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 ita b03 plr-126208-13 date date parent ------------------------------------------------- ein ----------------- taxpayer ------------------ ein ----------------- subsidiary ---------------------------------------------- corportion p ------------------------- a ----------------- year -------------------------------------------------- x -------------------------------------------------------- dollar_figurep ---------------- dear -------------- this responds to the letter dated date submitted on your behalf by your authorized representative that letter requests an extension of time for taxpayer to file the required election statement as set forth in revproc_2011_29 2011_18_irb_746 this request is made in accordance with sec_301_9100-1 and sec_301_9100-3 of the plr-126208-13 procedure and administration regulations taxpayer files a consolidated tax_return and uses the accrual_method of accounting and has a calendar_year end facts taxpayer is in the business of x taxpayer is a member of the parent consolidated_group that timely filed its consolidated federal_income_tax return for year in year taxpayer through its wholly-owned shell subsidiary acquired all of the stock of corporation p in connection with the acquisition of corporation p taxpayer incurred dollar_figurep of transaction costs that were contingent upon the success of the transaction taxpayer relied on its tax preparer a to attach a statement required by revproc_2011_29 to its original federal_income_tax return required for any taxpayer electing to use the safe_harbor method of allocating success-based fees however a failed to attach the statement approximately one month after the return was electronically filed a discovered that the statement was not attached to the timely electronically filed federal_income_tax return for year and promptly notified taxpayer taxpayer is requesting relief under sec_301_9100-3 because of its failure to attach the required statement to its return law sec_263 of the internal_revenue_code and sec_1_263_a_-2 of the income_tax regulations provide that no deduction shall be allowed for any amount_paid out for property having a useful_life substantially beyond the taxable_year in the case of an acquisition or reorganization of a business_entity costs that are incurred in the process of acquisition and that produce significant long-term benefits must be capitalized 503_us_79 - 397_us_572 sec_1_263_a_-5 provides that an amount_paid that is contingent on the successful closing of a transaction described in paragraph a of this section is an amount_paid to facilitate the transaction except to the extent the taxpayer maintains sufficient documentation to establish that a portion of the fee is allocable to activities that do not facilitate the transaction this documentation must be completed on or before the due_date of the taxpayer’s timely filed original federal_income_tax return including extensions for the taxable_year during which the transaction closes revproc_2011_29 provides a safe_harbor election for allocating success-based fees it states that the service will not challenge a taxpayer’s allocation of a success-based_fee between activities that facilitate a transaction described in sec_1_263_a_-5 and activities that do not facilitate the transaction if the taxpayer plr-126208-13 treats of the amount of the success-based_fee as an amount that doe sec_2 capitalizes the remaining as an amount that does facilitate the not facilitate the transaction transaction and attaches a statement to its original federal_income_tax return for the tax_year the success-based_fee is paid_or_incurred stating that the taxpayer is electing the safe_harbor identifying the transaction and stating the success-based_fee amounts that are deducted and capitalized taxpayer satisfied the first two requirements of revproc_2011_19 by deducting of the success-based fees and capitalizing but failed to attach the statement required in item three sec_301_9100-1 gives the service discretionary authority to grant a reasonable extension of time to make a regulatory election provided that the time for making such election is not expressly prescribed by statute sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 through provides the standards the service will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for extensions of time for regulatory elections will be granted when the taxpayer provides evidence including affidavits described in the regulations to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-3 states that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayerb i requests relief before the failure to make the regulatory election is discovered by the service ii inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election plr-126208-13 the affidavits presented show that taxpayer acted reasonably and in good_faith having reasonably relied on a qualified_tax professional who failed to attach the statement required by revproc_2011_29 under sec_301_9100-3 a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer-- i seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief taking into account sec_1_6664-2 of the income_tax regulations and the new position requires a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the service will not ordinarily grant relief taxpayer is not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time relief is requested and was not informed in all material respects of the required election and its related tax consequences and chose not to make the election furthermore taxpayer is not using hindsight in requesting relief taxpayer has represented that specific facts have not changed since the original deadline that make the election advantageous to taxpayer sec_301_9100-3 provides in part that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301_9100-3 provides in part that the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under these criteria the interests of the government are not prejudiced in this case taxpayer has represented that granting relief would not result in taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than if the election had been timely made taking into account the time_value_of_money furthermore the taxable_year in which the regulatory election should have been made and any taxable years that would have been affected by the election had it been timely made are not closed by the period on assessment sec_301_9100-3 provides special rules for accounting_method regulatory elections sec_301_9100-3 provides that the interests of the government are plr-126208-13 deemed prejudiced except in unusual or compelling circumstances if the accounting_method regulatory election for which relief is requested is subject_to the advance consent procedures for method changes requires a sec_481 adjustment would permit a change from an impermissible method_of_accounting that is an issue under consideration by examination or in any other setting or provides a more favorable method_of_accounting if the election is made by a certain date or taxable_year granting relief will not prejudice the interests of the government associated with the special rules for accounting_method regulatory elections the election provided by revproc_2011_29 for allocating success-based fees is granted on an automatic basis if all proper procedures including the attaching the mandatory statement are followed does not require a sec_481 adjustment is not an issue under consideration and does not provide a more favorable method_of_accounting if the election is made by a certain date or taxable_year therefore taxpayer is granted an extension of days from the date of this ruling to file its mandatory statement as required by section dollar_figure of revproc_2011_29 stating that it is electing the safe_harbor for success-based fees indentifying the transaction and stating the success-based_fee amounts that are deducted and capitalized these rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by appropriate parties 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 expressly set forth above we express no opinion concerning the tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed or implied concerning whether taxpayer properly included the correct costs as its success-based fees subject_to the retroactive election or whether taxpayer’s transaction was within the scope of revproc_2011_29 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 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling plr-126208-13 in accordance with the power_of_attorney we are sending copies of this letter to taxpayer’s authorized representative we are also sending a copy of this letter to the appropriate operating division director enclosed is a copy of the letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under sec_6110 of the internal_revenue_code sincerely _____________________________ christopher f kane branch chief branch office of the associate chief_counsel income_tax accounting


office_of_chief_counsel internal_revenue_service memorandum number release date cc corp b04 lljohnson postf-122145-16 third party communication none date of communication not applicable uilc date date to nancy v knapp associate area_counsel washington d c large business international from benjamin m willis senior technician reviewer cc corp b05 office of associate chief_counsel corporate subject applicability of sec_351 taxpayer or p sub sub shareholder bank a b c tax_year legend ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------- ------------------------------------------------------------------------ ------------------------- ------------------------------------------------------------------------ ------------------------ -------------------------------------------------------------------------- ------------------------------------------------- ----------------- -- ---- ------- postf-122145-16 tax_year tax_year ------- ------- this memorandum responds to your request for chief council advice regarding the subject taxpayer all section references are to the internal_revenue_code_of_1986 the code and the regulations thereunder this chief_counsel_advice may not be used or cited as precedent issue you have requested legal advice regarding whether a taxpayer is entitled to a long term capital_loss on the sale of certain class a stock as described in your request and generally below of the taxpayer’s subsidiary the answer turns in part on whether the class a stock is nonqualified_preferred_stock within the meaning of sec_351 of the code conclusion based on the facts as presented in your request and subsequently supplemented the class a stock is nonqualified_preferred_stock within the meaning of sec_351 facts taxpayer also referred to as p is a domestic_corporation and the common parent of a group of corporations that file a consolidated federal_income_tax return sub is a member of the p consolidated_group in your legal advice request the transactions described are p’s acquisition of all of the stock of sub from a third party and a few years later p’s contribution of all the stock of sub to sub in exchange for shares of sub 1’s class a stock class b stock and sub 1’s note payable note the note was issued under a credit agreement among sub p as the initial lender and the bank as the administrator in tax_year p sold the note to bank for face value and sold the class a stock to shareholder for dollar_figurea shareholder charged a fee and required collateral for the transaction due to concerns about sub 1’s financial health and structured the deal with a view towards a potential bankruptcy of sub features of the class a and class b stock the class a stock is described as entitling the holder to elect one member to the board_of directors and is ranked senior to the class b stock and the common_stock in postf-122145-16 dividend payments and at liquidation quarterly dividends if declared were payable based on varying percentages the stock contained a floating rate dividend that was indexed to libor and payable only if preferred dividends or participating dividends were in arrears for the life of the class a stock the floating rate dividend has not been owed or paid as described by the taxpayer the participating dividends are those which provide for a payment to be made to a class a shareholder if and only if dividends are paid on the common_stock of sub the amount is determined by multiplying dividends_paid on the common_stock by a fixed percentage in tax_year sub accrued an amount as a participating redemption_premium but determined that its cash-flow projections growth- rate forecast and revenue estimates were overstated thereafter sub did not accrue a participating redemption_premium during tax_year sub made a payment to shareholder and maintains that the payment was a participating dividend however no dividends were paid on the common_stock at liquidation dissolution or winding up of the business a class a shareholder is entitled to the stated_value of the class a stock any dividends in arrears and what taxpayer describes as a participating redemption_premium computed at a fixed percentage multiplied by any appreciation in sub 1’s common_stock the class b stock is described as voting preferred_stock with mandatory and optional redemption features a remarketing option and is senior in rank to the common_stock but is junior in rank to the class a stock in dividend payments and upon liquidation taxpayer’s classification of the class a and class b stock taxpayer treats the class a stock as permitted_property under sec_351 and not as other_property under sec_351 taxpayer claims the class a stock participates in the growth of sub to a significant extent and is not preferred_stock within the meaning of sec_351 because it has a participating redemption_premium and a participating dividend taxpayer treats the class b stock as nonqualified_preferred_stock within the meaning of sec_351 because it is limited and preferred as to dividends and does not participate in corporate growth to any significant extent within the meaning of sec_351 taxpayer retained financial advisors to prepare valuation studies of the stock finding that the class a stock would yield approximately b percent over its life based on estimates of the preferred dividends that may be paid on the stock the rate also postf-122145-16 included an estimate of a negligible amount for the participating dividends at a rate of c percent per year tax reporting of the transactions in tax_year taxpayer reported the contribution of sub to sub as an exchange under sec_351 treating the class a stock as preferred_stock other than nonqualified_preferred_stock within the meaning of sec_351 and the class b stock and note as other_property ie boot taxpayer calculated the basis of the note and the class b stock as equal to their respective estimated fair market values taxpayer reported a long term capital_loss on the sale of the class a stock to shareholder the capital_loss offset capital_gains in the tax_year consolidated federal_income_tax return sub reported losses for the three-year period preceding tax_year and for the two-year period following tax_year tax_year and tax_year sub made no dividend payments and reported negative retained earnings for book purposes for the entire period law sec_351 provides that no gain_or_loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately_after_the_exchange such person or persons are in control as defined in sec_368 of the corporation sec_351 provides that if sec_351 would apply to an exchange but for the fact that there is received in addition to the stock permitted to be received under sec_351 other_property or money then- gain if any to such recipient shall be recognized but not in excess of- a the amount of money received plus b the fair_market_value of such other_property received and no loss to such recipient shall be recognized sec_368 in relevant part provides that the term control means the ownership of stock possessing at least percent of the total combined voting power of all classes of stock entitled to vote and at least percent of the total number of shares of all other classes of stock of the corporation sec_351 provides that in the case of a person who transfers property to a corporation and receives nonqualified preferred stock-- a sec_351 shall not apply to such transferor and b if and only if the transferor receives stock other than nonqualified preferred stock- i sec_351 shall apply to such transferor and ii postf-122145-16 such nonqualified_preferred_stock shall be treated as other_property for purposes of applying sec_351 sec_351 in relevant part provides that for purposes of sec_351 the term nonqualified_preferred_stock means preferred_stock if- i the holder of such stock has the right to require the issuer or a related_person to redeem or purchase the stock ii the issuer or a related_person is required to redeem or purchase such stock iii the issuer or a related_person has the right to redeem or purchase the stock and as of the issue_date it is more_likely_than_not that such right will be exercised or iv the dividend rate on such stock varies in whole or in part directly or indirectly with reference to interest rates commodity prices or other similar indices sec_351 provides that sec_351 ii and iii will cause an instrument to be nonqualified_preferred_stock only if the right or obligation may be exercised within years of the date the instrument is issued and such right or obligation is not subject_to a contingency which as of the issue_date makes remote the likelihood of the redemption or purchase sec_351 provides that the term preferred_stock means stock which is limited and preferred as to dividends and does not participate in corporate growth to any significant extent further the code states that stock shall not be treated as participating in corporate growth to any significant extent unless there is a real and meaningful likelihood of the shareholder actually participating in the earnings and growth of the corporation if there is not a real and meaningful likelihood that dividends beyond any limitation or preference will actually be paid the possibility of such payments will be disregarded in determining whether stock is limited and preferred as to dividends sec_1504 provides that the term stock does not include any stock which - a is not entitled to vote b is limited and preferred as to dividends and does not participate in corporate growth to any significant extent c has redemption and liquidation rights which do not exceed the issue_price of such stock except for a reasonable redemption or liquidation premium and d is not convertible into another class of stock in making sec_351 determinations courts have generally looked to the regulations underlying sec_305 see for example 139_tc_67 sec_1_305-5 in relevant part provides the term preferred_stock generally refers to stock which in relation to other classes of stock outstanding enjoys certain limited rights and privileges postf-122145-16 generally associated with specified dividend and liquidation priorities but does not participate in corporate growth to any significant extent the distinguishing feature of preferred_stock for the purposes of sec_305 is not its privileged position as such but that such privileged position is limited and that such stock does not participate in corporate growth to any significant extent however a right to participate which lacks substance will not prevent a class of stock from being treated as preferred_stock thus stock which enjoys a priority as to dividends and on liquidation but which is entitled to participate over and above such priority with another less privileged class of stock in earnings_and_profits and upon liquidation may nevertheless be treated as preferred_stock for purposes of sec_305 if taking into account all the facts and circumstances it is reasonable to anticipate at the time a distribution is made or is deemed to have been made with respect to such stock that there is little or no likelihood of such stock actually participating in current and anticipated earnings and upon liquidation beyond its preferred interest among the facts and circumstances to be considered are the prior and anticipated earnings per share the cash dividends per share the book_value per share the extent of preference and of participation of each class both absolutely and relative to each other and any other facts which indicate whether or not the stock has a real and meaningful probability of actually participating in the earnings and growth of the corporation the sec_305 regulations thus provide considerations to take into account in determining when stock has a meaningful probability of actually participating in the earnings and growth of the corporation and whether that participation is significant when congress enacted sec_351 in there was a split in the courts about whether to look only to the terms of the stock as provided in the stock certificate or any other collateral agreements or look to the dividends actually paid during a particular period to resolve whether stock was limited and preferred as to dividends for purposes of determining affiliation under sec_1504 sec_1504 defines certain preferred_stock as stock that is among other features limited and preferred as to dividends in 25_fsupp_203 s d n y the court held that preferred_stock of the conventional type is limited and preferred as to dividends by being entitled to a specific dividend in priority to any dividend on the common_stock but to nothing more in the way of dividends the preferred_stock in question was participating preferred_stock entitled not merely to receive the fixed preferred dividend in priority to common_stock but also to share on parity with the common in any further distribution of earnings the court concluded that the preferred postf-122145-16 stock was therefore not limited and preferred as to dividends this view was adopted in revrul_79_21 1979_1_cb_290 ruling that preferred_stock which is entitled not only to receive a preferred dividend in priority to common_stock but also to participate with the common_stock in any further distributions of earnings is not limited and preferred as to dividends by comparison in 93_f2d_883 1st cir the preferred_stock was entitled to receive a dollar_figure dividend after all accumulated and accrued dividends on the preferred were paid the common shareholders were entitled to get dollar_figure per share dividend thereafter the common and preferred would share equally in any further dividend payments no further dividends were paid the court held that the preferred_stock was limited and preferred as to dividends based on the fact that no preferred dividends were paid and provided that it might share equally with the common_stock under more favorable conditions is immaterial it clearly did not during the period in question the mere possibility that the stock in some particular taxable_period might be entitled to dividends in excess of percent no more makes it unlimited as to dividends than the possibility that in some particular tax period it might be entitled to voting rights makes it voting_stock id pincite commenters have interpreted that sec_351 incorporates both versions of the common_law in its reference to real and meaningful participation in earnings and growth and to limited and preferred as to dividends and does not participate in corporate growth to any significant extent see comments concerning the president’s proposal to clarify the definition of nonqualified_preferred_stock date zarlenga barrie corwin silverman wellen et al pincite tmwr wl in 139_tc_67 the parties disputed whether certain class c stock issued by a subsidiary to its parent_corporation was preferred_stock within the meaning of sec_351 the stock was issued in a recapitalization transaction that was followed by a purported sec_351 transaction after which the class c stock was sold outside of the consolidated_group prior to the recapitalization transaction the subsidiary that issued the class c stock was an inactive company taxpayer sought to claim a loss on the sale of the class c stock to offset capital_gain income the resolution turned on whether at the time the stock was issued the class c stock participated in corporate growth to any significant extent id pincite the court in gerdau held that the stock at issue did not participate in corporate growth to any significant extent and thus was nonqualified_preferred_stock under section postf-122145-16 g and denied the capital_loss in reaching this conclusion the tax_court explained that neither the statute the regulations nor the legislative_history of sec_351 defines the phrase participate in corporate growth to any significant extent for purposes of sec_351 id pincite both parties had relied upon the regulations under sec_305 to interpret the phrase participate in corporate growth to any significant extent for purposes of sec_351 id pincite the commissioner argued that when the preferred_stock was issued there was no reasonable likelihood that the stock would participate in corporate growth because there were no earnings in which to participate and the taxpayer had projected a deficit of dollar_figure million that was expected to continue for several years the court ruled in favor of the commissioner finding that the preferred_stock at issue was nonqualified_preferred_stock through reliance on sec_351 and its legislative_history sec_1504 and sec_1_305-5 the court held that in lieu of giving its holders a significant interest in corporate growth the class c stock gave its holders a guaranteed fixed annual income preference in the form of a set cumulative dividend and upon the stock’s redemption a fixed payout that was not related to corporate growth id pincite this holding was based on the court’s finding that at issuance the reasonable likelihood was that the stock would fail to meaningfully participate in corporate earnings at all given that the sub had no accumulated earnings when the class c stock was issued and that the sub was reasonably expected to have little to no earnings before the class c stock would most likely be redeemed the court held that a deficit is not corporate growth analysis congress’ intention in enacting sec_351 was to address its concern that holders of certain stock that has features that make the stock in substance more like debt than equity have received something akin to boot that should be taxed immediately jcs-23-97 general explanation of tax legislation enacted in date pincite see also general explanation of tax legislation enacted in the 108th congress joint_committee on taxation date jcx-10-97 pincite congress considered the treatment of preferred_stock that not only contained the customary liquidation and dividend preferences but also contained terms that significantly reduced any risk of loss of principal value congress viewed such preferred_stock as more like debt than equity and provided that the receiver of such stock should be taxed on any associated gain and should be denied a loss where appropriate the treatment of certain preferred_stock as boot applies for purposes of sec_351 sec_354 sec_355 and sec_356 among others postf-122145-16 the committee reports provide certain preferred stocks have been widely used in corporate transactions to afford taxpayers non-recognition treatment even though the taxpayers may receive relatively secure instruments in exchange for relatively risky investments and that t he committee believes that when such preferred_stock instruments are received in certain transactions it is appropriate to view such instruments as taxable consideration since the investor has often obtained a more secure form of investment h s rep no 105th cong 1st sess s rep 105th cong 1st sess thus for preferred_stock to be treated as other than nonqualified_preferred_stock evidence must exist to show that the preferred_stock in question will participate in corporate growth to a significant extent merely describing the rights associated with the preferred_stock in relation to how the common_stock participates is not enough the legislative_history states that instruments that are preferred on liquidation and that are entitled to the same dividends as may be declared on the common_stock do not escape being nonqualified_preferred_stock by reason of that right if the corporation does not in fact pay dividends either to its common or preferred shareholders general explanation of tax legislation enacted in the 108th congress joint_committee on taxation date jcs-5-05 pincite applying the law set forth above to the facts of the instant case the class a stock of sub is preferred_stock that does not participate in the growth of sub to a significant extent an illusory right to share in any appreciation in the value of sub does not evidence a real and meaningful likelihood that the class a stock will actually participate in the earnings and growth of the corporation and provides no proof that dividends beyond any limitation or preference will be paid sub had income in tax_year the year of the purported sec_351 transfer and distribution of the class a stock but paid no dividends within the meaning of sec_316 of the code it is doubtful that sub reasonably expected the class a postf-122145-16 stock to participate in any current and anticipated future growth of sub sub reported losses on its pro-forma tax returns during the years described in the facts and paid no dividends during that period it had only one aberrational year of taxable_income that was immediately followed by two consecutive tax years with net operating losses these events occurred despite sub 1’s original forecast of positive cash flows and anticipated earnings which taxpayer admits were overstated as in gerdau so it is here-- at issuance there was no real and meaningful likelihood the class a stock would participate in the corporate growth of sub to any significant extent there was no real and meaningful likelihood that dividends beyond any limitation or preference would actually be paid in addition the shareholder in the instant case was merely an accommodation party to the transaction and accepted payment in exchange for its purchase of the stock shareholder provides that it considered the stock to be preferred_stock but it required a substantial amount of collateral to insure that it would in no way lose on its purchase using collateral as a backstop to any potential loss on the class a stock is evidence that shareholder was protecting its investment from a probable downside for the above reasons the class a stock of sub is nonqualified_preferred_stock within the meaning of sec_351 please call lola l johnson at or benjamin m willis at if you have any questions case development hazards and other considerations this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views


acknowledged significant advice may be disseminated office_of_chief_counsel internal_revenue_service memorandum tl-n-5625-97 date date released sca to district_counsel brooklyn cc ner brk from subject assistant chief_counsel cc dom it a s kgg raf charitable significant service_center advice donation -- vehicles this responds to your request for significant advice dated date in connection with a question posed by the examination function of the brookhaven service_center disclosure statement unless specifically marked acknowledged significant advice may be disseminated above this memorandum is not to be circulated or disseminated except as provided in ccdm d and e this document may contain confidential information subject_to the attorney-client and deliberative_process privileges therefore this document shall not be disclosed beyond the office or individual s who originated the question discussed herein and are working the matter with the requisite need to know in no event shall it be disclosed to taxpayers or their representatives issue what is the appropriate valuation method to determine the fair_market_value of used automobiles donated for purposes of determining charitable_contribution deductions conclusion the fair_market_value for charitable_contribution_deduction purposes of used automobiles donated to a charitable_organization is the price determined on a case by case basis at which the automobile would change hands between a willing buyer and a willing seller neither having any compulsion to buy or sell and both having a reasonable knowledge of relevant facts facts taxpayers are claiming charitable_contribution deductions for donations of used automobiles to charities such donations are often made in response to advertising campaigns by charitable organizations that actively solicit such donations the charitable_contribution deductions claimed are at times consistent with values listed in used car guidebooks such as the kelly blue_book and the national automobile dealer’s association nada used car guide donee organizations that receive the used automobiles file forms donee information returns that may indicate that the donee disposed of the donated vehicle within days of receipt for less than the amount reported as a charitable_contribution_deduction on the taxpayer’s return discussion sec_170 of the internal_revenue_code allows a deduction for any charitable_contribution to or for_the_use_of an organization described in sec_170 payment of which is made during the taxable_year generally under sec_1_170a-1 of the income_tax regulations the amount of a charitable deduction for a contribution of property is the property's fair_market_value sec_1_170a-1 defines fair_market_value as the price at which the property would change hands between a willing buyer and a willing seller neither having any compulsion to buy or sell and both having a reasonable knowledge of relevant facts an argument can be made that a charitable organization's subsequent disposition of an automobile for a particular amount is an indication of the automobile's fair_market_value for purposes of determining the amount of a taxpayer's charitable_contribution_deduction however the fair_market_value of an automobile donated to a charity must be determined on a case by case basis and in some cases may have little or no relation to the amount the charitable_organization receives on disposition of the automobile


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa emishory posts-132602-15 uilc date date to adam l flick associate area_counsel small_business self-employed from blaise dusenberry senior technician reviewer procedure administration subject the application of the suspension of the period of limitation in sec_6503 when a case is docketed in tax_court but no statutory_notice_of_deficiency was issued this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent issue does the suspension of the period of limitations provided in sec_6503 apply when a proceeding in respect of a deficiency is docketed in tax_court but the service did not issue a statutory_notice_of_deficiency under sec_6212 snd regarding that deficiency to the taxpayer conclusion yes sec_6503 provides that the period of limitations on assessment is suspended if a proceeding in respect of the deficiency is placed on the docket of the tax_court until days after the decision of the tax_court becomes final and this suspension applies regardless of whether a snd was issued to the taxpayer for that deficiency or not background irm section discusses closing procedures that service appeals officers should follow in closing cases docketed in tax_court that were dismissed for lack of posts-132602-15 jurisdiction paragraph four states if a petition is dismissed for lack of jurisdiction because the service did not issue a snd the period of limitation on assessment is not suspended this indicates that the suspension of the period of limitation on assessment in sec_6503 does not apply in a case where a proceeding is docketed in tax_court but the service did not issue a snd you requested advice regarding the applicability of the a suspension to such cases law and analysis sec_6503 provides that the running of the period of limitations provided in sec_6501 or sec_6502 shall after the mailing of a notice under sec_6212 be suspended for the period during which the secretary is prohibited from making the assessment or from collecting by levy or a proceeding in court and in any event if a proceeding in respect of the deficiency is placed on the docket of the tax_court until the decision of the tax_court becomes final and for days thereafter the second parenthetical above beginning and in any event extends the suspension to cases where the service was not prohibited from making the assessment or collection it also extends the suspension to cases where the service did not mail a snd to the taxpayer regarding that deficiency therefore if a proceeding in respect of a deficiency is docketed in tax_court the suspension of the periods of limitation on assessment applies even if the service did not mail a snd any indication in the irm that the suspension does not apply if the service did not mail a snd is incorrect case development hazards and other considerations posts-132602-15 this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call ---------------------- if you have any further questions


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-128497-10 date september legend legend x -------------------------------------------------- ------------------------------------------------ state date date date ---------- --------------------------- -------------------------- ------------------- trust -------------------------------------------------- ---------------------------------- trust -------------------------------------------------- ------------------------------ trust -------------------------------------------------- -------------------------- trust -------------------------------------------------- --------------------------------- trust -------------------------------------------------- ------------------------------- plr-128497-10 trust -------------------------------------------------- --------------------------------- dear ------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated on date under the laws of state x elected to be treated as an s_corporation effective date on date trust trust trust trust trust and trust the trusts received stock in x the current income beneficiaries of the trusts failed to make elections to treat the trusts as qualified subchapter_s trusts qssts as a result x’s s election terminated on date x represents that the trusts have at all times met the requirements of a qsst within the meaning of sec_1361 x represents that its s_corporation_election termination was inadvertent and was not motivated by tax_avoidance or retroactive tax planning x and its shareholders agree to make any adjustments required by the secretary consistent with the treatment of x as an s_corporation law and analysis sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1361 provides that a small_business_corporation cannot have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that a qsst whose beneficiary makes an election under sec_1361 will be treated as a_trust described in sec_1361 and the beneficiary of such trust shall be treated as the owner for purposes of sec_678 of that portion of the qsst which consists of s_corporation stock to which an election under sec_1361 applies sec_1361 provides that a beneficiary of a qsst may elect to have sec_1361 apply under sec_1361 this election will be effective up to days and months before the date of the election plr-128497-10 sec_1361 defines a qsst as a_trust a the terms of which require that i during the life of the current income_beneficiary there shall be only one income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current beneficiary in the trust shall terminate on the earlier of the beneficiary's death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to that beneficiary and b all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or resident_of_the_united_states sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the first day of the taxable_year for which the corporation is an s_corporation the corporation ceases to be a small_business_corporation the termination is effective on and after the day of cessation sec_1362 sec_1362 provides 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 consent or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the termination steps were taken - a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to this subsection 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 such termination such corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and the representations made we conclude that the termination of x’s s election on date constituted an inadvertent termination within the meaning of sec_1362 further we conclude that pursuant to sec_1362 x will be treated as continuing to be an s_corporation from date and thereafter assuming x’s s election is valid and not otherwise terminated under sec_1362 this ruling is contingent upon x and all its shareholders treating x as having been an s_corporation for the period beginning date and thereafter and the current plr-128497-10 income beneficiaries of the trusts treating the trusts as qssts for the period beginning date and thereafter within days from the date of this letter the current income beneficiaries of the trusts must file elections to treat the trusts as qssts effective date with the appropriate service_center a copy of this letter should be attached to the qsst elections the shareholders of x must include in their income their pro_rata share of 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 if all of the above conditions are not met then this ruling is null and void except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the above-described facts under any other provision of the code including whether x was otherwise a valid s_corporation or whether the trusts are otherwise valid qssts 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 pursuant to the power_of_attorney on file with this office a copy of this letter will be sent to x’s authorized representative sincerely david r haglund david r haglund chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp 3-plr-117918-99 date date parent sub date1 date2 date3 date4 date5 company official outside cpa this responds to a letter from your authorized representative dated date requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election the extension is being requested for parent and sub to make an election to file a consolidated federal_income_tax return with parent as the common parent under sec_1_1502-75 a of the income_tax regulations hereinafter referred to as the election effective for their taxable_year ending on date2 the material information submitted for consideration is summarized below parent and sub are calendar_year corporations parent was formed solely to acquire all the stock of sub on date1 parent acquired all the stock of sub parent has conducted no activity other than acquiring and holding the sub stock parent and sub intended to file the election with parent as the common parent of the group beginning with the taxable_year that ended on date2 the election was due on date3 but for various reasons the election was not filed on date4 which is after the due_date for the election company official and outside cpa discovered that the election was not timely filed on date5 a date after the due_date for the consolidated_return a consolidated federal_income_tax return was filed for parent and sub the statute_of_limitations on assessment under sec_6501 has not run for parent's or sub's taxable_year for which they want to make the election or for any taxable_year that would be affected by the election plr-117918-99 sec_1501 provides that an affiliated_group_of_corporations has the privilege of making a consolidated_return with respect to the income_tax imposed by chapter of the code for the taxable_year in lieu of separate returns the making of a consolidated_return is subject_to the condition that all corporations that at any time during the taxable_year have been members of the affiliated_group consent to the consolidated_return_regulations prescribed under sec_1502 prior to the day prescribed by law for the filing of such return the making of a consolidated_return is considered such consent sec_1_1502-75 provides that a group that did not file a consolidated_return for the immediately preceding_taxable_year may file a consolidated_return in lieu of separate returns for the taxable_year provided that each corporation which has been a member of the group during any part of the taxable_year for which the consolidated_return is to be filed consents to the regulations under sec_1502 if a group wishes to exercise its privilege of filing a consolidated_return such consolidated_return must be filed not later than the last day prescribed by law including extensions of time for filing the common parent's return sec_1_1502-75 provides that a corporation consents to filing a consolidated_return for the first consolidated_year by joining in the making of the consolidated_return for such year a corporation is deemed to have joined in the making of such return if it files a form_1122 sec_1_1502-75 provides that the consolidated_return shall be made on form_1120 for the group by the common parent_corporation sec_1_1502-75 provides that if a group wishes to exercise its privilege of filing a consolidated_return then a form_1122 must be executed by each subsidiary and attached to the consolidated_return for such year form_1122 is not required for the taxable_year if a consolidated_return was filed by the group for the immediately preceding_taxable_year sec_1_1502-77 provides that the common parent for all purposes other than for purposes not relevant here shall be duly authorized to act in its own name in all matters relating to the tax_liability for the consolidated_return_year under sec_301_9100-1 the commissioner has discretion to 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 internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections 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 sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1 a b and h therefore the commissioner has discretionary plr-117918-99 authority under sec_301_9100-1 to grant an extension of time for parent and sub to file the election provided parent and sub show they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company official and outside cpa explain the circumstances that resulted in the failure to timely file the election the information also establishes that tax professionals were responsible for the election and that parent and sub relied on them to timely make the election and that the government will not be prejudiced if relief is granted see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that parent and sub have shown they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date_of_issuance of this letter for parent to file the election by filing a consolidated_return with parent as the common parent and attaching a form_1122 for sub for their taxable_year ending on date2 the above extension of time is conditioned on the taxpayers' parent's and sub’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made talking into account the time_value_of_money no opinion is expressed as to the taxpayers' tax_liability for the years involved a determination thereof will be made by the district director's office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers' liability is lower sec_301_9100-3 parent must file a consolidated_return for its taxable_year ending on date2 and attach thereto the election a form_1122 executed on or after the date of this letter granting an extension for sub pursuant to the instructions in sec_1_1502-75 b a copy of this letter should also be attached to the return we express no opinion with respect to whether in fact parent and sub qualify substantively to file a consolidated_return in addition we express no opinion as to the tax effects or consequences of filing the return or the election late under the provisions of any other section of the code or regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the return or the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by parent parent's authorized representative and company official however the district_director should verify all essential facts moreover notwithstanding that the extension is granted under sec_301_9100-1 to file the election any penalties and interest that would otherwise be applicable still apply this letter is directed only to the taxpayer s on whose behalf it was requested sec_6110 provides that it may not be used or cited as precedent plr-117918-99 pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely yours assistant chief_counsel corporate by bernita thigpen deputy assistant chief_counsel corporate


t c summary opinion united_states tax_court james david jackson petitioner v commissioner of internal revenue respondent docket no 6491-16s filed date james david jackson pro_se ric d hulshoff and rollin g thorley for respondent summary opinion goeke judge this case was heard pursuant to the provisions of section of the internal_revenue_code in effect when the petition was filed 1all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and continued pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax for petitioner filed a timely petition for redetermination with the court pursuant to sec_6213 the issue for decision is whether petitioner is entitled to a deduction for qualified_residence_interest that he claimed on schedule a itemized_deductions for tax_year background at the time the petition was filed petitioner resided in nevada petitioner did not appear at trial on date he did appear however two days before at calendar call on date petitioner did not testify and did not call any witnesses on date the parties filed a stipulation of facts we ordered petitioner to confirm that he wanted to submit this case fully stipulated no response to the court’s order was received by or on behalf of petitioner by order dated date we closed the record and ordered the case submitted under rule continued procedure all monetary amounts are rounded to the nearest dollar petitioner filed a form_1040 u s individual_income_tax_return for tax_year on schedule a attached to his form_1040 he claimed a mortgage interest_deduction of dollar_figure respondent disallowed the mortgage interest_deduction and determined an accuracy-related_penalty under sec_6662 during petitioner lived with his girlfriend julie furney in a residence in nevada that she had purchased in ms furney had financed the purchase of the residence with a mortgage provided by countrywide financial a mortgage_lender subsequently acquired by bank of america petitioner was not able to join ms furney in obtaining a mortgage on the residence in because of personal debt problems ms furney is listed as the sole owner on the deed to the property and as the only person responsible on the mortgage bank of america issued form_1098 mortgage interest statement for only to ms furney for the entire amount of interest_paid it issued no form_1098 to petitioner ms furney pays all homeowners insurance premiums and property taxes assessed on the property the record includes a copy of a letter from ms furney to respondent’s counsel dated date stating in pertinent part that petitioner has paid the amount of dollar_figure per month on the mortgage payment for the past years 2respondent concedes the sec_6662 penalty discussion as a general_rule deductions are a matter of legislative grace and the taxpayer bears the burden of proving entitlement to any claimed deduction rule a 503_us_79 292_us_435 this burden requires the taxpayer to substantiate items underlying deductions claimed by keeping and producing adequate_records that enable the commissioner to determine the taxpayer’s correct_tax liability sec_6001 116_tc_438 65_tc_87 aff’d per curiam 540_f2d_821 5th cir this is not the first time petitioner has appeared before this court in jackson v commissioner t c summary opinion petitioner argued that he was entitled to this same deduction concerning the same property but for tax_year sec_2011 and sec_2012 in that case he failed to show that he had paid any mortgage interest or that he held any ownership_interest in the property id the claim petitioner makes here however is with respect to tax_year 3petitioner does not claim and the record does not show that the provisions of sec_7491 are applicable and we proceed as though they are not in general sec_163 and allows a deduction for interest_paid or accrued on certain indebtedness including acquisition_indebtedness on a qualified_residence the acquisition_indebtedness generally must be an obligation of the taxpayer and not an obligation of another see 604_f2d_34 9th cir aff’g tcmemo_1976_150 even if the taxpayer is not directly liable under the mortgage he may nevertheless be entitled to a deduction for qualified_residence_interest paid if he can establish legal or equitable ownership of the mortgaged property sec_1_163-1 income_tax regs see eg trans v commissioner tcmemo_1999_233 uslu v commissioner tcmemo_1997_551 during calendar call petitioner asked that we follow the holding in 138_tc_382 in bronstein the issue was the amount of indebtedness on which the taxpayer could claim a mortgage interest_deduction and there was no dispute whether the taxpayer actually paid dollar_figure in interest on her mortgage id pincite petitioner has failed to provide any objective evidence that he paid the mortgage interest in issue or that he had an equitable interest of any kind in the property because of his payments 4we assume without deciding that the mortgage in question constitutes acquisition_indebtedness on a qualified_residence petitioner relies on ms furney’s date letter and the stipulation of facts to satisfy his burden_of_proof with respect to the claimed mortgage interest_deduction the letter does not state that petitioner had any interest in the property legal equitable or otherwise by reason of his payments without bank statements receipts other records or testimony from petitioner or ms furney to show that petitioner transferred any amounts to pay the mortgage or that he had an equitable interest in the property we decline to find that petitioner has carried his burden to reflect the foregoing decision will be entered for respondent as to the deficiency and for petitioner as to the accuracy- related penalty under sec_6662


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 ita b07 plr-127780-11 date december legend p sec_1 sec_2 sec_3 sec_4 sec_5 s6 s7 date1 date2 year1 year2 state1 state2 ----------------------------------------------------------- -------------------------------------------------------- ------------------------------------------- ------------------------------------------- ------------------------------------------- -------------------------------------------------------------- ---------------------------------------------------- ------------------------------------------------------------------ ---------------- -------------------------- ------------------------- ------- ------- ------------- ---------- dear ----------------- this letter responds to a letter dated date and supplemental correspondence submitted by p on behalf of itself and sec_1 sec_2 sec_3 sec_4 sec_5 s6 and s7 hereinafter p sec_1 sec_2 sec_3 sec_4 sec_5 s6 and s7 will be collectively referred to as taxpayer requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the following elections the election to use the alternative_depreciation_system ads under sec_168 of the internal_revenue_code for all property placed_in_service by taxpayer in the taxable_year ending on date1 and the election not to deduct additional first year depreciation under sec_168 for all classes of qualified_property placed_in_service by taxpayer in the taxable_year ending plr-127780-11 on date1 p is also requesting on behalf of s6 an extension of time pursuant to sec_301_9100-3 to make an election under sec_59 to deduct intangible drilling costs ratably over a 60-month period and deduct exploration_costs ratably over a 10-year period facts taxpayer represents that the facts are as follows p is the common parent of an affiliated_group_of_corporations that includes sec_1 sec_2 sec_3 sec_4 sec_5 s6 and s7 and that files a consolidated federal_income_tax return p is a public company that is incorporated in state1 and maintains its principal executive offices in state2 taxpayer uses an overall accrual_method of accounting taxpayer engages in two lines of business taxpayer develops builds owns and operates geothermal power plants and recovered energy-based power plants worldwide taxpayer also designs and sells equipment and provides services related to engineering procurement construction operation and maintenance of geothermal and recovered energy power plants for the taxable_year ending on date1 taxpayer planned to make the election under sec_168 to use the ads for all tangible depreciable_property and to make the election under sec_168 not to deduct the additional first year depreciation for all classes of qualified_property placed_in_service by taxpayer in that taxable_year s6 also planned to make an election under sec_59 for the taxable_year ending on date1 to amortize its intangible drilling costs ratably over a 60-month period and to amortize its exploration_costs ratably over a 10-year period taxpayer engaged an outside tax consulting firm to prepare its form_1120 u s_corporation income_tax return for several taxable years prior to year1 but began transitioning this work to its tax manager in year1 taxpayer’s tax manager prepared and timely filed the year1 form_1120 beginning in year2 and before the due_date without extensions of taxpayer’s consolidated federal_income_tax return for the taxable_year ending on date1 taxpayer’s tax manager took on additional financial statement property_tax and sec compliance responsibilities in addition_to_tax accounting responsibilities as a result of the tax manager’s increased workload taxpayer failed to timely file a request for an extension to file its consolidated federal_income_tax return for the taxable_year ending on date1 accordingly taxpayer did not timely file such consolidated federal_income_tax return as of date2 taxpayer has not filed its consolidated federal_income_tax return for the taxable_year ending on date1 ruling requested taxpayer requests an extension of time pursuant to sec_301_9100-3 to make the elections under sec_168 not to deduct the additional first year depreciation with respect to all classes of qualified_property placed_in_service by taxpayer in the taxable_year plr-127780-11 ending on date1 and under sec_168 to use the ads for all tangible depreciable_property placed_in_service by taxpayer in the taxable_year ending on date1 p also requests on behalf of s6 an extension of time pursuant to sec_301_9100-3 to make an election under sec_59 for the taxable_year ending on date1 to amortize intangible drilling costs ratably over a 60-month period and exploration_costs ratably over a year period law and analysis sec_167 provides that there shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion wear_and_tear and obsolescence of property used in the taxpayer's trade_or_business the depreciation deduction provided by sec_167 for tangible_property placed_in_service after generally is determined under sec_168 sec_168 prescribes two methods_of_accounting for determining depreciation allowances one method is the general depreciation system in sec_168 and the other method is the alternative_depreciation_system in sec_168 under either depreciation system the depreciation deduction is computed by using a prescribed depreciation method recovery_period and convention sec_168 permits a taxpayer to elect for any class of property for any taxable_year to use the ads for determining depreciation for all property in that class placed_in_service during that taxable_year however in the case of nonresidential_real_property the election is made separately with respect to each property once made the election to use ads is irrevocable sec_301 t a provides that the election under sec_168 must be made for the taxable_year in which the property is placed_in_service sec_301 7t a i further provides that this election must be made by the due_date including extensions of the tax_return for the taxable_year for which the election is to be effective sec_301_9100-7t provides that the election under sec_168 is made by attaching a statement to the tax_return for the taxable_year for which the election is to be effective sec_168 as amended by the small_business jobs_act of publaw_111_240 124_stat_2504 date sbja provides a 50-percent additional first year depreciation deduction for qualified_property acquired by a taxpayer after and placed_in_service by the taxpayer before or before in the case of property described in sec_168 and c sec_168 provides that a taxpayer may elect not to deduct the percent additional first year depreciation for any class of property placed_in_service during the taxable_year the term class of property is defined in sec_1_168_k_-1 of the income_tax regulations as meaning in general each class of property described in sec_168 for example 5-year_property plr-127780-11 sec_1_168_k_-1 provides that the election not to deduct additional first year depreciation must be made by the due_date including extensions of the federal tax_return for the taxable_year in which the property is placed_in_service by the taxpayer sec_1_168_k_-1 provides that the election not to deduct additional first year depreciation must be made in the manner prescribed on form_4562 depreciation and amortization and its instructions the instructions to form_4562 for the taxable_year ended date provided that the election not to deduct the additional first year depreciation is made by attaching a statement to the taxpayer's timely filed tax_return including extension indicating that the taxpayer is electing not to deduct the additional first year depreciation and the class of property for which the taxpayer is making the election sec_1_168_k_-1 further provides that the election is made separately by each person owning qualified_property for example for each member of a consolidated_group by the common parent of the group by the partnership or by the s_corporation sec_59 generally allows a taxpayer to deduct any qualified_expenditure ratably over the year period beginning with the taxable_year in which the expenditure was made or in the case of intangible drilling and development_expenditures to deduct the expenditure ratably over the month period beginning with the month in which the expenditure was paid_or_incurred sec_59 includes in the definition of qualified_expenditure any amount which but for an election under sec_59 would have been allowable as a deduction determined without regard to sec_291 for the taxable_year in which paid_or_incurred under sec_263 relating to intangible drilling and development_expenditures and sec_617 relating to mining_exploration_expenditures sec_59 specifically prohibits a taxpayer from deducting under any other section of the code any qualified_expenditure to which an election under sec_59 applies sec_59 allows a taxpayer to make an election under sec_59 for any portion of any qualified_expenditure sec_1_59-1 prescribes the time and manner of making a sec_59 election according to sec_1_59-1 an election under sec_59 shall only be made by attaching a statement to the taxpayer's income_tax return or amended_return for the taxable_year in which the amortization of the qualified_expenditures subject_to the sec_59 election begins the taxpayer must file the statement no later than the date prescribed by law for filing the taxpayer's original income_tax return including any extensions of time for the taxable_year in which the amortization of the qualified_expenditures subject_to the sec_59 election begins sec_263 allows a taxpayer to elect under regulations prescribed by the secretary to deduct intangible_drilling_and_development_costs idc in the case of oil_and_gas and geothermal wells the regulations relating to the election to deduct idc for plr-127780-11 geothermal wells appear under sec_1_612-5 under sec_1_612-5 the taxpayer may exercise the election by claiming idc as a deduction on the taxpayer's original or amended_return for the first taxable_year ending on or after date in which the taxpayer pays or incurs idc with respect to a geothermal well commenced on or after that date no formal statement is necessary the taxpayer may revoke the election by filing an amended_return that does not claim the deduction if the taxpayer fails to deduct the idc the taxpayer is deemed to have elected to recover the costs through depletion to the extent that they are not represented by physical property and through depreciation to the extent that they are represented by physical property upon expiration of the time for filing a claim for credit or refund of any_tax imposed by chapter of the code with respect to the first taxable_year ending on or after date in which the taxpayer pays or incurs idc with respect to a geothermal well commenced on or after that date the taxpayer is bound by the taxpayer’s election to expense the idc or the deemed_election to recover the idc through depletion or depreciation for that year and all subsequent years sec_613 provides that in the case of the mines wells and other natural deposits listed in sec_613 the allowance for depletion under sec_611 shall be the percentage specified in sec_613 of the gross_income_from_the_property excluding from such gross_income an amount equal to any rents or royalties_paid_or_incurred by the taxpayer in respect of the property such allowance shall not exceed percent of the taxpayer's taxable_income_from_the_property computed without allowances for depletion and without the deduction under sec_199 sec_613 provides that for purposes of sec_613 geothermal deposits located in the united_states or in a possession_of_the_united_states are treated as listed in sec_613 and sec_15 percent is deemed to be the percentage specified in sec_613 sec_613 further provides that a geothermal_deposit shall in no case be treated as a gas well for purposes of sec_613 or sec_613a and sec_613 shall not apply to a geothermal_deposit that is located outside the united_states or its possessions sec_617 allows a taxpayer an election to deduct expenditures paid_or_incurred during the taxable_year for the purpose of ascertaining the existence location extent or quality of any deposit of ore or other mineral and paid_or_incurred before the beginning of the development stage of the mine sec_617 further provides that in no case shall this subsection apply with respect to amounts paid_or_incurred for the purpose of ascertaining the existence location extent or quality of any deposit of oil or gas or of any mineral with respect to which a deduction for percentage_depletion is not allowable under sec_613 sec_617 requires recapture of expenditures deducted under sec_617 in any taxable_year in which any mine with respect to which the expenditures were deducted reaches the producing_stage sec_1_617-1 provides that a taxpayer may exercise the election to deduct exploration_expenditures by deducting the expenditures either in the taxpayer's plr-127780-11 return for such taxable_year or in an amended_return filed before the expiration of the period for filing a claim for credit or refund of income_tax for such taxable_year sec_1_617-1 requires a taxpayer who makes an election to deduct the expenditures to state clearly on the taxpayer’s income_tax return for each taxable_year for which the taxpayer deducts exploration_expenditures the amount of the deduction claimed under sec_617 with respect to each property or mine sec_1_617-1 provides that the election under sec_617 may be made at any time before the expiration of the period prescribed for filing a claim_for_refund of the tax_imposed_by_chapter_1 for the first taxable_year for which the taxpayer desires to deduct exploration_expenditures under sec_617 under sec_301_9100-1 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 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 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts and representations submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly taxpayer is granted calendar days from the date of this letter to make the election under sec_168 not to deduct the additional first year depreciation for all classes of qualified_property placed_in_service by taxpayer during the taxable_year ending on date1 and the election under sec_168 to use the ads for determining depreciation for all tangible depreciable_property placed_in_service by taxpayer during the taxable_year ending on date1 further s6 is granted calendar days from the date of this letter to make the election under sec_59 for the taxable_year ending on date1 these elections must be made by p filing its original consolidated federal_income_tax return for the taxable_year ending on date1 with the statements required to make the elections under sec_59 sec_168 and sec_168 however if p has filed the consolidated federal_income_tax return for the taxable_year ending on date1 before the date of this letter the elections must be made by p filing an amended consolidated federal_income_tax return for the taxable_year ending on date1 plr-127780-11 this letter_ruling does not grant an extension of time for filing taxpayer’s consolidated federal_income_tax return for the taxable_year ending on date1 except as specifically set forth above we express or imply no opinion concerning the federal_income_tax consequences of any aspect of the transaction or items discussed or referenced above under any other provision of the code including other subsections of sec_59 and sec_168 specifically no opinion is expressed or implied on whether any item of depreciable_property placed_in_service by taxpayer in the taxable_year ending on date1 is eligible for the additional first year depreciation deduction under sec_168 or is required to use the ads pursuant to sec_168 a - d we also express or imply no opinion concerning whether the costs for which s6 seeks to make a sec_59 election qualify as idc under sec_263 and the regulations thereunder or as exploration expenses under sec_617 and the regulations thereunder whether s6 properly elected under sec_263 and the regulations thereunder to deduct idc whether s6 properly elected under sec_617 and the regulations thereunder to deduct exploration expenses or whether any portion of the expenses s6 treated as exploration expenses under sec_617 were subject_to recapture under sec_617 during or before the taxable_year ending on date1 in accordance with the power_of_attorney we are sending a copy of this letter to taxpayer’s authorized representative we are also sending a copy of this letter to the appropriate operating division director this letter_ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely kathleen reed kathleen reed branch chief branch office of associate chief_counsel income_tax accounting enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c sav eccur mo sep uniform issue list seti ep rat legend taxpayer a plan b bank c account d amount dear this letter is in response to a request for a letter_ruling dated date in which you request a waiver of the 60-day rollover requirement contained in sec_402 of the intemal revenue code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by sec_402 of the code was due to the failure of bank c to place amount into an ira per taxpayer a’s instructions taxpayer a further represents that amount has been not used for any purpose taxpayer a age received a distribution of amount from his former employer' sec_401 k plan plan b on august on august taxpayer a went to bank c and met with a bank c representative and requested her help in depositing amount into a similar type account amount was inadvertently deposited into account d a non-ira savings account bank c has acknowledged the miscommunication in a letter dated august based on the above facts and representations taxpayer a has requested a ruling that the internal_revenue_service service waive the 60-day rollover requirement contained in sec_402'3 of the code with respect to the distribution of amount from plan b sec_402 of the code provides that if any portion of the balance_to_the_credit of an employee in a qualified_trust is paid to the employee in an eligible_rollover_distribution and the distributee transfers any portion of the property received in such distribution to an eligible retirement pian and in the case of a distribution_of_property other than money the amount so transferred consists of the property distributed then such distribution to the extent transferred shall not be includible in gross_income for the taxable_year in which paid sec_402 a states that such rollover must be accomplished within days following the day on which the distributes received the property an individual_retirement_account ira constitutes one form of eligible_retirement_plan sec_402 of the code provides in relevant part that the secretary may waive the 60-day requirement under sec_402 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_402 of the code sec_401 a provides the rules for governing direct transfers of eligible rollover distributions sec_1 a of the income_tax regulations question and answer-15 provides in relevant part that an eligible_rollover_distribution that is paid to an eligible retirement pian in a direct_rollover is a distribution and rollover and not a transfer of assets and liabilities rev_proc 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_402 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 the information presented and documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a timely rollover was caused by an acknowledged miscommunication with bank c a therefore pursuant to sec_402 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from plan b provided all other requirements of sec_402 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_402 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 that may be applicable thereto this ruling letter is directed only to the taxpayer who requested it sec_61 k of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact at sincerely caller h willy carlton a watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


t c memo united_states tax_court gerlie v and patsy r rickard petitioners v commissioner of internal revenue respondent docket no filed date gerlie v and patsy r rickard pro sese rebecca dance harris for respondent memorandum findings_of_fact and opinion gale judge respondent determined a deficiency of dollar_figure with respect to petitioners’ federal_income_tax the sole issue for decision is whether dollar_figure petitioners received during to fund their first-year premiums on three life_insurance policies is taxable to them unless otherwise noted all section references are to the internal_revenue_code_of_1986 as in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure all dollar amounts have been rounded to the nearest dollar findings_of_fact some facts are stipulated and are so found the stipulation of facts with accompanying exhibits is incorporated herein by this reference at the time the petition was filed petitioners resided in tennessee in late petitioners purchased three life_insurance policies through the same broker luther t smith in each instance mr smith through his corporation eagle financial group inc eagle issued a check to petitioners to cover the cost of the initial premium on the policy which petitioners deposited petitioners wrote their own check to the insurance_company to pay the premium mr smith earned commissions on each of the policy sales to petitioners that ranged from to percent of the initial premium due the particulars of each policy purchase are discussed below on date mr smith sold petitioners a life_insurance_policy issued by shenandoah life_insurance with petitioner patsy r rickard mrs rickard as owner and insured and petitioner gerlie v rickard mr rickard as beneficiary on or around date mr smith provided funds to petitioners for the premium by having eagle issue a check for dollar_figure the amount of the initial premium on the policy to mr rickard petitioners deposited the check into their bank account on date petitioners’ check to shenandoah life_insurance for dollar_figure cleared their bank account on date mr smith sold petitioners a life_insurance_policy issued by amerus life_insurance with mrs rickard as owner mr rickard as insured and mrs rickard as beneficiary on date petitioners’ check to amerus life_insurance for dollar_figure the amount of the initial premium on the policy cleared their bank account on or around date mr smith provided funds to petitioners for the premium by having eagle issue a check for dollar_figure to mr rickard petitioners deposited the check into their bank account on date mr smith sold petitioners a second life_insurance_policy issued by amerus life_insurance with mr rickard as owner mrs rickard as insured and mr rickard as beneficiary on or around date mr smith provided funds to petitioners for the premium by having eagle issue a check for dollar_figure the amount of the initial premium on the policy to mr rickard petitioners deposited the check in their bank account on date petitioners’ check to amerus life_insurance for dollar_figure cleared their bank account on date mr rickard executed a recourse promissory note for dollar_figure in favor of eagle the note was payable year from the date of execution with interest to be paid at the rate of per centum per annum from date payment is due as of the time of trial petitioners had made no payments on the promissory note on date petitioners canceled the first amerus life_insurance_policy on date petitioners canceled the second amerus life_insurance_policy on date petitioners canceled the shenandoah life_insurance_policy in ohio national insurance co brought suit against mr smith and his related companies alleging among other things that he engaged in the practice of rebating on their joint federal_income_tax return for petitioners did not report as income any portion of the amount sec_1rebating is the practice whereby an insurance broker offers to pay the initial premium on an insurance_policy or provides some other consideration not authorized by the policy itself to induce a buyer to purchase the policy from that broker see tenn code ann a supp the following practices are defined as unfair trade practices in the business of insurance by any person except as otherwise expressly provided by law knowingly permitting or offering to make or making any policy of insurance including life_insurance or paying or allowing as inducement to the policy any rebate of premiums payable on the policy or any special favor or advantage in the dividends or other_benefits thereon or any valuable consideration or inducement whatever not specified in the policy received from eagle in respondent mailed a timely notice_of_deficiency for which determined that petitioners were required to include in income the dollar_figure they received from eagle in opinion respondent’s determinations in the notice_of_deficiency are presumed correct and petitioners bear the burden of proving that the determinations are in error see rule a 290_us_111 when a taxpayer purchases insurance coverage but pursuant to a rebating scheme receives a reimbursement of his premium payment from an insurance broker the taxpayer has received income within the meaning of sec_61 measured by the amount of the premium reimbursement or rebate received 105_tc_1 see also woodbury v united_states aftr 2d ustc par big_number d n d affd per curiam without published opinion 27_f3d_572 8th cir the income must be recognized in the year the rebate is received wentz v commissioner supra pincite while petitioners insist that they did not engage in an insurance rebating scheme the reimbursement arrangements between them and 2petitioners have not claimed any shift in the burden_of_proof to respondent under sec_7491 in any event petitioners have not provided credible_evidence within the meaning of that section with respect to any factual issue in dispute see 116_tc_438 their insurance broker are indistinguishable from the transactions at issue in wentz and woodbury and the same result obtains here petitioners contend however that they did not realize income from the reimbursements because mr rickard gave promissory notes to eagle obligating him to repay the reimbursed amounts where the taxpayer receiving a premium-reimbursing rebate from the insurance broker gives the broker a nonrecourse note secured_by the policy in the amount of the reimbursement such a note has not precluded a determination that the rebate is income to the taxpayer where the note did not constitute genuine indebtedness sutter v commissioner tcmemo_1998_250 haderlie v commissioner tcmemo_1997_525 nonrecourse notes provided by the taxpayer to the rebating insurance broker do not create genuine indebtedness where there is no evidence of an intention to repay the notes sutter v commissioner supra haderlie v commissioner supra the promissory note3 mr rickard executed in favor of eagle was recourse however the recourse nature of the note’s terms is immaterial because we conclude as explained hereafter that the note did not constitute genuine indebtedness determining whether a promissory note constitutes genuine indebtedness requires an examination of all of the facts and circumstances 54_tc_905 a good_faith intent of the debtor to repay and a good_faith 3there is only one promissory note in evidence a note for dollar_figure dated date and executed by mr rickard in favor of eagle petitioners attached to their brief what purported to be two additional promissory notes for dollar_figure and dollar_figure dated nov and date respectively petitioners contend that mr rickard executed these two notes in favor of eagle in connection with the premium reimbursements for the shenandoah policy and the second amerus policy however attachments to briefs are not evidence in a case and we do not consider those attachments here see rule c 65_tc_959 ndollar_figure 40_tc_330 accordingly the only purported indebtedness for which there is competent evidence in this case is the dollar_figure promissory note we observe that the face_amount of the date note in evidence--dollar_figure--approximates the sum of the first two reimbursements from eagle dollar_figure in connection with the date purchase of the shenandoah policy and dollar_figure in connection with the date purchase of the first amerus policy petitioners offer no explanation as to why the date promissory note had a face value of dollar_figure if its purpose was to secure repayment of only the dollar_figure reimbursement for the first amerus policy because we conclude that the dollar_figure promissory note did not evidence genuine indebtedness we need not explore this discrepancy further 4respondent contends on brief that the note was nonrecourse however the note on its face is not secured and eagle’s recovery is in no way confined to any identified asset we accordingly conclude that by its terms the note was recourse intent of the creditor to enforce repayment are the most important elements of this determination id pincite courts look to several factors in determining whether the parties had the requisite good_faith intent including whether there was a written loan agreement whether there was a fixed schedule for repayment whether any security or collateral was requested whether interest was charged whether there has been a demand for repayment whether the loan was reflected in the parties’ books whether any repayments have been made and whether the borrower was solvent at the time of the loan see reed v commissioner tcmemo_1994_611 sattelmaier v commissioner tcmemo_1991_597 the relevant factors in this case rebut the notion that petitioners had a good_faith intent to repay or that mr smith intended to enforce repayment when the note was executed most significantly there is no evidence of a demand for repayment or of any other action by the purported debtor or creditor occasioned by the failure to make payment when due see reed v commissioner supra failure of lender to demand repayment is factor indicating indebtedness is not genuine moreover petitioners had not made any payment of principal or interest on the note at the time of trial--some 5½ years after the note became due see fairchild v commissioner tcmemo_1970_329 lack of any effort to repay is significant factor indicating indebtedness is not genuine affd 462_f2d_462 3d cir finally there is no evidence that any collateral was provided mr rickard testified that no payments were made on the note because he had lent greater amounts to mr smith that had not been repaid mr smith was not called to testify and in the absence of his testimony or any competent evidence to corroborate purported indebtedness running to mr rickard from mr smith we do not accept mr rickard’s self-serving testimony see 87_tc_74 yang v commissioner tcmemo_2000_263 for the foregoing reasons we find that there was never any good_faith intention to repay or to demand repayment of the dollar_figure note there is no competent evidence of any additional notes consequently there was no genuine indebtedness offsetting petitioners’ receipt of the dollar_figure in premium rebates in thus under 105_tc_1 petitioners received taxable_income in this amount in to reflect the foregoing decision will be entered for respondent