------------------- ------- ------- this responds to your letter dated ------------------- which was submitted on your dear ------------ behalf by your authorized representative concerning whether the transfer of qualified_replacement_property to and from a grantor_retained_annuity_trust would result in a disposition under sec_1042 of the internal_revenue_code taxpayer participated as a significant shareholder in the establishment of an employee_stock_ownership_plan esop for company taxpayer represents that the esop satisfied the requirements under sec_4975 the esop was established prior to taxpayer’s retirement and purchased company shares from taxpayer and other existing shareholders in year y in year z taxpayer and other individual shareholders again sold company shares to the esop taxpayer represents that the sale of taxpayer’s company shares to the esop met the requirements for the sale of qualified_securities under sec_1042 and that the company shares constituted qualified_securities under sec_1042 plr-123646-06 after both the year y and year z sale of taxpayer’s company shares the taxpayer represents that he elected to defer recognition of long term capital_gain on the sale of company shares to the esop under sec_1042 and purchased qualified_replacement_property qrp as defined in sec_1042 within the replacement_period as defined in sec_1042 taxpayer represents that he intends to transfer the qrp to a_trust intended to be a grantor_retained_annuity_trust grat within the meaning of sec_2702 the trust provides that the taxpayer shall have the power solely in a nonfiduciary capacity and without the approval of any person in a fiduciary capacity to reacquire the trust principal by substituting other_property of equivalent value you have requested the following rulings that the transfer of qrp to a grat does not constitute a disposition under sec_1042 that the exercise of taxpayer’s power held during the term of the grat in a non-fiduciary capacity to substitute cash or other qrp assets of at least equal value does not constitute a disposition under sec_1042 that the transfer of qrp to the taxpayer as a periodic annuity_payment does not constitute a disposition under sec_1042 that the transfer of qrp at the termination of the grat to the trust beneficiaries does not result in a disposition under sec_1042 that if the taxpayer dies while the grat is still in existence an interim or final annuity_payment in the form of qrp made to the taxpayer’s successor_in_interest that is an estate or inter-vivos trust does not constitute a disposition under sec_1042 since you have not requested a ruling concerning whether the sale of securities to the esop or the election by the taxpayer to defer recognition of gain satisfied the requirements of sec_1042 or sec_1_1042-1t of the temporary income_tax regulations we express no opinion on that issue for purposes of your ruling_request we will assume that the property purchased by the taxpayer constitutes qrp as defined in sec_1042 and that sec_1042 applies to such property under sec_1042 a taxpayer or executor may elect in certain cases not to recognize long-term_capital_gain on the sale of qualified_securities to an esop as defined in sec_4975 or eligible worker owned cooperative if the taxpayer purchases qualified_replacement_property as defined in sec_1042 within the plr-123646-06 replacement_period of sec_1042 and the requirements of sec_1042 and sec_1_1042-1t are satisfied sec_1042 provides that a taxpayer’s basis in qrp purchased during the qualified replacement_period will be reduced by the amount of gain not recognized by reason of the application of sec_1042 if more than one item of qrp is purchased the basis of each item of qrp shall be reduced by an amount determined by multiplying the total gain not recognized by reason of the application of sec_1042 by a fraction the numerator of which is the cost of such item of qrp and the denominator of which is the total cost of all items of such property sec_1042 provides that i f a taxpayer disposes of any qualified_replacement_property then notwithstanding any other provision of this title gain if any shall be recognized to the extent of the gain which was not recognized under subsection a by reason of the acquisition by such taxpayer of such qualified_replacement_property the legislative_history of sec_1042 indicates that it was added to the internal_revenue_code as part of the tax_reform_act_of_1986 to coordinate the requirement that deferred gain be recognized on the disposition of any qrp with other nonrecognition provisions of the code effective for dispositions made after the date of enactment the act overrides all other provisions permitting nonrecognition and requires that gain realized upon the disposition of qualified_replacement_property be recognized at that time s rep 99th congr 2nd sess c b v limited exceptions to this rule are provided in sec_1042 thus gain realized from the disposition of any qrp by a taxpayer who made an election under sec_1042 must be recognized at the time of the disposition regardless of any other nonrecognition provisions of the code that may otherwise have applied sec_1042 provides that the recapture rules of sec_1042 shall not apply to any transfer of qrp that occurs in any reorganization within the meaning of sec_368 unless the person making the election under sec_1042 owns stock representing control of the acquiring or acquired_corporation and such property is substituted_basis_property in the hands of the transferee by reason of the death of the person making the election by gift or in any transaction to which sec_1042 applies sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_673 through specify the circumstances under which the grantor is sec_1_675-1 of the income_tax regulations provides in general that the sec_675 provides that the grantor shall be treated as the owner of any plr-123646-06 treated as the owner of a portion of a_trust portion of a_trust in respect of which a power_of_administration is exercisable in a nonfiduciary capacity by any person without the approval or consent of any person in a fiduciary capacity the term power_of_administration includes a power to reacquire the trust corpus by substituting other_property of an equivalent value grantor is treated as the owner of any portion of a_trust if under the terms of the trust instrument or circumstances attendant on its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiaries of the trust sec_1_675-1 provides that the circumstances which may cause administrative controls to be considered exercisable primarily for the benefit of the grantor include the existence of certain powers of administration exercisable in a nonfiduciary capacity by any nonadverse_party without the approval or consent of any person in a fiduciary capacity the term powers of administration includes a power to reacquire the trust corpus by substituting other_property of an equivalent value if a power is not exercisable by a person as trustee the determination of whether the power is exercisable in a fiduciary or a nonfiduciary capacity depends on all the terms of the trust and the circumstances surrounding its creation and administration revrul_85_13 1985_1_cb_184 holds that if a grantor is treated as the owner of any portion of an entire trust the grantor is the owner of the trust’s assets for federal_income_tax purposes the circumstances surrounding the administration of the trust will determine whether the power_of_administration is exercisable in a fiduciary or nonfiduciary capacity this is a question of fact the determination of which must be deferred until the federal_income_tax returns of the parties involved have been examined by the internal_revenue_service office where the returns are filed therefore we cannot determine at this time whether the taxpayer will be treated as the owner of the trust under sec_675 provided that the circumstances indicate that the power_of_administration is exercisable in a nonfiduciary capacity the taxpayer will be treated as the owner of the trust under sec_671 and sec_675 we assume for purposes of this ruling that the taxpayer is treated as the owner of the qrp transferred to the purported grat under the rules of sec_671 and sec_675 the taxpayer represents that he will not relinquish any powers during the term of the plr-123646-06 trust that would cause the grat to fail to be a_trust in which the taxpayer is the owner of the trust under sec_671 and sec_675 of the code the following therefore based on the facts presented and representations made we conclude provided that the taxpayer is treated as the owner of the qrp held in the grat under sec_671 and sec_675 at the time of the transfer the transfer of qrp to the grantor_retained_annuity_trust does not constitute a disposition of the qrp under sec_1042 provided that the taxpayer is treated as the owner of the qrp held in the grat under sec_671 and sec_675 at the time of exercise the exercise of taxpayer’s power held during the term of the grat in a non-fiduciary capacity to substitute cash or other qrp assets of at least equal value does not constitute a disposition of the qrp under sec_1042 provided that the taxpayer is treated as the owner of the qrp held in the grat under sec_671 and sec_675 at the time of any annuity payments under the trust the transfer of qrp to the taxpayer as a periodic annuity_payment does not constitute a disposition of the qrp under sec_1042 provided that the funding of the grat with qrp constituted a completed_gift of the remainder_interest for federal transfer_tax purposes the transfer of qrp to the trust beneficiaries pursuant to the terms of the trust does not result in a recapture of gain deferred under sec_1042 because of the operation of sec_1042 if the taxpayer dies while the grat is still in existence an interim or final annuity_payment in the form of qrp made to the taxpayer’s successor_in_interest an estate or inter-vivos trust will not result in a recapture of gain deferred under sec_1042 because of the operation of sec_1042 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 does not express an opinion as to validity of the grantor_retained_annuity_trust under sec_2702 of the code plr-123646-06 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 the rulings contained in this letter are based upon information and representations 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 sincerely yours robert d patchell chief qualified_plans branch division counsel associate chief_counsel tax exempt and government entities enclosure copy for purposes