t c memo united_states tax_court glenn h and diane j flood petitioners v commissioner of internal revenue respondent docket no filed date cheryl r frank and gerald w kelly jr for petitioners david delduco for respondent memorandum findings_of_fact and opinion gerber judge respondent determined deficiencies and accuracy-related_penalties in petitioners’ federal income taxes as follows penalty year deficiency sec_6662 a dollar_figure dollar_figure big_number big_number big_number big_number - the issues for our consideration are whether petitioners’ and income was underreported in the amounts of dollar_figure dollar_figure and dollar_figure respectively whether petitioners are entitled to a bad-debt deduction under sec_166 whether petitioners are entitled to a casualty_loss deduction under sec_165 whether petitioners’ gain from the sale of glenwood wrecker service was understated in the amount of dollar_figure and whether petitioners are liable for the accuracy-related_penalty under sec_6662 for the and tax years findings_of_fact when their petition was filed petitioners glenn h and diane j flood resided in chatsworth georgia glenn h flood petitioner owned two businesses during the years in question flood’s auto parts fap and glenwood wrecker service glenwood fap during the tax years in issue petitioner owned and operated fap a sole_proprietorship located in chatsworth georgia fap consisted of the wholesale and retail_sale of auto parts a wrecker service and the sale of junk cars to a scrap metal unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable periods under consideration and all rule references are to the tax_court rules_of_practice and procedure the parties’ stipulation of facts and exhibits is incorporated herein by this reference dealer petitioner recorded most of the gross_receipts for fap by creating invoices however he did not create an invoice for every sale petitioner had no other means to determine the amount of unrecorded receipts petitioner did not deposit all proceeds from sales into his business or personal bank accounts and also accumulated cash at his residence petitioner reported income for fap on schedule c profit or loss from business for the years and fap was petitioner’s primary source_of_income glenwood on date petitioner purchased glenwood from glenn cantrell for dollar_figure and initially operated the business as a sole_proprietorship an employee managed glenwood until the employee’s death that same year soon after the employee’s death petitioner agreed to form a partnership with sam hammontree hammontree who subsequently became petitioner’s brother-in-law hammontree planned to draw cash from his retirement fund to pay for a one-half partnership_interest in glenwood but he was unable to obtain the funds instead petitioner and hammontree orally agreed that hammontree would manage and receive a salary from glenwood and pay petitioner from hammontree’s half of the business profits q4e- petitioner and hammontree filed a partnership tax_return for glenwood for the calendar_year for the tax_year glenwood reported ordinary losses of dollar_figure and claimed dollar_figure in sec_179 expenses glenwood’s schedule k for reflected that petitioner and hammontree each owned percent of the partnership petitioners reported flowthrough activity from glenwood for tax years through on their form sec_1040 u s individual_income_tax_return effective date glenwood became incorporated as glenwood wrecker service inc and the glenwood partnership was terminated the partnership assets and liabilities were exchanged for all of the issued stock in glenwood additionally a short-year partnership tax_return was filed for the period ending date the partnership reported ordinary_income of dollar_figure for the short tax_year ending date petitioner’s ending basis in glenwood partnership and his beginning basis in glenwood corporation was dollar_figure on date petitioner and hammontree personally guaranteed a bank loan to glenwood in the amount of dollar_figure the loan was secured_by glenwood’s assets which consisted of six tow trucks and one office trailer petitioner and hammontree agreed that dollar_figure should be removed from the corporation by hammontree and paid to petitioner in payment for hammontree’s one-half interest in the business the following day date petitioner received a dollar_figure corporate check signed by - hammontree petitioner used the dollar_figure to pay off outstanding debts of fap for the short tax_year beginning date and ending date glenwood elected s_corporation status glenwood filed form_1120s and reported ordinary_income of dollar_figure and claimed dollar_figure in sec_179 expenses the glenwood form_1120s reflected that petitioner and hammontree were 50-percent shareholders for the short tax_year ending date during the examination of petitioners respondent determined that the dollar_figure received by petitioner was a distribution from glenwood reducing petitioner’s basis in glenwood in date petitioner sold his one-half interest in glenwood to hammontree for dollar_figure petitioner received a cashier’s check for dollar_figure from hammontree and a separate check directly from glenwood for dollar_figure petitioners reported a capital_gain from the sale of glenwood stock in the amount of dollar_figure on their form_1040 u s individual_income_tax_return respondent determined that petitioners understated their capital_gain on the sale of glenwood by dollar_figure the murray avenue auction in petitioner began working for the murray avenue auction the auction the auction was wholly owned by petitioner’s father john flood until on date petitioner’s stepmother willene flood acquired an ownership_interest in the auction and applied for a certificate of -- - registration with the georgia department of revenue the auction’s primary activity was selling items such as toys tools furniture and collectibles that it acquired in bulk petitioner a licensed auctioneer worked at the auction and as a buyer traveled to different locations to acquire the items subsequently sold at the auction petitioner’s sister also worked at the auction petitioner cosigned and made payments on several bank loans which were used for the benefit of his father and the auction the total amount advanced to petitioner’s father was dollar_figure petitioner did not have an ownership_interest in the auction in a fire completely destroyed the auction for which petitioner’s father and stepmother claimed a casualty_loss deduction of dollar_figure on their form_1040 for the tax_year petitioners’ income as determined by respondent for for the tax_year respondent using the source_and_application_of_funds_method determined that petitioners had unreported income to compute unreported income using this method the funds petitioners used were identified through their expenditures during the tax_year and then compared with petitioners’ total available funds from all sources during the tax_year where the expenditures exceeded known available sources of funds the difference was determined to be income as part of the calculation respondent excluded funds that were accumulated during prior taxable years - jj - to make his determination as to petitioners’ income for respondent used the following information source of funds adjusted_gross_income dollar_figure loan balance big_number bank account balance sec_1 big_number moneys advanced from daughter big_number depreciation noncash deduction big_number self-employment_tax agi deduction big_number glenwood loan receivable big_number cash on hand big_number total sources available ‘big_number application of funds personal living_expenses dollar_figure loan balance big_number funds to construct house for daughter big_number bank balance payment of father’s loan big_number glenwood loan receivable --o- increase in inventory big_number increase to capital glenwood big_number building improvements big_number cash on hand big_number total application of funds big_number total sources available big_number understatement of income big_number less specific adjustments rental income big_number understatement of income big_number ' although the parties have stipulated dollar_figure it appears the correct amount is dollar_figure petitioners’ income as determined by respondent for for the tax_year respondent using t application of funds method determined that pe unreported income to make his determination the following information source of funds adjusted_gross_income loan balance bank account balance sec_1 moneys advanced from daughter depreciation noncash deduction basis in asset sold cash on hand total sources available application of funds personal living_expenses loan balance funds to construct house for daughter bank balance increase in inventory increase to capital glenwood cash on hand total application of funds total sources available understatement of income additional proceeds from sale of glenwood sale of equipment understatement of income petitioners’ income as determined by respondent he source and titioners had respondent used dollar_figure big_number big_number big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number for for the tax_year respondent using the source_and_application_of_funds_method determined that petitioners had unreported income to make his determination respondent used the following information source of funds adjusted_gross_income dollar_figure loan balance big_number bank account balance sec_1 big_number depreciation noncash deduction big_number amount payable on equipment big_number self-employment_tax deduction cash on hand big_number total sources available application of funds personal living_expenses dollar_figure loan balance big_number bank balance big_number increase in inventory big_number equipment purchases big_number amount payable on equipment -0- cash on hand big_number total application of funds big_number total sources available understatement of income big_number opinion we consider here whether petitioners underreported income from the sale of a capital_asset and from a business we also consider whether petitioners are entitled to a bad_debt and or a casualty_loss deduction finally we must decide whether petitioners are liable for accuracy-related_penalties was petitioners’ and or business income underreported respondent using the source_and_application_of_funds_method determined that petitioners’ income was underreported for the tax years and in the amounts of dollar_figure dollar_figure and dollar_figure respectively petitioners contend that -- - respondent used an understated amount of cash on hand in the calculation of petitioners’ business income a larger amount of cash on hand would reduce respondent’s income determination under the source_and_application_of_funds_method taxpayers are regquired to keep adequate_records with which the commissioner may determine their correct_tax liability see sec_6001 sec_1_6001-1 d income_tax regs in the absence of such adequate_records the commissioner may reconstruct income using a method that clearly reflects income see 967_f2d_986 4th cir affg tcmemo_1990_618 92_tc_661 the commissioner may use indirect methods to reconstruct income so long as they are reasonable in the circumstances see 348_us_121 54_tc_1530 respondent reconstructed petitioners’ income using the source_and_application_of_funds_method petitioners do not guestion respondent’s use of the source_and_application_of_funds_method for reconstructing their income petitioners argue however that respondent’s determination of their income was overstated because respondent used too small an amount of cash on hand in the computation petitioners do not question other aspects of respondent’s calculations accordingly we must consider whether respondent erred in the reconstruction of petitioners’ income only with respect to the amount of cash petitioners maintained at their residence as part of the reconstruction_of_income using the source_and_application_of_funds_method funds that were accumulated before the first taxable_year under examination must be excluded during the examination petitioner told respondent’s agent that petitioners kept approximately dollar_figure in cash at their residence relying on petitioner’s representation respondent used dollar_figure in the reconstruction of petitioners’ income petitioners now contend that dollar_figure does not represent the correct amount of cash on hand and that petitioners actually had as much as dollar_figure in cash at their residence the only evidence petitioners offered on this point was petitioner’s oral testimony on direct examination petitioner was asked now today with your knowledge of the facts is that dollar_figure number accurate or is it higher or lower petitioner responded i just prefer to leave it the same i don’t know i couldn’t tell you the truth about that i’d just rather just leave it the same but i probably had--i had to have more money than what i told him that’s the only thing i can say about it but that’s been a long time ago let’s just leave it dollar_figure and just let it ride like that that’s what i would say emphasis added -- accordingly petitioners have failed to show that respondent erred by using dollar_figure as cash on hand therefore respondent’s reconstruction of petitioner’s income is upheld in full have petitioners shown that advances to petitioner’s father were loans and that they became worthless during we next consider whether petitioner is entitled to a sec_166 bad-debt deduction for advances made to or on behalf of his father petitioners argue that they are entitled to ordinary_loss treatment because the advances were loans made in furtherance of petitioner’s trade_or_business and that said loans became worthless when the auction was destroyed by fire in respondent argues that the advances petitioner made were gifts which did not have the requisite characteristics of a bona_fide debt for the purposes of sec_166 in order to maintain an ordinary_loss deduction for a bad_debt a taxpayer must demonstrate that the advances qualify for sec_166 treatment see 305_us_281 230_f2d_880 5th cir a taxpayer’s entitlement to sec_166 treatment depends upon a showing that a bona_fide debt existed and that the debt became uncollectible during the year in which the deduction is claimed see sec_166 rule a 290_us_111 petitioners did not claim this loss on their returns instead the loss was claimed in an attempt to offset respondent’s deficiency determination because of our holding this issue has no effect on the deficiency determined or the accuracy-related_penalties a bona_fide debt is one that arises from a debtor- creditor relationship and is based upon a legally valid and enforceable obligation to pay a fixed or determinable sum of money see sec_1_166-1 income_tax regs we have held that our consideration of whether a taxpayer created a debt with a true expectation of repayment and with the intent to enforce the repayment of that debt requires an examination of the facts and circumstances the following factors have been used to aid in deciding whether an advance is debt within the meaning of sec_166 the existence of a promissory note or written evidence_of_indebtedness whether and in what amount interest is charged whether there is a fixed repayment schedule whether there is security or collateral for the debt whether the lender made a demand for repayment whether the loan is reflected as a loan in the parties’ books_and_records whether and in what amounts any repayments have occurred and the solvency of the borrower at the time the parties made the loan see eg mayhew v commissioner tcmemo_1994_310 considering these factors in light of the record we conclude that petitioners have not established the existence of a bona_fide debt to petitioner petitioners did not offer evidence of a promissory note or similar type of instrument of indebtedness that would identify the advances as loans although petitioners reported dollar_figure of interest_income on their form_1040 - for the tax_year the source of that interest has not been shown in addition dollar_figure of interest_income is wholly disproportionate to the dollar_figure that petitioner alleges he lent to his father although petitioner’s father owned assets other than the auction such as rental property and the land on which fap’s business was situated petitioner did not require security to guard against default further petitioner did not protect his position to collect from his father’s assets in the event of competing creditors petitioner did not seek collection or repayment from his father petitioner’s testimony was that he did not ask his father for repayment because he is my father petitioner contends that his father made two lump-sum partial repayments and that those repayments are indicia of bona_fide debt however there was no contemporary repayment schedule and the only evidence of repayment was a handwritten schedule submitted for trial purposes the schedule submitted for trial reflected that the first repayment of dollar_figure was made to the lending bank and the second repayment of dollar_figure was made to petitioners we review transactions between family members with heightened scrutiny see 549_f2d_1155 8th cir affg tcmemo_1975_319 92_tc_470 affd without published opinion 912_f2d_1466 5th cir loans between family - members have been considered gifts in the absence of sufficient evidence of a true expectation of repayment and intent to enforce collection of the debt see perry v commissioner supra pincite 55_tc_172 12_tc_1158 affd per curiam 192_f2d_391 2d cir even if petitioner’s father made the two payments reflected in the trial exhibit that evidence is insufficient by itself to show the existence of bona_fide debt had petitioners shown that a bona_fide debt existed they would not have been entitled to a deduction for the tax_year because petitioners did not show worthlessness in that year see sec_166 in determining the worthlessness of a debt all available evidence including the value of any security and the financial condition of the debtor must be considered see sec_1_166-2 income_tax regs a taxpayer must provide evidence of the worthlessness of the debt see sec_1_166-2 income_tax regs a debt becomes worthless in the tax_year in which a creditor using sound business judgment abandons all reasonable hope of recovery on the basis of the available information regarding the surrounding circumstances of the debt see 77_tc_582 54_tc_239 sec_1_166-2 income_tax regs petitioners argue that the loans became worthless in when the auction was destroyed by fire petitioner argues that the auction was his father’s sole source_of_income the destruction of which resulted in an inability to repay the advances it is not entirely clear from the record who owned the auction at the time of the fire it appears from the record however that the auction was owned entirely by petitioner’s father and or stepmother although legal action by petitioner against his father is not required to show his father’s inability to repay the advances in the absence of such action petitioner must still show that legal action would not have resulted in the satisfaction of the debt see sec_1_166-2 income_tax regs petitioner’s father owns the land upon which fap is located schedule d capital_gains_and_losses of john and willene flood’s income_tax return shows the sale of a building for a gain of dollar_figure weeks before the auction fire additionally schedule ek supplemental income and loss of the income_tax return shows that the couple owned rental property at the time of the fire accordingly petitioners have failed to show that the advances were loans even if petitioners had shown that the advances were debt within the meaning of sec_166 petitioners have not shown that they became worthless during are petitioners entitled to a casualty_loss deduction we next consider whether petitioners are entitled to a casualty_loss deduction under sec_165 for losses stemming from the destruction of the auction petitioners advanced their casualty_loss argument for the first time in their brief as an entirely new and separate issue after considering that this issue was not tried by consent of the parties and that surprise and prejudice to respondent would result we hold that the issue was not timely raised see 59_tc_551 petitioners’ casualty_loss argument appears to be an afterthought petitioners have not shown that they had an ownership_interest in the auction additionally petitioners’ argument conflicts factually with petitioner’s father’s and stepmother’s claim of a dollar_figure casualty_loss for the same property petitioner’s basis in glenwood we next consider whether petitioners have shown that they correctly reported capital_gain from the sale of glenwood sec_1001 provides that gain from the sale or disposition of property shall be the excess of the amount_realized over the adjusted_basis sec_1001 provides that the amount_realized is the sum of money received plus the fair_market_value of any property received sec_1001 requires that the amount of gain on the sale_or_exchange of property be recognized -- - unless there are specific provisions for nonrecognition respondent determined that petitioners understated their capital_gain from the sale of glenwood by dollar_figure the increased capital_gain results in part from respondent’s characterizing a dollar_figure check from glenwood to petitioner as a distribution which reduced petitioner’s basis in glenwood to zero the issue before us is purely factual petitioners argue that the dollar_figure was a distribution to hammontree from glenwood and in turn a payment to petitioner in exchange for hammontree’s acquisition of a 50-percent interest in glenwood from petitioner we agree with petitioner in petitioner and hammontree agreed that hammontree would use funds from a retirement account to become a 50-percent partner in glenwood however hammontree was unable to draw from the account thereafter it was understood that hammontree would run the business and take a salary and that petitioner’s one-half interest in glenwood would be paid for from hammontree’s profit and or salary from the partnership glenwood’s federal_income_tax returns for and short_year reflect a partnership early in however glenwood was incorporated the partnership was discontinued petitioner and hammontree became equal shareholders and petitioner had not been paid for hammontree’s 50-percent ownership in glenwood around that time petitioner’s basis in his glenwood shares was dollar_figure on date petitioner and hammontree personally guaranteed a loan in glenwood’s name for dollar_figure which was secured_by glenwood’s operating_assets on date in accord with the original agreement of petitioner and hammontree petitioner received a dollar_figure payment from glenwood it was their understanding that the dollar_figure paid to petitioner was hammontree’s payment for one-half of the shares in glenwood in a date purchase of petitioner’s remaining 50-percent interest in glenwood hammontree used corporate funds to finance a portion of the transaction showing a pattern in the way petitioner and hammontree orchestrated their affairs considering the record as a whole the dollar_figure payment was a payment from hammontree for petitioner’s interest in the business accordingly we hold that the dollar_figure payment was not a corporate distribution to petitioner and that it was from hammontree we are not reguired here to consider what effect hammontree’s withdrawal of dollar_figure from glenwood had on hammontree’s tax situation the extent to which our holding has any effect on petitioner’s basis in glenwood’s stock should be determined by the parties under rule - - sec_6662 a ---accuracy-related penalty finally we consider whether petitioners are liable for an accuracy-related_penalty under sec_6662 respondent determined that a 20-percent accuracy-related_penalty based on negligence applied to the entire income_tax deficiency for the and tax years an accuracy-related_penalty is imposed by sec_6662 in an amount equal to percent of the amount of the underpayment that is attributable to negligence see sec_6662 negligence is the failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code sec_6662 c a taxpayer is negligent where he fails to exercise due care or fails to do what a reasonable and ordinarily prudent person would do under similar circumstances see 85_tc_934 petitioners contend that they were not negligent and should not be subject_to the accuracy-related_penalty because they provided sufficient records containing fap’s major tranactions to their return preparer leaving out only the minor sales respondent contends that petitioners were negligent when they failed to record and report all of fap’s sales transactions petitioner did not maintain adequate books_and_records for fap petitioner testified that sales from dollar_figure to dollar_figure were regularly omitted from recordkeeping and that fap employees may --- - also have forgotten to record other sales of unknown amounts petitioner’s testimony reveals that he was aware that invoices may not have been prepared for a number of larger items sold by fap petitioner used the understated amount reflected by the invoices to prepare summary sheets which he then provided to the return preparer petitioner failed to inform the return preparer that certain_sales were omitted in addition petitioner did not always deposit the proceeds from fap’s sales into a bank account therefore there was no record of some portion of the sales petitioners also contend that these unrecorded and unreported sales were of minor consequence however respondent’s reconstruction of petitioners’ income reflects relatively sizable amounts of omitted income as to the remaining items making up the deficiency apart from the capital_gain item petitioners did not make any argument as to why respondent’s determination was in error or that their return position was reasonable therefore we find petitioners liable for the accuracy-related_penalties on the resulting income_tax deficiencies to reflect the foregoing decision will be entered under rule


t c memo united_states tax_court mark r smith and yong n smith petitioners v commissioner of internal revenue respondent docket nos filed date mark r smith pro_se bryant w smith for respondent memorandum findings_of_fact and opinion haines judge respondent determined deficiencies in petitioners’ federal_income_tax and penalties as follows year deficiency dollar_figure big_number penalty sec_6662 dollar_figure big_number after concessions we must decide whether mr smith petitioner is entitled to amounts in excess of what respondent allowed for returns and allowances reported on the schedule c profit or loss from business attached to the federal_income_tax return return unreimbursed employee business_expenses reported on the schedule a itemized_deductions attached to the mrs smith submitted forms request for innocent spouse relief dated date for the tax_year and date for the tax_year respondent reviewed mrs smith’s forms and determined that she should be granted relief from joint_and_several_liability for and years at issue except for the unreported taxable state_income_tax refunds from the tax_year petitioner refused to agree that mrs smith should be granted relief from joint_and_several_liability for the years at issue on date respondent filed motions for partial summary_judgment in docket nos and with the exception of the unreported taxable state_income_tax refunds from the tax_year respondent advanced the position that mrs smith satisfied the requirements of sec_6015 a - e and was entitled to relief from joint_and_several_liability trials in docket nos and were held on date in san francisco california mrs smith was financially unable to travel from virginia to california for trial and was not present the court separated the issue of relief from joint_and_several_liability to allow trial to be held on the other issues on date the court granted respondent’s motions for partial summary_judgment in docket nos and the court ordered that mrs smith was entitled to relief from joint_and_several_liability from any understatement related to her and petitioner’s and federal_income_tax returns with the exception of understatements stemming from petitioners’ failure to report taxable state_income_tax refunds for because petitioner and mrs smith conceded that they failed to report taxable state_income_tax refunds for that is not an issue before the court consequently the court’s decision in this case affects only petitioner return and cost_of_goods_sold rent or lease expenses and interest_expenses reported on the schedule c attached to the federal_income_tax return return we must also determine whether petitioner is liable for sec_6662 accuracy-related_penalties for the years at issue findings_of_fact these cases were consolidated for purposes of briefing and opinion the parties’ stipulations of facts with attached exhibits are incorporated herein by this reference petitioner lived in california when the petitions were filed the following table summarizes the amounts petitioner reported on his federal_income_tax returns for the years at issue and the amounts respondent allowed and disallowed in the notices of deficiency unless otherwise indicated all section references are to the internal_revenue_code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure items not at issue are not shown item year schedule c returns and allowances schedule a unreimbursed employee business expenses--travel while away_from_home_overnight amount claimed dollar_figure big_number schedule a unreimbursed employee business expenses--parking schedule a unreimbursed employee business expenses--meals and entertainment schedule c interest--other schedule c rent lease--other business property schedule c interest returns and allowance sec_113 big_number big_number big_number amount allowed -0- -0- -0- dollar_figure amount disallowed dollar_figure big_number big_number big_number big_number in petitioner manufactured large area solar panels in virginia while living there he sold of these solar panels in late and early in date petitioner sold eight of the panels to a customer michael raines in los angeles california shortly after the panels were installed at a home they caught fire causing extensive damage the fire prompted a government investigation which required petitioner to remove from the market all of the solar panels that he had sold on the schedule c attached to the return petitioner reported zero gross_receipts or sales and a total of dollar_figure as returns and allowances at trial petitioner asked the court to allow dollar_figure for returns and allowances dollar_figure for the cost of the solar panels that were manufactured but never sold dollar_figure for solar panels that were purchased from petitioner using stolen credit cards and dollar_figure for his payments to heritage web solutions on date petitioner paid mr raines dollar_figure by check respondent conceded on brief that this amount should be allowed as a return or allowance on date petitioner made a dollar_figure wire transfer from his and mrs smith’s bank account to empire clean energy supply with a notation indicating it was for the reynolds warranty payment petitioner claimed another customer had asked for replacement solar panels in lieu of a refund petitioner introduced at trial a pro forma invoice from set solar corp showing that replacement panels would cost dollar_figure in after petitioner stopped selling the solar panels he had manufactured he purchased solar panels from wholesalers and resold them on the internet petitioner claims he was notified after four of the orders had shipped that petitioner did not explain the discrepancy between the amount of returns and allowances requested at trial and the amount reported on the return the purchases had been made with stolen credit cards though petitioner sought dollar_figure at trial for purchases made with stolen credit cards he introduced only the following withdrawals to support his claims date amount dollar_figure dollar_figure dollar_figure dollar_figure type of withdrawal bank card bank card bank card bank card at trial petitioner introduced no invoices or other proof of these alleged fraudulent purchases petitioner hired heritage web solutions to run his business’ web site in late petitioner was promised an additional year of web services if he prepaid dollar_figure petitioner did not produce any documentation of this agreement the dollar_figure was prepaid in four installments of dollar_figure in november and date and february and date petitioner introduced at trial proof of the two payments made in heritage web solutions closed shortly after the last payment was made and petitioner was without internet support for the business on date dollar_figure was withdrawn from the bank account via bams but this amount was returned on date unreimbursed employee business_expenses after he was required to remove from the market all of the solar panels he had sold petitioner sought other employment he obtained a visiting scholar position with hewlett-packard hp in california as a visiting scholar petitioner was hired to work on a research project for the u s army hp reimbursed petitioner dollar_figure for the cost of his move from virginia to california when petitioner moved mrs smith remained in virginia petitioner received an offer letter from hp but it was not introduced at trial a copy of petitioner’s intern research relocation program acknowledgment letter however was introduced at trial it states in part i n the event you leave hewlett-packard for any reason during the term of your month assignment you will be required to repay hewlett-packard for the entire cost of your relocation benefits as long as the research went well and the u s army provided funding for the project there was some expectation that petitioner’s employment would continue but hp provided no assurances and petitioner’s employment could have been terminated at any time according to a declaration from ann faustmann of hp petitioner was employed from date to date petitioner however testified that his employment was not continuous during that period and that he was laid off during the middle of december each year petitioner did not submit proof of these periods of unemployment and he never applied for unemployment benefits petitioner signed a lease for an apartment in california with trinity property consultants in date that would last until date petitioner discovered that the complex had poor security when a shooting took place there in date because the management did not intend to remedy the security issues petitioner paid to terminate his lease and signed a new 12-month lease beginning on date with cupertino city center in california cost_of_goods_sold petitioner reported cost_of_goods_sold of dollar_figure on hi sec_2010 return all of which respondent disallowed petitioner conceded at trial that the amount claimed on the return was incorrect and requested dollar_figure for cost_of_goods_sold he produced a quote for big_number outback vfx3-24e 0kw 24v inverter export s from wholesale solar dated date to support this assertion testifying that it was his recollection that the date should have been date the quote states the price per unit was dollar_figure the subtotal was dollar_figure and the quote total was rent lease expenses petitioner reported dollar_figure in gross_receipts or sales on hi sec_2010 return petitioner claimed a deduction for dollar_figure in rent or lease expenses on the schedule c attached to the return dollar_figure of which was related to his apartment in california respondent disallowed the portion of the deduction related to the apartment petitioner produced a copy of the apartment’s floor_plan and denoted the areas that he claimed to have used exclusively for business purposes it indicated that petitioner used of his apartment--the entire entry area dining area living area and deck--exclusively for business purposes the apartment’s layout required petitioner to pass through these areas to enter the apartment itself the bedroom the bathroom and the kitchen interest_expenses the claimed interest_expenses were interest charges on credit card purchases and a personal loan the credit card interest related to purchases made in earlier years as no purchases were made on the credit cards during no evidence other than petitioner’s testimony was introduced to support the claim that the items purchased with the credit cards were used in petitioner’s business petitioner did not testify or provide other evidence regarding the use of the personal loan proceeds opinion we must determine whether petitioner is entitled to amounts in excess of what respondent allowed we must also decide whether petitioner is liable for sec_6662 accuracy-related_penalties i items disallowed by respondent the commissioner’s determinations in a notice_of_deficiency are presumed correct and the taxpayer has the burden to show that his determinations are incorrect rule a 290_us_111 deductions are a matter of legislative grace and the taxpayer bears the burden of establishing entitlement to any claimed deduction rule a 503_us_79 sec_162 allows a deduction for all ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business in general_deductions are not allowed for personal living or family_expenses sec_262 taxpayers are required to maintain sufficient records that substantiate the amount and purpose of each item for which they claim a deduction sec_6001 petitioners have not claimed that the burden should shift to respondent nor does the record show that shifting the burden would be appropriate in these cases see sec_7491 65_tc_87 aff’d per curiam 540_f2d_821 5th cir sec_1_6001-1 income_tax regs generally a taxpayer’s self-serving declaration is not a sufficient substitute for records weiss v commissioner tcmemo_1999_17 sec_274 imposes strict substantiation requirements for certain deductible expenses such as traveling expenses including meals_and_lodging away from home and entertainment_expenses returns and allowances and cost_of_goods_sold are taken into consideration when determining a schedule c business gross_income deductions are subtracted from the schedule c business gross_income in order to determine its net profit or net_loss accordingly returns and allowances and cost_of_goods_sold are not treated as deductions and are not subject_to the limitations of sec_162 88_tc_654 nunn v commissioner tcmemo_2002_250 nevertheless taxpayers must retain sufficient records to substantiate amounts claimed as returns and allowances or cost_of_goods_sold sec_6001 sec_1_6001-1 income_tax regs returns and allowances on brief respondent conceded that petitioner is entitled to a dollar_figure schedule c adjustment_to_gross_income for returns and allowances for the refund issued to mr raines in connection with the solar panels that caused the fire in santa monica california petitioner credibly testified that he was required to remove his business solar panels from the market because they caused a fire that damaged a home bank statements reflect that petitioner made a dollar_figure wire transfer to empire clean energy supply on date with a notation indicating it was for the reynolds warranty payment we find this substantiation sufficient to allow petitioner to include this amount in returns and allowances on the schedule c petitioner also presented a pro forma invoice from set solar corp showing replacement solar panels would cost dollar_figure but he did not provide any records to show that this amount was ever paid petitioner has provided insufficient substantiation to allow him to include this amount in returns and allowances on the schedule c the amounts reported for payments to heritage web solutions and alleged fraudulent purchases should not have been categorized as returns and allowances but potentially could be considered ordinary and necessary business_expenses see sec_162 petitioner did not introduce copy of the agreement with heritage web solutions and we cannot determine whether he reported this amount elsewhere on the schedule c in an attempt to substantiate the alleged fraudulent purchases petitioner provided only bank statements showing withdrawals made via bank card petitioner has not produced sufficient substantiation to allow a deduction for either of these items it is unnecessary for us to address whether and where any amounts for the manufactured but unsold solar panels should have been reported on the return because petitioner failed to provide any substantiation to support his claims we find that petitioner is entitled to returns and allowances of dollar_figure on his schedule c unreimbursed employee business_expenses a travel while away_from_home_overnight the expenses of maintaining a household including rent and utilities are not deductible sec_1_262-1 income_tax regs however to alleviate the burden on taxpayers whose business or employment requires them to incur duplicate living_expenses taxpayers may deduct traveling expenses such as meals_and_lodging if such expenses are ordinary and necessary incurred while away from home and incurred in the pursuit of a trade_or_business sec_162 see 326_us_465 55_tc_783 49_tc_557 for purposes of sec_162 a taxpayer’s home is generally the vicinity of the taxpayer’s principal place of employment 74_tc_578 72_tc_190 aff’d 662_f2d_253 4th cir a taxpayer’s residence when outside the vicinity of the taxpayer’s principal place of employment may be treated as the taxpayer’s tax_home if the taxpayer’s employment is temporary rather than indefinite 358_us_59 however if the employment while away from home even if temporary in its inception becomes substantial indefinite or indeterminate in duration the situs of such employment for purposes of the statute becomes the taxpayer’s home kroll v commissioner t c pincite this court has found that employment is temporary if it is the type which can be expected to last only for a short_period 13_tc_129 we have found employment is indefinite if its termination cannot be foreseen within a fixed or reasonably short_period of time 54_tc_355 aff’d 438_f2d_1216 6th cir an appeal in this case would lie in the court_of_appeals for the ninth circuit which disagreed with this test in 283_f2d_491 9th cir rev’g and remanding 32_tc_1368 in harvey the court_of_appeals drawing from the legislative purpose of sec_162 focused its determination on whether it was reasonable under the circumstances to expect a taxpayer to move see also 305_f2d_221 9th cir the location of a taxpayer’s tax_home and whether a taxpayer’s employment was temporary rather than indefinite are questions of fact to be decided on the entire record see peurifoy v commissioner u s pincite commissioner v flowers u s pincite the record contains relatively little information regarding petitioner’s employment with hp his position had an initial term of to months and he ended up working for hp for more than three years at the time petitioner was hired there was an expectation that his employment would continue if the research went well and the project continued to receive funding from the u s army petitioner’s actions evidence his expectation that the research project would continue for an indefinite time if petitioner had truly believed that his position in california was temporary it is doubtful that he would have immediately entered into a yearlong lease in date or entered into a yearlong lease five months later in date further in date when petitioner was temporarily laid off he did not seek unemployment benefits it is highly unlikely that petitioner would fail to seek unemployment benefits if he did not believe he was going to be reemployed in the near future on the basis of the facts we find that petitioner’s employment in california was indefinite and it would have been reasonable under the circumstances to expect him to move there see harvey v commissioner f 2d pincite stricker v commissioner t c pincite accordingly we hold petitioner is not entitled to a deduction for expenses while traveling away from home because california was his tax_home b parking fees tolls and transportation petitioner provided no records to substantiate the amounts claimed for parking fees tolls and transportation on the return accordingly he is not entitled to a deduction see sec_6001 c meals and entertainment petitioner provided no records to substantiate the amounts claimed for meals and entertainment on the return accordingly he is not entitled to a deduction see id cost_of_goods_sold at trial petitioner admitted that the amount reported on the return was incorrect and requested dollar_figure for the cost_of_goods_sold to support his request he produced a quote from wholesale solar dated date and testified that he believed the date was incorrect and should have been date the quote was for big_number outback vfx3-24e 0kw 24v inverter export s with a subtotal of dollar_figure and a quote total of the quote from wholesale solar coupled with petitioner’s testimony is insufficient to substantiate cost_of_goods_sold see sec_6001 sec_1_6001-1 income_tax regs petitioner is not entitled to any cost_of_goods_sold on hi sec_2010 schedule c rent lease expenses sec_280a generally disallows a deduction for business use of a taxpayer’s personal_residence a taxpayer however may deduct expenses allocable to a portion of the dwelling_unit which is exclusively used on a regular basis as the principal_place_of_business for the taxpayer’s trade_or_business or a place of business which is used by clients or customers in meeting or dealing with the taxpayer in the normal course of the trade_or_business sec_280a and b exclusive use requires that a taxpayer use a specific part of a dwelling_unit solely for the purpose of carrying on his trade_or_business the use of a portion of a dwelling_unit for both personal purposes and for the carrying on of a trade_or_business does not meet the exclusive use test goldberger inc v commissioner 88_tc_1532 quoting s rept no pincite 1976_3_cb_49 and h_r rept no pincite 1976_3_cb_695 petitioner testified that he used his apartment’s entry dining and living areas and deck exclusively for business purposes the only other evidence offered to support petitioner’s testimony was a floor_plan of the apartment on which he denoted the area used for business purposes though petitioner claims he met clients in his apartment no testimony or other evidence from clients was presented at trial we are not required to find petitioner’s unsupported and self-serving testimony sufficient to prove that he used his apartment’s entry dining and living areas and deck exclusively as his principal_place_of_business or as a place to meet clients see 87_tc_74 petitioner has not met his burden of proving that he used a portion of his home exclusively for his business and is not entitled to a deduction for schedule c rent or lease expenses in excess of the amount respondent allowed interest_expenses petitioner introduced monthly statements for credit cards and a personal loan to substantiate the amounts of interest_paid petitioner testified that the credit cards were used to make business purchases in earlier tax years but he did not provide substantiation for these purchases he did not testify or provide other evidence with respect to the use of the personal loan proceeds without substantiation to show that the interest_expenses are ordinary and necessary business_expenses we cannot allow a deduction see sec_162 sec_6001 petitioner is not entitled to a schedule c deduction for interest_expenses ii sec_6662 penalties an accuracy-related_penalty of is imposed on the portion of an underpayment attributable to negligence or a substantial_understatement_of_income_tax sec_6662 and b and negligence includes any failure to keep adequate books_and_records or to substantiate items properly sec_1_6662-3 income_tax regs an understatement of income_tax is substantial if it exceeds the greater of of the tax required to be shown on the return for the taxable_year or dollar_figure sec_6662 the commissioner bears the burden of production with respect to a taxpayer’s liability for any accuracy-related_penalty sec_7491 the commissioner must come forward with sufficient evidence indicating that it is appropriate to impose the accuracy-related_penalty in order to meet this burden see 116_tc_438 once the commissioner provides sufficient information to satisfy his burden of production the burden shifts to the taxpayer to show that the penalty should not be imposed id pincite see rule respondent has met his burden of production by showing that petitioner lacks adequate_records to fully substantiate the amounts reported on the and returns see sec_1_6662-3 income_tax regs the precise amounts of petitioner’s underpayments will depend upon the rule_155_computations in accordance with our findings and conclusions set forth above to the extent that such computations establish as seems likely that petitioner’s understatements of income_tax were substantial respondent has also met his burden of production in this regard see diallo v commissioner tcmemo_2011_300 petitioner failed to argue or offer evidence that reduced penalties should be imposed see sec_6664 accordingly we find petitioner is liable for sec_6662 accuracy-related_penalties for the years at issue we have considered the parties’ remaining arguments and to the extent not discussed above conclude those arguments are irrelevant moot or without merit to reflect the foregoing decisions will be entered under rule


department of the treasury internal_revenue_service washington d c sep tak exempt and government entities division uniform issue list tep na ts legend taxpayer a i spouse b ira x financial_institution n amounta amount b i amount c individual dear this is in response to your request dated date supplemented by additional correspondence dated date and date and submitted on your behalf by your authorized representative in which you request a waiver of the 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 page taxpayer a represents that he received a distribution from ira x totaling amount a taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by sec_408 was due to the error committed by financial_institution n on date taxpayer a age opened ira x at financial_institution n taxpayer a named spouse b age as the primary beneficiary of ira x financial_institution n failed to record that spouse b was more than years younger than taxpayer a on date taxpayer a was notified that hi sec_2010 required_minimum_distribution rmd was amount a and directed that amount a be deposited into his personal checking account on date taxpayer a was notified by individual the vice president of financial_institution n that hi sec_2010 rmd had been calculated incorrectly using the uniform lifetime table rather than the joint and last survivor table this error occurred as a result of financial_institution n’s failure to record spouse b’s age taxpayer a’s correct rmd was amount b resulting in an excess_distribution of amount c when taxpayer a requested that amount c be returned to ira x he was informed that the error was discovered after the 60-day rollover period had expired taxpayer a has not used amount c for any other purpose individual has submitted an affidavit dated date assuming responsibility for the error that resulted in the incorrect calculation of the rmd based on the facts and representations you request a ruling that the internal_revenue_service the service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the excess_distribution of amount 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 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code 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 and any other_property is paid into an ira for the benefit of such individual not later than the 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 page later than the 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 a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover 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 may waive the day requirement under sec_408 and sec_408 of the code 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 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 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 the information presented and documentation submitted by taxpayer a is consistent with his assertion that he received an excess_distribution of amount c from ira x because of an error committed by financial_institution n in incorrectly calculating taxpayer' sec_2010 rmd using the uniform lifetime table instead of the joint and last survivor table therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the excess_distribution of amount c from ira x taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount c to a rollover ira account provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contributions amount c will be considered a rollover_contribution within the meaning of sec_408 of the code page this ruling does not authorize the rollover of any amounts that are required to be distributed by sec_401 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 a copy of this letter is being sent to your authorized representative in accordance with form_2848 on file in this office if you wish to inquire about this ruling please contact at please address all correspondence to se t ep ra t3 sincerely laura b warshawsky manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc


t c summary opinion united_states tax_court rafael barajas petitioner v commissioner of internal revenue respondent docket no 6071-01s filed date rafael barajas pro_se john w strate for respondent wolfe special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subseguent section references are to the internal_revenue_code in effect for the year in issue - - respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax after concessions by respondent the sole issue for decision is whether petitioner is entitled to an earned_income_credit claimed on his tax_return some of the facts have been stipulated and are so found at the time the petition was filed petitioner resided in san jose california background throughout petitioner lived in an apartment with his mother and his three younger siblings his father and his older siblings did not live with them petitioner was employed as a machinist and he was the financial provider for the family he paid the apartment rent and the household bills petitioner’s mother suffered from cancer she relied on crutches for walking and on petitioner for transportation outside of the apartment petitioner frequently drove her to clinics for cancer treatment to the grocery store and to the homes of relatives petitioner’s younger siblings attended school full time because their mother does not speak english they relied on ‘respondent concedes that petitioner is entitled to a dependency_exemption deduction under sec_151 for each of his three younger siblings as claimed on his federal_income_tax return respondent also concedes that petitioner is entitled to head_of_household filing_status and a standard_deduction in the amount appropriate to that filing_status - petitioner for assistance with their homework when needed petitioner and his mother shared responsibility in the discipline of his younger siblings his mother established the rules in the household such as setting curfews and relied on petitioner to enforce the rules petitioner reported income of dollar_figure on his federal_income_tax return his income consisted entirely of wages petitioner claimed an earned_income_credit computed by treating two of his siblings as qualifying children in the notice_of_deficiency respondent disallowed the earned_income_credit discussion sec_32 allows an eligible_individual an earned_income_credit against the individual’s income_tax_liability an eligible_individual is any individual who either has a gualifying child as defined by sec_32 or has no gualifying child and meets the requirements of sec_32 a sec_32 a for a taxpayer to be entitled to an earned_income_credit for a qualifying_child the qualifying_child must satisfy a residency test an age_test anda relationship_test sec_32 a there is no dispute here that petitioner’s siblings were minors and students living in the same residence with him and that the residency and age tests are satisfied the relationship_test can be satisfied if the individual is an eligible_foster_child of q4e- the taxpayer sec_32 b iii an eligible_foster_child is defined in part as an individual who the taxpayer cares for as the taxpayer’s own child sec_32 b ii neither the code nor the regulations define how a taxpayer cares for an individual as his or her own child this court has indicated that merely contributing financially to the support of an individual does not rise to the level of caring for the individual as one’s own child see mares v commissioner tcmemo_2001_216 smith v commissioner tcmemo_1997_544 respondent contends that petitioner did not care for any of his siblings as if that sibling were his own child we disagree the record shows that petitioner cared for his younger siblings in a parental capacity in addition to being the primary source of financial support for the household as well as for each of his younger siblings ’ petitioner assumed the role of a father figure with respect to his younger siblings petitioner and his younger sister testified convincingly that petitioner and his mother jointly shared parental duties during the year in issue and that petitioner conducted himself and cared for his siblings as though he were one of the parents in the household he helped his siblings with homework at times since his mother could not speak english and his father had left the household he even had to explain personal hygiene to his younger sister because neither 7see supra note - his mother nor an older sister could bring herself to do this task his mother was unable to guide the younger children in the society in which they grew up since she was disabled spoke no english and knew only traditional mexican society although he was available only to a limited extent because of the demands of his work petitioner filled the void for his siblings we conclude that under difficult circumstances petitioner satisfied the requirements of sec_32 b accordingly we hold that petitioner is entitled to an earned_income_credit in the amount claimed on his federal_income_tax return reviewed and adopted as the report of the small_tax_case division decision will be entered for petitioner


internal_revenue_service number release date index number ------------------------------------ -------------------------------------- --------------------- ------------------------------------------ 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 b02 plr-132799-12 date date ---------------------------------------- x --------------------------------------------------- state d1 d2 d3 d4 trust --------------------------------------------------- a ---------------------------- -------------------------- -------------- -------------------- ------------------ ------------------ ----------------------- ------------------------------------------------------------------------ dear ------------------ this responds to a letter dated date submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated under the laws of state on d1 and elected to be an s_corporation effective d2 on d3 a an individual shareholder of x formed trust on d4 a transferred shares of x to trust x represents that trust qualified to be an electing_small_business_trust esbt within the meaning of sec_1361 however no election was made under sec_1361 to treat trust as an esbt trust consequently was an ineligible shareholder and as a result x’s s_corporation_election terminated on d4 x represents that the termination was not motivated by tax_avoidance or retroactive tax planning x and its shareholders have agreed to make any adjustments that the commissioner may require consistent with the treatment of x as an s_corporation sec_1361 defines an esbt sec_1361 provides that except as provided in sec_1361 an esbt means any trust if i such trust does not have as plr-132799-12 a beneficiary any person other than i an individual ii an estate iii an organization described in sec_170 or or iv an organization described in sec_170 which holds a contingent_interest in such trust and is not a potential_current_beneficiary ii no interest in such trust was acquired by purchase and iii no election under sec_1361 applies to such trust sec_1361 provides that an election under sec_1361 shall be made by the trustee any such election shall apply to the taxable_year of the trust for which made and all subsequent taxable years of such trust unless revoked with the consent of the secretary sec_1_1361-1 of the income_tax regulations provides that the trustee of the esbt must make the esbt election by signing and filing with the service_center where the s_corporation files its income_tax return a statement that meets the requirements of sec_1 m ii sec_1362 provides in part that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation will be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and the representations made we conclude that the termination of x’s s_corporation_election on d4 was inadvertent within the meaning of sec_1362 we further hold that pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from d4 and thereafter provided x’s s_corporation_election was valid and provided that the election was not otherwise terminated under sec_1361 as a condition for this ruling the shareholders of x must include their pro-rata share of the separately_stated and nonseparately computed items of x as provided in sec_1366 make any adjustments to basis as provided in sec_1367 and take into account any distributions made by x as provided in sec_1368 this ruling is further contingent upon the trustee of trust filing an esbt election effective d4 with the appropriate service_center and trust filing amended returns for taxable years beginning d4 and thereafter consistent with the treatment of trust as an esbt the esbt election and plr-132799-12 the amended returns must be filed within days following the date of this letter and a copy of this letter should be attached to any such elections or returns if x or its shareholders fail to treat themselves as described above this ruling is null and void except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed on whether x was or is otherwise eligible to be treated as an s_corporation or whether trust is eligible to be an esbt this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file a copy of this letter is being sent to x’s authorized representative sincerely melissa c liquerman chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


- department of the treasury vu29 tax_exempt_and_government_entities_division internal_revenue_service washington d c no z hospital this letter constitutes notice that your requests for waivers of the minimum_funding_standard for the above-named plan for the plan years ending date and date have been denied the hospital is a privately-owned ml-bed tertiary care not-for-profit institutions the hospital is noted for its - formed from’ currently the hospital has the hospital ascribes most of its financial difficulties to the healthcare reform legislation enacted in the state in which it operates and other changes that dramatically reduced reimbursements from hmo’s medicare and medicaid this had a significant effect on patient revenues since of the hospital’s business is from medicare and medicaid patients as a result of this and other difficulties the hospital has experienced recurring operating losses and cash_flow problems and reports that it has fully utilized all available lines of credit you were notified in a letter dated september i that your request had been tentatively denied based on concerns that the hospital's financial hardship was not temporary in nature on september relief under chapter of the u s bankruptcy code and in a conversation with the hospital filed a voluntary petition for - of this office on date you indicated that you would waive the hospital's right to a conference to review the decision regarding the requested funding waivers hence your requests for waivers of the minimum_funding standard for the plan years ending december bb and december a have been denied you should note that excise_taxes under sec_4971 of the internal_revenue_code are currently due on the accumulated fundi iciencies in the plan for the plan years ending december j december - december you should file form_5330 for each of these plan years as soon as possible to report and pay the excise_taxes this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent we have sent a copy of this letter to the manager ep classification in to the manager ep compliance unit in and to your authorized representative pursuant to a power_of_attorney on file in this office if you require further assistance in this matter please contact sincerely yours carol d gold director employee_plans


internal_revenue_service number release date index number -------------------------- ----------------------- ------------------- -------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ----------------- telephone number --------------------- refer reply to cc psi b01 plr-136981-09 date december legend x state d --------------------------- ----------------------- ------------- ----------------------- dear ------------- this letter responds to your letter dated date and subsequent correspondence written on behalf of x requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file an entity classification election facts the information submitted states that x is a limited_liability_company formed under the laws of state on d x intended to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes effective d the election however was not timely filed law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can plr-136981-09 elect its classification for federal tax purposes elections are necessary only when an eligible_entity does not want to be classified under the default classification or when an eligible_entity chooses to change its classification sec_301_7701-3 provides that except for certain existing entities described in sec_301_7701-3 unless a domestic eligible_entity elects otherwise the entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 entity classification election with the appropriate service_center under sec_301 c iii this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 and therefore it is granted an extension of time of sixty days from the date of this letter to file a form_8832 to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes effective d a copy of this letter should be attached to the election a copy is enclosed for that purpose except as specifically set forth above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code plr-136981-09 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely curt g wilson curt g wilson associate chief_counsel office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


department of the treasury internal_revenue_service washington d c sep number release date cc tege eoeg et1 - cor-137343-01 uilc memorandum for director internal_revenue_service center kansas city mo attn entity control from subject office of division counsel associate chief_counsel tax exempt and government entities cc tege eoeg et1 - cor-137343-01 railroad retirement act tax status in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that ceased to be an employer under the railroad retirement act and the railroad unemployment insurance act effective date and that ceased to be employers under the acts effective date all businesses have the same contact person and address we have reviewed the opinion of the rrb and based upon the information submitted to the rrb we also conclude that ceased to be an employer under the railroad_retirement_tax_act effective date and that ceased to be employers under the act effective date please take the appropriate action regarding these businesses will e mcleod cc


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division mar uniform issue list xxxxxkxxkxkkkkkxk xxxxxkxxkkkkkxk xxxxxkxxkxkkkxkkx legend taxpayer a xxxxxxxxxkxxkx ira b xxxxxxxxxkkxkkk financial_institution c xxxxxxxxxkxkxxk bank d bank e amount amount amount xxxxxxxxxxkxxkxk xxxxxxkkxkxkxxxkkx xxxxkkxkxkxkxkxkxkk xxxxxxxxxxxxkkx xxxxxxkxkxkxkxkkxk dear xxxxxxxxxxkkxx in response to your request dated date as supplemented by additional this is correspondence dated date in which you request 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 penalty of perjury in support of the ruling requested represents that she received a distribution from ira b totaling taxpayer a age amount taxpayer a asserts that her failure to accomplish a rollover within the day period prescribed by sec_408 was due to her medical_condition which impaired her ability to accomplish a timely rollover taxpayer a further represents that page amount the portion of amount that she is seeking to roll over has not been used for any other purpose taxpayer a maintained ira b an individual_retirement_annuity under sec_408 of believing that her annuity was not federally the code with financial_institution c insured taxpayer a decided to rollover her ira annuity to a bank where the funds would be insured under the fdic on date taxpayer a by telephone requested that her ira annuity amount be transferred directly to a non-ira account with bank d on date taxpayer a telephoned bank d and requested that amount be transferred to a cd with bank e but due to a cognitive impairment she failed to ascertain that the cd was an ira cd amount was amount less amount which was taxpayer a’s required_minimum_distribution for documentation submitted includes a statement from her physician that taxpayer a suffers from a cognitive impairment which affected her ability to complete a timely rollover of amount amount remains in the non-ira cd with bank e based on the facts and representations you request a ruling that the internal_revenue_service waive the day rollover requirement contained in sec_408 of the code in this instance with respect to the distribution of amount 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 of the code sec_408 of the code defines and provides the rollovers rules applicable to ira sec_408 of the code provides that sec_408 of the code 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 and any other_property is paid into an ira for the benefit of such individual not later than the 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 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 xxkxkkkxkxkkxkkkk page 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 a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover 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 may waive the 60-day requirement under sec_408 and sec_408 of the code 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 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 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 the information presented and documentation submitted by taxpayer a is consistent with her assertion that her failure to accomplish a timely rollover was caused by her medical_condition which impaired her ability to accomplish a timely rollover therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira b taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount into a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount will be considered a rollover_contribution within the meaning of 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 code provides that it may not be used or cited as precedent sec_6110 of the xxxxkxkxkxkxkkkkk page if you wish to inquire about this ruling please contact darnell c hardy id at please address all correspondence to se t ep ra t1 sincerely carlton watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


t c memo united_states tax_court richard l owens jr petitioner v commissioner of internal revenue respondent docket no filed date larry d harvey for petitioner randall l preheim for respondent memorandum opinion vasquez judge this case is before the court on respondent’s motion for summary_judgment pursuant to rule unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code in effect for the year in issue after a concession the sole issue for decision is whether petitioner can exclude from income wages earned during from working in antarctica background at the time he filed the petition petitioner resided in barcelona spain during petitioner performed services at mcmurdo station in ross island antarctica on his federal_income_tax return petitioner excluded wage income earned and received during for services performed in antarctica i summary_judgment discussion rule a provides that either party may move for summary_judgment upon all or any part of the legal issues in controversy full or partial summary_judgment may be granted only if it is demonstrated that no genuine issue exists as to any material fact and that the legal issues presented by the motion may be decided as a matter of law see rule b 98_tc_518 affd 17_f3d_965 7th cir we conclude that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law respondent concedes that no penalty pursuant to sec_6662 is due from petitioner for ii in general sec_61 provides that gross_income means all income from whatever source derived accordingly citizens of the united_states generally are taxed on income earned outside the geographical boundaries of the united_states unless the income is specifically excluded from gross_income 117_tc_95 affd sub nom 68_fedappx_44 9th cir affd sub nom 357_f3d_1108 10th cir exclusions from income are construed narrowly and taxpayers must bring themselves within the clear scope of the exclusion id iii sec_911 in 126_tc_89 473_f3d_790 7th cir arnett ii we addressed the arguments made by the parties herein regarding sec_911 the u s court_of_appeals for the seventh circuit agreed with our analysis of sec_911 and affirmed our conclusion that antarctica is not a foreign_country pursuant to sec_911 and the regulations thereunder arnett v commissioner f 3d pincite we shall not repeat our analysis from arnett i herein we follow our analysis and holding in arnett i and the analysis and holding of the court_of_appeals in arnett ii in 126_tc_89 affd 473_f3d_790 7th cir we concluded our opinion with a continued iv conclusion accordingly for the reasons stated in arnett i arnett ii and herein we conclude that petitioner cannot exclude from gross_income wages earned during from working in antarctica to reflect the foregoing an appropriate order and decision will be entered continued citation of sec_863 suggesting that sec_863 provided an additional reason to rule against the taxpayer id pincite see also sec_863 providing that income earned in antarctica by a u_s_person is sourced in the united_states in arnett v commissioner f 3d pincite the u s court_of_appeals for the seventh circuit addressed sec_863 in greater detail stating at the outset we think that it is important to note that considering antarctica not to be a foreign_country is compatible with the general statutory scheme notably sec_911 is found under subtitle a chapter subchapter_n of the irc which is designated tax based on income from sources within or without the united_states part i of this subchapter entitled source_rules and other general rules relating to foreign_income deems any activity in antarctica to be space_or_ocean_activity in turn the united_states is designated the source country of income from such activity when earned by a citizen_of_the_united_states sec_863 although this provision does not provide a definitive answer as to whether antarctica is a foreign_country it supports the conclusion that sec_911 is not intended to apply to income earned for services provided in antarctica we take this opportunity to state our agreement with the court of appeals’ conclusion set forth above see also 450_us_1