t c memo united_states tax_court robert a and m faye strang petitioners v commissioner of internal revenue respondent docket no filed date robert a strang and m faye strang pro_se brandi darwin for respondent memorandum opinion dawson judge this case was assigned to chief special_trial_judge peter j panuthos pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_183 the court unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure - - agrees with and adopts the opinion of the special_trial_judge which is set forth below opinion of the special_trial_judge panuthos chief special_trial_judge on date respondent issued a notice of final_determination denying petitioners’ request for an abatement of interest under sec_6404 for their and tax years the issue for decision is whether respondent abused his discretion in failing to abate the assessment of interest background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference all references to petitioner are to robert a strang at the time this petition was filed petitioners resided in punta gorda florida petitioner is a certified_public_accountant on date respondent began an examination of sunshine travel agency inc ’s sunshine corporate tax returns for a period unspecified in the record sunshine is wholly owned by petitioners on date internal_revenue_service irs agent karen garner held her first meeting with petitioner agent garner expanded her examination to include petitioners’ and individual income_tax returns on date between date and date agent garner spent at least days reviewing the relevant returns in early agent garner included petitioners’ income_tax return in the examination respondent issued a 30-day_letter to petitioners on date for the taxable years and and agent garner held a closing conference with petitioner on the same day agent garner closed the case on date after receiving a protest letter from petitioners petitioners’ case was assigned to irs appeals officer roger allen on date officer allen met with petitioner on date but he did not work on petitioners’ case between date and date because of his caseload and other priorities officer allen received petitioners’ offer of settlement on date and respondent received an executed settlement agreement from petitioners on date tax and interest were assessed on date pursuant to the agreement petitioners submitted a claim_for_refund and request for abatement form on date for tax years and on date respondent mailed to petitioners a final_determination disallowing petitioners’ claim_for_abatement of interest under sec_6404 respondent stated therein that he did not find any errors or delays that merit abatement of interest q4e- petitioners filed a timely petition for review of respondent’s denial of their request for abatement of interest the following is the centerpiece of petitioners’ argument from my experience the average amount of time required for an audit is from three to six months after the agent has started the case since the examination process took more than months petitioners assert that respondent unduly delayed the process respondent contends that he did not abuse his discretion in denying petitioners’ request further respondent argues that petitioners have not established that there was an error or delay as a result of a ministerial_act discussion sec_6404 redesignated as sub sec_6404 enacted by sec_302 of the taxpayer bill of right sec_2 tbor2 publaw_104_168 110_stat_1457 provides the tax_court with authority to review the commissioner’s denial of a taxpayer’s request for abatement of interest this court may order an abatement where the commissioner’s failure to abate interest was an abuse_of_discretion see sec_6404 the taxpayer must demonstrate that the commissioner in failing to abate interest exercised his discretion arbitrarily capriciously or without sound basis in law or fact see 112_tc_230 woodral v commissioner t cc - petitioners’ request for abatement of interest is based upon sec_6404 sec_6404 provides that the commissioner may abate interest on any payment of tax to the extent that any delay in payment is attributable to unreasonable error or delay by an officer_or_employee of the irs in performing a ministerial_act the term ministerial_act is defined as a procedural or mechanical act that does not involve the exercise of judgment or discretion and that occurs during the processing of a taxpayer’s case after all prerequisites to the act such as conferences and review by supervisors have taken place sec_301_6404-2t b temporary proced admin regs fed reg date congress intended for the commissioner to abate interest where failure to abate interest would be widely perceived as grossly unfair h rept pincite 1986_3_cb_1 s rept pincite 1986_3_cb_2 in sec_6404 was amended under sec_301 of tbor2 publaw_104_168 110_stat_1457 to permit the commissioner to abate interest with respect to an unreasonable error or delay resulting from managerial and ministerial acts this amendment however applies to interest accruing with respect to deficiencies or payments for tax years beginning after date therefore the amendment is inapplicable to the instant case see 112_tc_19 n the final_regulation under sec_6404 as issued on date contains the same definition of ministerial_act the final_regulation generally applies to interest accruing on deficiencies or payments of tax for taxable years beginning after date see sec_301_6404-2 proced admin regs -- - vol yet congress intended that abatement would be used sparingly and it did not intend that abatement be used routinely to avoid payment of interest id petitioners contend that respondent unduly delayed the examination process because the examination took more than months petitioners failed to establish any incidence of error or delay in performing ministerial acts that gave rise to any assessment of interest arguably respondent delayed petitioners’ case when officer allen set their case aside for months to work on other cases however the failure of an irs officer to work on a case due to other priorities is not a ministerial_act see leffert v commissioner tcmemo_2001_ we conclude that respondent’s failure to abate interest was not an abuse_of_discretion to reflect the foregoing decision will be entered for respondent


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 b06 plr-130912-17 date date legend taxpayer ------------------------------------------------------------ ----------------------------------------------- taxable_year a taxable_year b ------------------------ ------------------------ dear -------------- this is in response to a letter dated date requesting extensions of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make separate late elections under sec_59 of the internal_revenue_code code for taxable_year a and taxable_year b with respect to intangible drilling cost under sec_263 paid and incurred in these years plr-130912-17 taxpayer held an interest in two separate partnerships that were engaged in oil exploration and production taxpayer had an internal tax director who had consulted with an accounting firm however the accounting firm failed to inform taxpayer that the sec_59 election was available for the intangible drilling costs associated with the oil_and_gas activities of the partnerships described above taxpayer represented that in requesting extensions of time to make separate late elections under sec_59 for taxable_year a and taxable_year b it acted reasonably and in good_faith and further there is no prejudice to the interests of the government sec_263 of the code authorizes the secretary to prescribe regulations under which taxpayers may elect to deduct intangible_drilling_and_development_costs in the case of oil_and_gas wells located in the united_states sec_1_612-4 of the regulations provides that taxpayers that hold a working or operating_interest in an oil or gas property may elect to deduct intangible_drilling_and_development_costs they incur with respect to that property sec_59 allows a taxpayer in general to deduct ratably over the 10-year period any qualified_expenditure to which an election under sec_59 applies beginning with the taxable_year in which such expenditure was made 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 for the taxable_year in which paid_or_incurred under sec_263 relating to intangible_drilling_and_development_costs in the case of oil_and_gas wells and geothermal wells sec_59 specifically prohibits the deduction of the qualified_expenditures under any other section of the code if the option under sec_59 is elected sec_59 provides that an election under sec_59 may be made with respect to any portion of any qualified_expenditure sec_59 provides that an election made under sec_59 may be revoked only with the consent of the secretary sec_1_59-1 of the income_tax regulations prescribes the time and manner of making the election under sec_59 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 and plr-130912-17 include certain required information sec_1_59-1 provides in part that a taxpayer may make an election under sec_59 with respect to any portion of any qualified_expenditure paid_or_incurred by the taxpayer in the taxable_year to which the election applies an election under sec_59 must be for a specific dollar amount and the amount subject_to an election under sec_59 may not be made by reference to a formula sec_301_9100-1 provides that the regulations under this section and sec_301_9100-2 and sec_301_9100-3 establish the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election an extension of time is available for elections that a taxpayer is otherwise eligible to make however the granting of an extension of time is not a determination that the taxpayer is otherwise eligible to make the election sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government based solely on the information submitted and representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly taxpayer is granted an extension of time of days from the date of this letter to deduct intangible drilling costs ratably over the 10-year period described above the election under sec_59 must comply with the requirements of sec_1_59-1 sec_1_59-1 requires in part that an election under sec_59 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 election under sec_59 begins the statement must include the taxpayer’s name address and taxpayer_identification_number and the type and amount of qualified_expenditures identified in sec_59 that the taxpayer elects to deduct ratably over the applicable_period described in sec_59 plr-130912-17 in making the elections taxpayer should also attach copies of this letter to the amended returns for taxable_year a and taxable_year b we have enclosed copies of this letter one for each election for that purpose except as specifically set forth above we express no opinion concerning the federal tax consequences of the facts described above in particular we express or imply no opinion on whether taxpayer satisfies the requirements of sec_59 and the regulations thereunder or whether the expenditures at issue are intangible drilling expenditures under sec_263 or whether the amounts of those expenditures are correct this letter_ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent the rulings contained in this letter are based upon information submitted and representations made by taxpayer and taxpayer’s representatives and accompanied by a penalty of perjury statement executed by an appropriate party although this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely patrick s kirwan chief branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number --------------------------------------------------- ----------------------------------- ---------------------------- -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-144202-07 date july x state a b c e trust1 trust2 d1 d2 d3 d4 d5 d6 ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- 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----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- plr-144202-07 d7 -------------------------- dear ----- ----------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting inadvertent termination relief under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated under the laws of state on d1 and elected to be an s_corporation effective d2 upon the death on d3 of a trust2 became the owner of the x shares trust2 was an ineligible s_corporation shareholder and x’s s_corporation_election terminated on d3 from d3 to d4 b reported the income of x as if trust2 were a qsst from d4 when b died to d5 when x stock was transferred to a limited_liability_company c the child of a and b reported the income of x as if trust2 were a qsst upon the death on d4 of b x stock was to be distributed to c under the terms of trust1 an attorney advised c to place the x shares in a limited_liability_company on d5 shares of x were transferred to e a limited_liability_company taxed as a partnership the income from the x stock passed through to e was reported by c and her husband on a joint_return during an audit of x beginning on d6 the auditor noted that the transfer of x stock to e caused the termination of x’s s_corporation_election to remedy this problem on d7 e transferred its x stock to c an eligible s_corporation shareholder consequently x’s s_corporation_election would have terminated on d5 due to the transfers of x stock to e had the election not already terminated on d3 x represents that the circumstances resulting in the termination of x’s s_corporation_election were inadvertent and not motivated by tax_avoidance x further represents that from d3 x and its shareholders have filed all returns consistent with x’s status as an s_corporation x and its shareholders have agreed to make such adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which it was made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness were inadvertent no later than a reasonable period of time after discovery of the event resulting in the ineffectiveness 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 sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination the plr-144202-07 corporation shall be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and the representations made we conclude that x’s s_corporation_election terminated on d3 under sec_1362 when trust2 an ineligible shareholder acquired x stock we also conclude that this termination of x’s s election on d3 was an inadvertent termination within the meaning of sec_1362 moreover had x’s s_corporation_election been valid it would have terminated on d5 under sec_1362 when e an ineligible shareholder acquired x stock similarly this termination of x’s s election on d5 would have been an inadvertent termination within the meaning of sec_1362 therefore we conclude that x will continue to be treated as an s_corporation for the period from d3 and thereafter provided that x’s s_corporation_election was valid and was not otherwise terminated under sec_1362 during the period from d3 to d4 b will be treated as the owner of the x stock acquired by trust2 during the period from d4 to d5 c will be treated as the owner of the x stock acquired by trust2 during the period from d5 and thereafter c will be treated as the owner of the x stock acquired by e except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed regarding x’s eligibility to be an s_corporation or the validity of its s_corporation_election 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 a power_of_attorney on file with this office a copy of this letter is being sent to x's authorized representative sincerely j thomas hines 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 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 tege eoeg teb presp-146667-06 date date dear -------------- pursuant to sec_54 of the internal_revenue_code the code and notice_2005_98 2005_52_irb_1211 and after review of your application submitted on date including supplements thereto we have determined that the projects described in appendix a attached hereto are qualified for purposes of sec_54 and will be owned by one or more qualified borrowers we allocate authority to ----------------- ----------------------------------------- the issuer a qualified issuer under sec_54 to issue up to dollar_figure------------- of clean renewable energy bonds crebs bonds issued pursuant to this allocation must be designated by the issuer as bonds for purposes of sec_54 for the projects described in appendix a up to the amount allocated for each project described in appendix a bonds so designated must be issued on or before date please be aware that in order for bonds to be crebs the applicable_requirements of the code including without limitation sec_54 notice_2005_98 and notice_2006_7 2006_10_irb_559 must be met please note that creb proceeds may be used to reimburse capital expenditures paid_by qualified borrowers for qualified projects only if the provisions of sec_54 are met if you have any questions with respect to this allocation please contact --------------------- ---------------------------------------- of the office of division counsel associate chief_counsel tax-exempt and government entities on -------------------- not a toll-free call except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter for purposes of the renewable_electricity_production_credit under sec_45 of the code no inference may be drawn from this allocation that any project listed in appendix presp-146667-06 a is a qualified_facility or that electricity to be produced at such project s is electricity from a qualified_energy resource at a qualified_facility within the meaning of sec_45 this determination is directed only to the applicant named above 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 form 8038-g information_return for tax- exempt governmental obligations filed for bonds issued pursuant to this allocation the allocation contained in this letter is based upon information and representations submitted by the applicant for the creb allocation and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the application_for an allocation it is subject_to verification on examination sincerely assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities by timothy l jones senior counsel tax-exempt_bonds branch presp-146667-06 borrower name appendix a project type project location ------------------------------- --------------- ------------------------------- --------------- landfill_gas facility wind facility -------------------------------- -------------------------- -------------------------------- ------------------ total amount allocated dollar_figure------------- dollar_figure------------- dollar_figure---------------


id office uilc cca_2009102015045347 -------------- number release date from --------------------- sent tuesday date pm to -------------------- cc subject disclosure issues in worker classification investigation ----------- you posed the following question if during the investigation of a company's tax_liability worker classification issues the service interviews employees of the company and the employees require a translator is it permissible to allow a friend or family_member of the employee to be part of the conversation as a translator my answer for you is no not unless the company company being the taxpayer agrees without the taxpayer's consent this is a k situation and in order to disclose under k there has to be no other reasonable way to get the information so i think your options are to either get the company to agree or to use an irs translator please let me know if you have any follow-up questions or need anything further thanks- ----------------------- ------------- ----------------------


tax_exempt_and_government_entities_division department of the treasury internal_revenue_service washington d c uniform issue list way seutiepr-ra f3 legend taxpayer a company m plan x amount l account x financial advisor e financial_institution a month date date year dear this is in response to your letters dated date date and date submitted on your behalf by your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_402 a of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested page taxpayer a asserts that on date subsequent to his retirement with company m plan x issued a check in amount l payable to financial_institution a as trustee fbo of taxpayer a taxpayer a asserts that his failure to accomplish a direct_rollover of amount l within the day period prescribed by sec_402 of the code was due to the error of financial advisor e on date taxpayer a age signed an election form with company m electing a rollover to financial_institution a of a lump sum payment of his plan x account balance on date company m issued a check payable to financial_institution a as trustee fbo of taxpayer a taxpayer a had many discussions with financial advisor e and consulted with her during month to discuss his retirement from company m and the rollover of his plan x account balance to an individual_retirement_account ira to be established with financial_institution a taxpayer a after receiving the date check followed specific directions from financial advisor e to endorse the check to financial_institution a and to enclose his date check with an account x deposit slip financial advisor e assured taxpayer a that she would arrange for the funds to be deposited into an ira account during the month meeting with financial advisor e taxpayer a instructed financial advisor e to establish an ira at financial_institution a financial advisor e in error failed to establish an ira account at financial_institution a to receive the anticipated direct_rollover distribution check from plan x which caused the funds to be deposited and to remain in a non-ira account account x during year plan x issued a form 1099-r with a distribution code g direct_rollover to a qualified_plan a b plan a governmental plan or an ira taxpayer a believed that financial advisor e had effected a rollover of his plan x retirement_funds and did not learn of the failure until taxpayer a and his accountant discovered the error when preparing taxpayer a’s federal_income_tax return for year based on the facts and representations you request that the service waive the 60-day rollover requirement with respect to the distribution of amount l contained in sec_402 of the code page with respect to your request to waive to day rollover requirement sec_402 of the code provides that except as otherwise provided in sec_402 any amount distributed out of an employees' trust described in sec_401 that is exempt from tax under sec_501 shall be taxable to the distributee in the taxable_year of the distributee in which distributed in the manner provided under sec_72 of the code relating to annuities sec_402 of the code provides rules governing rollovers of amounts from exempt trusts to eligible retirement plans including iras code sec_402 provides that except as provided in subparagraph b paragraph shall nat apply to any transfer of a distribution made after the 60th day following the day on which the distributee received the property distributed sec_402 of the code provides that the secretary may waive the day requirement under sec_402 of the code where the failure to waive such requirement would be against equity or good conscience including - casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_402 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 provided by taxpayer a is consistent with taxpayer a’s assertion that his failure to accomplish a rollover of amount l within the 60-day period prescribed by sec_402 of the code was due to the error of financial advisor e thus taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount l or any portion thereof to an ira provided all other requirements of sec_402 of the code except the 60-day requirement are met with respect to such contributions the contributed amounts will be considered rollover_contributions within the meaning of sec_402 of the code 901u31049 page no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact sincerely yours vy rances v sloan mainager employee_plans technical group enclosures deleted copy of letter_ruling notice of intention to disclose


department of the treasury internal_revenue_service washington d c apr number release date uilc cc tege eoeg et1 - cor-105026-01 memorandum for from subject office of division counsel associate chief_counsel tax exempt and government entities cc tege eoeg et1 - cor-105026-01 railroad retirement act tax status in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business became an employer under the railroad retirement act and the railroad unemployment insurance act effective date we have reviewed the opinion of the rrb and based upon the information submitted to the rrb we also conclude that became an employer under the railroad_retirement_tax_act effective date please take the appropriate action regarding this business cc will e mcleod


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 corp plr-117612-09 date date legend legend distributing controlled holding lp holding gp dre dre dre --------------------------------------------------------- --------------------------------------------------------- ---------------------- --------------------------------------------------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------- --------------------------------------------------------- --------------------------------------------------------- ---------------------- --------------------------------------------------------- --------------------------------------------------------- ---------------------- ------------------------------ --------------------------------------------------- ------------------------------- --------------------------------------------------- --------------------------------------------------------- ---------------------------------------- plr-117612-09 lp lp lp lp lp manager company company investor investor new holding lp new holding gp --------------------------------------------------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------- --------------------------------------------------------- --------------------------------------------------------- ---------------------- --------------------------------------------------------- --------------------------------------------------------- ---------------------- --------------------------------------------------------- --------------------------------------------------------- ---------------------- --------------------------------------------------------- ------------------------------- --------------------------------------------------------- --------------------------------------------------------- ---------------------- --------------------------------------------------------- ---------------------------------- --------------------------------------------------------- ----------- ------------------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------- --------------------------------------------------------- --------------------------------------------------------- ---------------------- plr-117612-09 new holdco business a date a date b date c a b c d e f g h i j k l m n o --------------------------------------------------------- --------------------------------------------------------- ----------------------- ---------------------------------------------- -------------------------- ------------------- ------------------- --------------------------- --------------------------- ------------------------- ------------------------- ---------------------------- ---------------------------- --------------------------- --------------------------- ---------------------------- --------------------------- --------------------------- --------------------------- ------------------------- ------------------------- --------------------------- plr-117612-09 p q r s t u v w x y z aa bb cc dd ee ff gg hh ii dear -------------- ------------------------ ----------------------------- ---------------------------- ---------------------------- --------------------------- ------------ ------------------------- ----- -- ----- ------- ------------ ------------ ----- ----- -------- -------- -------- -------- -------- plr-117612-09 this letter responds to your letter of date requesting that we supplement our letter rulings dated date plr plr and date plr plr the original rulings as supplemented by our letter rulings dated date plr and related rulings the supplemental rulings and together with the original rulings the prior rulings the information submitted in that request and in later correspondence is summarized below capitalized terms not defined in this ruling have the meanings assigned to them in the prior rulings the rulings contained in this letter are based on facts and representations submitted by the taxpayers and accompanied by penalty of perjury statements executed by the appropriate parties this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information and has not made any determination regarding i whether internal distribution internal distribution and the share exchange satisfy the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii whether the proposed transactions are being used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 of the internal_revenue_code and sec_1_355-2 or iii whether internal distribution internal distribution or the share exchange are part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a or greater interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1_355-7 the prior rulings address certain federal_income_tax consequences of certain transactions under sec_355 and sec_368 of the internal_revenue_code and other code provisions except as modified below the representations and caveats set forth in the prior rulings remain in effect for purposes of this supplemental letter_ruling summary of facts distributing is a publicly traded holding_company with one class of voting common_stock outstanding distributing is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return on date a distributing distributed all of the stock of controlled to dre dre and dre disregarded wholly-owned subsidiaries of lp lp and lp respectively and to the other controlled shareholders in exchange for distributing stock in the share exchange in connection with the share exchange distributing lp lp and lp received the original rulings to the effect that among other things the contribution as defined in the original rulings together with the share exchange plr-117612-09 would qualify as a reorganization under sec_368 see plr plr plr plr controlled is a holding_company from the completion of the share exchange on date a until the time of the phase i combination as defined below controlled was the common parent_corporation of an affiliated_group_of_corporations that filed a consolidated federal_income_tax return controlled through its subsidiaries is engaged in business a at the time of the controlled contribution the stock in controlled was owned as follows lp through dre owned a of the stock lp through dre owned b of the stock lp through dre owned c of the stock and the other controlled shareholders owned the remaining d of the stock at the time of the holding contribution new holding lp owned directly or indirectly all the interests in holding lp a disregarded_entity and all of the stock in company and holding lp directly owned all of the stock in company each of company and company is engaged in business a the limited_partner interests in new holding lp entitled to an aggregate of e of the capital and profits of new holding lp were owned f by lp g by lp h by manager i by investor and j by investor and certain current and former employees of holding lp and its subsidiaries the general_partner interest in new holding lp entitled to k of the capital and profits of new holding lp was owned by new holding gp the limited_liability_company interests in new holding gp entitled to all of the capital and profits of new holding gp were owned l by lp m by lp n by manager and o by investor collectively there were p several hundred limited partners in the lps of these limited partners q a substantial number historically indirectly owned stock of controlled through lp lp and lp and also historically indirectly owned stock of company and company through lp and lp in addition the lps each had a general_partner overlap also existed among a number of owners of the general partners such that collectively the same persons owned over of the voting interests in each general_partner on date b and date c as part of a single_plan the taxpayers completed a series of transactions collectively and including the acquisition of stock by lp described immediately below the phase i combination that resulted in controlled and company being transferred below a chain of new holding_companies the common parent of which is new holdco immediately after the phase i combination new holding lp owned r and the former shareholders of controlled owned s of the stock of new holdco lp owned the remaining t of the stock of new holdco which it acquired from new holdco for cash new holding lp continued to own all of the stock of company in connection with the phase i combination distributing and lp lp lp lp and lp collectively the lps received the supplemental rulings supplemental proposed transactions as part of a single_plan the taxpayers propose to transfer company to new holdco so that new holdco will wholly own directly or indirectly each of controlled plr-117612-09 company and company including the interim contributions described immediately below the phase ii combination and together with the phase i combination the combination in order to effect the phase ii combination new holding lp will transfer to new holdco all of the stock of company solely in exchange for additional voting common_stock of new holdco prior to the closing of the phase ii combination company has distributed dollar_figureu of its excess cash_flow to new holding lp new holding lp has contributed that cash to new holdco the interim contributions in exchange for voting common_stock of new holdco the stock of new holdco received by new holding lp in the interim contributions will reduce correlatively the amount of stock of new holdco that new holding lp will receive on the contribution of company after the completion of the phase ii combination new holding lp and lp will hold v more than of the stock of new holdco and the owners of new holding lp and lp will own through intermediate entities more than of the stock of controlled however because of the substantial overlap in the identity of the limited partners of the lps that historically owned stock of controlled lp lp and lp and the limited partners of the lps that historically owned indirectly stock of company and company lp and lp the taxpayers have determined that persons that were indirect owners of the stock of controlled prior to the combination will continue to own indirectly after the combination more than of the stock of controlled in making this determination the taxpayers relied on the following assumptions the counting assumptions i ii the methodology a net decrease methodology or a minimum ownership percentage approach of the example in the legislative_history to sec_355 is applicable to the phase i combination and the phase ii combination for purposes of testing whether there has been an acquisition of a or greater interest in controlled under sec_355 in applying the overlap rule_of sec_355 and the net decrease methodology described in assumption i the taxpayers may look through new holdco new holding lp and each of lp lp lp lp and lp to the indirect owners of the controlled stock at the level of the partners in the lps and may take into account the actual overlap in the indirect ownership of controlled stock at that level based on their actual knowledge a limited_partner that holds an interest both in lp lp and or lp and in lp and or lp is hereinafter referred to as an overlap partner iii in applying the overlap rule_of sec_355 and assumptions i and ii to the phase i combination or the phase ii combination as the case may be the baseline for the application of the overlap rule to a particular overlap partner will be the number of non-plan shares of controlled stock and the non-plan percentage ownership in controlled held by the overlap plr-117612-09 iv v partner immediately prior to the time of the applicable phase of the combination or as the case may be applicable interim contribution in applying sec_355 and assumptions i - iii a limited_partner in lp lp lp lp or lp that is described in any of the following categories will be treated as the ultimate indirect owner without further look-through of its indirect percentage share of the controlled stock - i any united_states pension_trust described in sec_401 and sec_501 ii any united_states charitable_organization described in sec_501 including an endowment or private_foundation and iii any state local or foreign government or agency_or_instrumentality thereof in applying sec_355 and the assumptions i - iii changes in the direct or indirect ownership in any partner in lp lp lp lp or lp that is not described in assumption iv for example acquisitions of interests in a partner in lp lp lp lp or lp that is itself a taxable corporation partnership or trust will be disregarded so long as those changes are not part of a plan that includes the share exchange in connection with the closing of the phase i combination new holdco adopted a stockholders agreement to which lp lp lp lp in respect of its direct holding in new holdco new holding lp and the other direct holders of stock in new holdco are party in addition lp lp manager and investor are party to the stockholders agreement substantially as if each held directly the percentage of the stock of new holdco held by it through new holding lp under the stockholders agreement the board_of directors of new holdco consists of w director designated by each of lp lp lp lp and lp x directors designated by investor and y additional director who is a member of management and who is designated by the lps on any matter considered by the board each of the z directors designated by an lp will be entitled to cast votes representing a percentage of the total voting power of the board equal to the percentage share of the stock of new holdco owned at the time directly or indirectly by the lp designating that director on any matter considered by the board the directors designated by investor will be entitled to cast votes in the aggregate representing a percentage of the total voting power of the board equal to the percentage share of the stock of new holdco owned at the time directly or indirectly by investor the remaining voting power of the board is held by the y management director except for certain registration rights and related provisions the stockholders agreement will automatically terminate immediately after i an initial_public_offering of the common_stock of new holdco or ii generally a sale of stock of new holdco possessing the voting power to elect at least a majority of its board_of directors or a sale of all or substantially_all of the assets of new holdco on a consolidated basis in connection with the phase i combination new holdco adopted a stock_option plan the option plan the option plan provides for the grant of nonqualified options to acquire the common_stock of new holdco options on customary terms plr-117612-09 and conditions to employees of or other service providers to new holdco and its subsidiaries grantees in connection with the grantee's performance of services as an employee director or independent_contractor of or to new holdco and its subsidiaries in each case the option will be nontransferable within the meaning of sec_1_83-3 the option will not have a readily_ascertainable_fair_market_value as defined in sec_1_83-7 and the acquisition of stock if any by the grantee on the exercise of the option will be subject_to sec_83 in each case the stock acquired by a grantee on the exercise of an option will not be excessive by reference to the services performed by the grantee apart from the potential effect of the coordinating group rules of sec_1 h no grantee will be a controlling shareholder of controlled within the meaning of sec_1_355-7 or a ten percent shareholder of controlled within the meaning of sec_1 h no option will be issued transferred or listed with a principal purpose to avoid the application of sec_355 certain of the grantees who are senior employees of company were limited partners in holding lp and became limited partners in new holding lp as a result of the phase i combination these grantees were party to the limited_partnership agreement of holding lp and are subject_to the limited_partnership agreement of new holding lp to each of which lp and lp also are party no grantee is a party to the stockholders agreement in his capacity as a grantee or otherwise each option will be exercisable for common_stock of new holdco only at and after the time of an initial_public_offering of the common_stock of new holdco if prior to the occurrence of an initial_public_offering there is a sale of new holdco then the option if then vested will be converted into a right to receive an amount in cash equal to the difference between the fair_market_value of the common_stock for which the option is exercisable and the strike_price of the option if prior to the occurrence of an initial_public_offering the employment of a grantee with new holdco and its subsidiaries terminates for any reason then the option if then vested will be converted into a right to receive an amount in cash equal to the difference between the fair_market_value of the common_stock for which the option is exercisable and the strike_price of the option at the time of an initial_public_offering of the stock of new holdco new holding lp will distribute to any grantee that is a partner in new holding lp his proportionate share of the stock of new holdco held by new holding lp supplemental representations distributing makes the following representations a no acquisition of stock in distributing including any predecessor or successor of such corporation occurred pursuant to a plan or series of related transactions within the meaning of sec_355 a plan that included the share exchange plr-117612-09 the lps make the following representations b except as described in the prior rulings and below no direct or indirect acquisition of stock in controlled including any predecessor or successor of such corporation occurred pursuant to a plan that included the share exchange in particular no direct or indirect acquisition of any of the following interests is or was part of a plan that includes the share exchange i an interest in any of lp lp lp lp or lp by a new or existing partner of such lp ii an interest in any partner including any overlap partner in the lps or iii an interest in any person or persons at any higher level c each of the following acquisitions of stock of controlled including any predecessor or successor is or may be part of a plan that includes the share exchange the indirect acquisitions of stock in controlled by new holding lp and the partners of new holding lp and by lp and the partners of lp resulting from the phase i combination and the phase ii combination based on the counting assumptions taking all of these acquisitions into account stock representing a or greater interest within the meaning of sec_355 in controlled including any predecessor or successor of such corporation will not be acquired by any person or persons within the meaning of sec_355 d anything that is part of a plan with the share exchange is part of a plan with internal distribution and internal distribution e anything that is not part of a plan with the share exchange is not part of a plan with internal distribution and internal distribution f the overlap partners’ minimum ownership percentage as computed by the taxpayers in accordance with the counting assumptions indirectly held in controlled was approximately aa as a result of the phase i combination and is expected to be approximately bb as a result of the phase ii combination g the identity of the p limited partners and their ownership interests in each lp has remained relatively constant throughout the period from date a to the present and is expected to remain relatively constant from the present until the completion of the phase ii combination with changes occurring from date a to the present with respect to only cc transferor limited partners and dd transferee limited partners across all five lps corresponding to changes in ownership of percentage interests in lp committed capital of ee in lp ff in lp gg in lp hh in lp and ii in lp h the shareholders of new holdco contemplate that they may ultimately exit their position in new holdco through an initial_public_offering of the stock of new holdco however there has been no agreement understanding arrangement or substantial plr-117612-09 negotiations within the meaning of sec_1_355-7 concerning any such initial_public_offering i no option was or will be issued transferred or listed with a principal purpose of avoiding the application of sec_355 j each option i is or will be issued to an employee independent_contractor or director of or to new holdco or its subsidiaries ii is not excessive in reference to the services performed iii is not transferable within the meaning of sec_1_83-3 and iv does not have a readily ascertainable value within the meaning of sec_1_83-7 supplemental rulings based solely on the information submitted and the representations made we rule as follows the phase ii combination together with the phase i combination will not affect the continuing validity of the prior rulings including that no gain_or_loss will be recognized by distributing in the share exchange under sec_361 taking into account sec_355 an option for stock of new holdco that is never exercised including an option that is converted into a right to receive cash on a sale of new holdco or on a termination of the employment of the grantee will not be taken into account under sec_355 for purposes of applying sec_1_355-7 safe_harbor vii and sec_1_355-7 safe_harbor viii to common_stock of new holdco acquired by a grantee pursuant to the exercise of an option at or after the time of an initial_public_offering the grantee will not be treated as a member of a coordinating group within the meaning of sec_1_355-7 with any of lp lp lp lp or lp caveats no opinion is expressed about the tax treatment of the combination or the proposed transactions under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the combination or the proposed transactions that are not specifically covered by the above rulings or by the prior rulings in particular no opinion is expressed regarding i whether internal distribution internal distribution and the share exchange satisfied the business_purpose requirement of sec_1_355-2 ii whether the proposed transactions are being used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 and sec_1_355-2 and iii whether internal distribution internal distribution or the share exchange are part of a plan or series of related plr-117612-09 transactions under sec_355 in addition no opinion is expressed regarding the valuation of any partner's interest for sec_355 purposes and the percentage interest that any partner had or will have directly or indirectly in any of the lps or in controlled procedural statements this ruling letter is directed only to the taxpayer requesting it sec_6110 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 ruling letter in accordance with the power_of_attorney on file in this office a copy of this ruling letter is being sent to your authorized representative sincerely mary e goode senior counsel branch office of associate chief_counsel corporate cc


t c summary opinion united_states tax_court jack h meyer petitioner v commissioner of internal revenue respondent docket no 14430-01s filed date jack h meyer pro_se susan s canavello for respondent pajak special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed unless otherwise indicated 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 procedure the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined a deficiency in petitioner’s federal_income_tax in the amount of dollar_figure after concessions by respondent and deemed concessions by petitioner this court must decide whether petitioner is entitled to deductions claimed on his schedule c profit or loss from business whether petitioner is entitled to a net_operating_loss_deduction in excess of that allowed by respondent and whether petitioner is entitled to credits for excess social_security_taxes and for medicare taxes withheld from his wages during some of the facts in this case have been stipulated and are so found petitioner resided in jefferson texas at the time he filed his petition petitioner timely filed his federal tax_return for the taxable_year return petitioner’s principal source_of_income for the taxable_year was from his activity as a cross-country truck driver during petitioner also operated a machine shop from his building located on the property of his mother petitioner attached to his return a form w-2c corrected wage and tax statement from his employer key boys inc key boys the form w-2c reported petitioner’s wages from key boys during as dollar_figure all amounts are rounded and dollar_figure as federal_income_tax withheld the form w-2c reported petitioner’s social_security_tax withheld and medicare_tax withheld for as dollar_figure and dollar_figure respectively petitioner properly reported dollar_figure of wage income and dollar_figure of federal_income_tax withheld on his return petitioner claimed the dollar_figure social_security_tax withheld and the dollar_figure medicare_tax withheld as a credit for excess social_security payments and as a credit for other payment respectively on his return respondent disallowed these purported credits petitioner filed a schedule c for his machine shop activity as part of his return during petitioner reported gross_income of zero with respect to his machine shop activity on his schedule c petitioner claimed the following deductions expense amount car and truck depreciation office expense rent or lease repairs and maintenance taxes and licenses utilities other expenses membership due sec_222 bank trucking supplies etc big_number trucking daily credit big_number uninsured damages big_number losses brought forward big_number total big_number dollar_figure big_number big_number respondent determined that all of the car and truck expenses trucking supplies expenses and uninsured damages were employee business_expenses incurred by petitioner as a cross- country truck driver during and properly deductible on schedule a itemized_deductions as miscellaneous_itemized_deductions subject_to the 2-percent adjusted_gross_income limitation petitioner mischaracterized the deduction for meals expense as a so-called trucking daily credit of dollar_figure respondent allowed a schedule a miscellaneous itemized_deduction of dollar_figure with respect to petitioner’s meals expense the remaining dollar_figure of petitioner’s deduction for meals was disallowed additionally respondent determined that dollar_figure of petitioner’s office expense deduction was attributable to charitable_contributions and properly deductible on schedule a respondent disallowed petitioner’s membership dues deduction and the dollar_figure losses brought forward deduction respondent determined that petitioner is entitled to a net_operating_loss nol carryforward from of dollar_figure and an nol carryforward from of dollar_figure respondent determined that petitioner was entitled to a dollar_figure nol deduction in respondent also allowed petitioner an additional_depreciation deduction of dollar_figure respondent allowed all of petitioner’s remaining schedule c deductions the parties agree that the correct schedule c depreciation for the taxable_year is dollar_figure dollar_figure of depreciation in addition to the dollar_figure claimed by petitioner petitioner did not offer any evidence with respect to the portion of the office expenses recharacterized as charitable_contributions or with respect to the membership expense which was disallowed these issues are deemed conceded taxpayers generally bear the burden of proving that the commissioner’s determination is incorrect rule a 290_us_111 sec_7491 does not change the burden_of_proof where a taxpayer has failed to substantiate deductions 116_tc_438 deductions are strictly a matter of legislative grace 503_us_79 292_us_435 taxpayers must substantiate claimed deductions 65_tc_87 affd per curiam 540_f2d_821 5th cir moreover taxpayers must keep sufficient records to establish the amounts of the deductions 43_tc_824 sec_1_6001-1 income_tax regs sec_162 allows a taxpayer to deduct all ordinary and necessary business_expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business if a taxpayer’s trade_or_business is that of being an employee sec_162 deductions are subject_to the limitations of sec_62 and are miscellaneous_itemized_deductions subject_to the 2-percent floor sec_67 alexander v commissioner tcmemo_1995_51 affd 72_f3d_938 1st cir no deduction is allowed for personal living or family_expenses sec_262 sec_274 limits a deduction for meals and entertainment to percent of the expenses_incurred the percentage limitation may be increased in special circumstances sec_274 petitioner did not take into account the sec_274 limitation with respect to his claimed meals expense deduction of dollar_figure petitioner incurred his trucking supplies expenses and car and truck expenses as an employee truck driver with respect to the amounts that respondent determined to be unreimbursed employee_expenses attributable to petitioner’s employment as a truck driver petitioner is entitled to deduct these expenses as miscellaneous_itemized_deductions subject_to the 2-percent floor of sec_67 sec_62 sec_67 sec_162 gonzalez v commissioner tcmemo_1997_430 additionally petitioner’s meal expenses are subject_to the limitation of sec_274 on this record we sustain respondent’s recharacterization of these schedule c deductions as schedule a miscellaneous_itemized_deductions subject_to the 2-percent adjusted_gross_income limitation we also sustain the disallowance of a portion of petitioner’s deduction for meals expenses next we consider whether petitioner is entitled to an nol deduction in excess of the amount allowed by respondent sec_172 allows a deduction for an nol which may be carried back to each of the years preceding the taxable_year of the loss and carried over to each of the taxable years following the year of the loss sec_172 generally the entire amount of the nol must first be carried to the earliest eligible carryback_year id thereafter the excess if any of the nol over the taxable_income for each of the prior taxable years to which such loss was carried must be carried to each of the succeeding years id a taxpayer may however elect to relinquish the carryback period sec_172 the election must be made in a prescribed manner by the due_date including extensions for filing the taxpayer’s return for the nol year in which the election is to be in effect id a taxpayer claiming an nol deduction for any taxable_year must file with his return for such year a statement which computed the amount of the nol deduction claimed and sets forth certain pertinent information petitioner testified that the losses brought forward deduction in the amount of dollar_figure claimed on his schedule c was the result of business_expenses that exceeded the income from prior years petitioner presented no authority in support of his position that the nol carried forward to should be included in the computation of his net_earnings_from_self-employment and we reject that contention petitioner offered several prior years tax returns and schedules which attempted to explain his claimed nol deduction a tax_return is merely a statement of the taxpayer’s claim and does not establish the truth of the matters set forth therein 71_tc_633 petitioner’s prior years tax returns do not by themselves adequately explain the claimed nol deduction additionally petitioner’s schedules also failed to substantiate his claimed nol deduction triplett v commissioner tcmemo_2001_320 affd 53_fedappx_339 6th cir for instance in calculating his nol deduction petitioner did not apply the applicable carryback rule_of sec_172 to the prior taxable years petitioner did not elect to waive the applicable carryback period with respect to any of the prior taxable years petitioner testified that the carryback requirement was something i haven’t been aware of while petitioner’s schedules attempted to explain how he computed his nol deduction his explanation makes no sense accordingly we find that petitioner is not entitled to an nol deduction under sec_172 for the taxable_year in excess of that allowed by respondent finally we must consider whether petitioner is allowed credits for excess social_security and medicare taxes withheld from his wages the federal_insurance_contributions_act fica ch 68a stat currently codified as secs imposes social_security and medicare taxes collectively referred to as fica_taxes on a portion of the wages paid to an employee under fica the employer and the employee each pay a like amount of fica_taxes based on the employee’s wages as defined in sec_3121 sec_3101 sec_3111 the employer withholds the employee’s half of the fica_taxes and remits it along with the employer’s half to the treasury_department sec_3102 sec_3121 defines wages and establishes the annual ceiling which limits the_amount_of_wages subject_to the social_security portion of the fica_taxes the taxable_wage_base applies separately to each employer 117_tc_141 affd sub nom 54_fedappx_100 3d cir thus if an employee receives wages from more than one employer the annual wage limitation does not apply to the aggregate compensation received id sec_31_3121_a_1_-1 sec_31_3306_b_1_-1 employment_tax regs sec_3502 provides that the fica_taxes imposed on the employee’s portion of his wages shall not be allowed as a deduction to the taxpayer in computing taxable_income however the employee may be eligible for a credit or refund of the excess employee portion of the fica tax that applies with respect to wages in excess of the applicable wage limitation veterinary surgical consultants p c v commissioner supra pincite sec_31_3121_a_1_-1 sec_31_3306_b_1_-1 employment_tax regs moreover this court’s jurisdiction in determining a credit of fica_taxes is expressly limited by sec_31 to fica_taxes withheld as a result of receiving wages from more than one employer petitioner worked for key boys during petitioner testified that he was an employee during petitioner did not claim that he worked for more than one employer in petitioner provided no evidence and no legal basis for claiming a tax_credit for fica_taxes on his return accordingly we sustain respondent’s determination that petitioner is not entitled to credits for excess social_security and medicare taxes withheld from the wages he earned in as an employee of key boys we have considered all other arguments made by petitioner and conclude they are either irrelevant or without merit reviewed and adopted as the report of the small_tax_case division decision will be entered under rule


internal_revenue_service index no number release date department of the treasury p o box ben franklin station washington dc person to contact telephone number refer reply to cc dom p si plr-102481-99 date date re legend decedent taxpayer will date date date date date brokerage firm brokerage account state x state x law this is in response to your letter dated date and subsequent correspondence in which you requested that we rule that a surviving spouse’s proposed disclaimer will be a qualified_disclaimer under sec_2518 of the internal_revenue_code the facts and representations are as follows decedent died testate on date a resident of state x under article iii paragraph of her will decedent designated her surviving_spouse taxpayer as sole independent executor of her will and estate prior to decedent’s death decedent and taxpayer signed an agreement with brokerage firm and opened a brokerage account with their community_property funds the specific terms of the agreement with the brokerage firm state in pertinent part as follows we agree as between ourselves and with you that the initial funds and securities deposited into the account all funds and securities deposited into the account in the future by either of us and cash and stock_dividends interest_income and all other account increments are hereby partitioned so that such funds and values will hereafter be owned one-half by each of us respectively as our separate_property both of us as between ourselves and with you agree that the entire_interest in the account including the initial deposit subsequent deposits and subsequent cash and stock_dividends interest interest_income and all other account increments are held by us as joint_tenants with rights of survivorship and not as tenants-in-common and that the entire_interest of a deceased joint tenant in the account will pass by right_of_survivorship in the event of the death of either of us the entire_interest in the account shall be vested in the survivor on the same terms and conditions as theretofore held without in any manner releasing the decedent’s estate from any liability it may have hereunder on date brokerage firm in accordance with the procedure which had been followed before decedent’s death issued a check for the income earned on the account taxpayer deposited this check in the joint bank account of decedent and taxpayer taxpayer subsequently withdrew one-half of this amount and deposited it in the bank account for decedent’s estate which was opened on date on date taxpayer upon the request of brokerage firm authorized brokerage firm to transfer the assets in the brokerage account to an account held solely in taxpayer’s name on date decedent’s will was admitted for probate and taxpayer was granted letters testamentary as executor of the estate on the same date taxpayer as executor opened a bank account in the name of decedent’s estate taxpayer deposited one-half of the amount of all subsequent income checks issued by brokerage firm into this account also on date taxpayer as executor requested brokerage firm to open a separate_account in the name of decedent’s estate on date one-half of each security held in the original brokerage account was transferred to a separate_account in the name of decedent’s estate taxpayer proposes to disclaim decedent’s one-half interest in the brokerage account which passed to him by right_of_survivorship the disclaimed interest will then pass pursuant to the terms of decedent’s will to the residuary beneficiaries sec_2046 of the internal_revenue_code provides that disclaimers of property interests passing upon death are treated as provided in sec_2518 sec_2518 provides that if a person makes a qualified_disclaimer with respect to any interest in property the disclaimed interest will be treated for federal estate gift and generation-skipping_transfer_tax purposes as if it had never been transferred to the disclaimant sec_2518 defines the term qualified_disclaimer to mean an irrevocable and unqualified refusal by a person to accept an interest in property but only if such refusal is in writing the disclaimer is received by the transferor of the interest his legal_representative or the holder of the legal_title to the property to which the interest relates not later than the date which is months after the later of the date on which the transfer creating the interest in such person is made or the day on which such person attains age the person disclaiming the interest has not accepted the interest or any of its benefits and as a result of such refusal the interest passes without any direction on the part of the person making the disclaimer and passes either to the spouse of the decedent or to a person other than the person making the disclaimer under sec_25_2518-1 of the gift_tax regulations if a qualified_disclaimer is made the property is treated for federal gift estate and generation-skipping_transfer_tax purposes as passing directly from the transferor and not from the disclaimant to the person entitled to receive the property as a result of the disclaimer thus the disclaimant is not treated as making a gift sec_25_2518-2 provides a special rule for joint bank brokerage and other investment accounts established between spouses or between persons other than husband and wife it states that in the case of a transfer to a joint bank brokerage or other investment account if a transferor may unilaterally regain the transferor’s own contributions to the account without the consent of the other cotenant such that the transfer is not a completed_gift under sec_25_2511-1 the transfer creating the survivor’s interest in the decedent’s share of the account occurs on the death of the deceased cotenant accordingly if a surviving joint tenant desires to make a qualified_disclaimer with respect to funds contributed by a deceased cotenant the disclaimer must be made within months of the cotenant’s death the surviving joint tenant may not disclaim any portion of the joint account attributable to consideration furnished by that surviving joint tenant sec_25_2518-2 states that a qualified_disclaimer cannot be made with respect to an interest in property if the disclaimant has accepted the interest or any of its benefits expressly or impliedly prior to making the disclaimer acceptance is manifested by an affirmative act which is consistent with ownership of the interest in property acts indicative of acceptance include using the property or the interest in property accepting dividends interest or rents from the property and directing others to act with respect to the property or interest in property however merely taking delivery of an instrument of title without more does not constitute acceptance moreover a disclaimant is not considered to have accepted property merely because under applicable local law title to the property vests immediately in the disclaimant upon the death of a decedent sec_25_2518-2 states that if a beneficiary who disclaims an interest in property is also a fiduciary actions taken by such person in the exercise of fiduciary powers to preserve or maintain the disclaimed property shall not be treated as an acceptance of such property or any of its benefits under state x law a joint account belongs during the lifetime of all parties to the parties in proportion to the net contributions by each to the sums on deposit unless there is clear_and_convincing evidence of a different intent in addition sums remaining on deposit at the death of a party to a joint account belong to the surviving party or parties against the estate of the decedent if by a written_agreement signed by the party who dies the interest of such deceased party is made to survive to the surviving party or parties in the instant case taxpayer proposes to file with the probate_court and deliver to himself as executor within months of decedent’s death a writing by which he will irrevocably disclaim his right to decedent’s one-half interest in the brokerage account the proposed disclaimer thus will satisfy the requirements of sec_2518 and as a result of taxpayer’s disclaimer the disclaimed assets will pass pursuant to decedent’s will to a residuary_trust created under the will taxpayer is the sole income_beneficiary of the residuary_trust but will cease to have any interest in the trust upon the occurrence of certain events including his remarriage or death thus the disclaimed interest will pass in accordance with the requirement of sec_2518 we have considered whether two acts of the taxpayer either alone or together constitute an acceptance of the disclaimed interest or any of its benefits within the meaning of sec_2518 and sec_25_2518-2 under the standard procedures of the brokerage firm upon the death of one joint tenant assets held in joint accounts are transferred to accounts held solely by the surviving joint tenant although taxpayer authorized the brokerage firm to transfer the assets in the joint account to an account held solely in his name at no time after decedent’s death has taxpayer drawn on any securities or funds from the account in addition taxpayer has not otherwise asserted any control_over the property under the facts and circumstances in this case taxpayer’s authorization to transfer the joint account to an account held solely in his name is not considered acceptance of the decedent’s share of the joint account or its benefits for purposes of sec_2518 taxpayer received the first check for the income earned on the brokerage account approximately days after decedent’s date of death taxpayer deposited this income distribution in the joint bank account of decedent and taxpayer taxpayer represents that he never used any of the funds which comprised decedent’s share of the joint bank account further once taxpayer was appointed executor of decedent’s estate he created a bank account in the name of decedent’s estate and transferred decedent’s share of the joint bank account into this estate bank account under the facts and circumstances in this case neither taxpayer’s receiving the income earned on the brokerage account nor depositing the first check that taxpayer received after the decedent’s date of death into the joint bank account of decedent and taxpayer constitutes acceptance of decedent’s interest in the brokerage account or any of its benefits under sec_2518 based on the facts submitted and representations made we conclude that the proposed disclaimer described above with respect to the taxpayer’s one-half survivorship interest in the jointly-held brokerage account if made in writing within months of decedent’s date of death will be a qualified_disclaimer for purposes of sec_2518 except as specifically ruled herein we express no opinion as to the consequences of this transaction under the cited provisions of the code or under any other provisions of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely industries assistant chief_counsel passthroughs and special katherine a mellody senior technician reviewer by branch enclosure copy for sec_6110 purposes


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa apjp b02 postf-142432-05 uilc date february to area_counsel tege pacific coast area sf from brinton t warren special counsel administrative provisions judicial practice division procedure administration subject application of sec_6700 penalty with respect to various participants in tax- exempt bond issuance this chief_counsel_advice responds to your assistance request dated date in accordance with sec_6110 chief_counsel_advice may not be used or cited as precedent issue whether the service can impose the sec_6700 penalty against an individual participating in a bond transaction when the individual gave information to another participant about a material matter when the individual knows or has reason to know that the information is false or fraudulent and the other participant who also knows or has reason to know that the statement is false will use such false information to make or furnish a subsequent false or fraudulent statement regarding the tax benefits of the transaction conclusion yes the service can impose the penalty on a participant to a bond transaction that made or furnished or caused to be made or furnished a false or fraudulent statement regarding the tax_benefit of the transaction for purposes of sec_6700 the postf-142432-05 participant makes or furnishes or causes another person to make or furnish a false or fraudulent statement regarding the tax benefits of the transaction if the participant who provided false or fraudulent material information or withheld information that necessitated a false conclusion was sufficiently involved in the transaction and knew another participant would use the information or its absence to make or furnish a subsequent false or fraudulent statement regarding the tax benefits of the transaction facts the facts are fully set forth in the incoming memorandum in summary the matters involve the issue of obligations bonds issued on behalf of a political_subdivision of a state various participants may be involved in such bond offerings you have asked us to accept for purposes of this memorandum that some of the participants to the bond issue made false statements regarding the tax benefits of the transaction to other participants who then used those statements to make false statements themselves regarding the tax benefits of the transaction you have asked us to accept for purposes of this memorandum that these participants were sufficiently involved in the transaction and knew or had reason to know that their statements were false and in the case of some of the participants knew another participant would use the information to make or furnish a subsequent false or fraudulent statement regarding the tax benefits of the transaction law and analysis sec_6700 of the internal_revenue_code imposes a penalty upon persons who promote abusive tax_shelters sec_6700 provides in pertinent part that the penalty applies to any person who a organizes or assists in the organization of - i a partnership or other entity ii any investment plan or arrangement or iii any other plan or arrangement or b participates directly or indirectly in the sale of any interest in an entity or plan or arrangement referred to in paragraph a and makes or furnishes or causes another person to make or furnish in connection with such organization or sale - a a statement with respect to the allowability of any deduction or credit the excludability of any income or the securing of any other tax_benefit by reason of holding an interest in the entity or participating in the plan or arrangement which the person knows or has reason to know is false or fraudulent as to any material matter or b a gross_valuation_overstatement as to any material matter generally the penalty is the lesser_of dollar_figure or of the gross_income derived or to be derived from the activity by the person on which the penalty is imposed however if postf-142432-05 the penalty is imposed with respect to an activity that involves a statement described in sec_6700 then the penalty i sec_50 of the gross_income derived or to be derived from the activity by the person on which the penalty is imposed sec_6700 flush language courts have recognized that a separate sec_6700 penalty applies to each separate legal entity that engages in the conduct sec_6700 prohibits see eg 766_fsupp_1248 e d n y aff'd in part and rev'd in part 989_f2d_1290 2d cir whether the penalty should be asserted in a particular case is a highly factual determination and can only be made on a case by case basis the service bears the burden_of_proof with respect to each element of sec_6700 sec_6702 the burden_of_proof must be met by the preponderance of evidence see 67_f3d_469 2d cir there is no period of limitations for assessment of the penalty see cappozzi v united_states 980_f2d_872 2d cir 977_f2d_1296 8th cir 908_f2d_18 5th cir at issue here are bond offerings where participants to the bond offering either conveyed facts that were necessary for another to represent or represented themselves that interest_income earned with respect to the bonds may be excluded from the investors’ gross_income pursuant to sec_103 congress has stated that the terms investment plan or arrangement and other plan or arrangement include obligations issued by or on behalf of state or local governments that are represented as those described in sec_103 h_r rep no 101st cong 1st sess pincite therefore the bonds are an arrangement with respect to which the service may impose a penalty under sec_6700 against any person who directly or indirectly organized or assisted in the organization of the bonds or participated in the sale of the bonds sec_7701 defines person as an individual a_trust estate partnership_association company or corporation in the context of a bond offering the term person includes but is not limited to bond counsel investment bankers issuers conduit borrowers financial advisors feasibility consultants engineers and counsel to any of those participants h_r rep no pincite in addition congress clarified that the sec_6700 penalty could apply to other persons who are involved in the organization or sale of such state_or_local_government bonds and know or have reason to know that their opinions offering documents reports or other statements or materials on which they relied in making such statements are false or fraudulent as to any matter material to the tax exemption of the interest on the bonds a person who makes a statement facilitating the issuance or sale of state_or_local_government bonds including a sale occurring subsequent to the issuance of the bonds is involved in the organization or sale of such bonds postf-142432-05 h_r rep no pincite thus it appears congress specifically intended that all the various participants in a bond offering be within the definition of person for purposes of sec_6700 provided they were involved in the organization or sale of the bonds and they knew or should have known the information was false or fraudulent as to any matter material to the tax exemption of the interest on the bonds organization or sale of the bonds would occur if a participant made a statement that facilitated the issuance of the bonds if participants knew their opinion offering document report or statement was false with respect to a material matter then the service could potentially impose a penalty under sec_6700 against those participants so long as the other requirements of sec_6700 were met a statement can be either written or oral 761_f2d_1056 5th cir there are two types of statements that fall within the statutory bar of sec_6700 statements directly addressing the availability of tax benefits and those concerning factual matters that are relevant to the availability of tax benefits see buttorff supra unites states v petrelli 704_fsupp_122 n d ohio statements in the tax-exempt_bond area include opinions offering documents reports or other statements or materials on which they relied in making such statements that are false or fraudulent as to any matter material to the tax exemption of the interest on the bonds h_r rep no pincite emphasis added thus the term statement includes information that is false or fraudulent as to any matter material to the tax exemption of the interest on the bonds that other participants such as special tax counsel and private_placement agents use to make statements such information is considered a statement and the service can impose the sec_6700 penalty against the person who made or furnished or caused another to make or furnish the statement if the statement was false or fraudulent with respect to a material matter a matter is material if it has a substantial impact on the decision making process of a reasonably prudent investor buttorff f 2d pincite the service does not need to prove actual reliance by the investor id in bond offerings statements concerning the exemption of interest on the bonds or facts relevant to that issue are clearly material as a key factor for investors is whether the interest will be exempt from taxation in addition to actually making statements regarding the tax benefits of a transaction or facts necessary to determine the tax benefits a person may be liable for the penalty if they furnished such statements thus the service might be able to impose the penalty against participants who provided such statements to the investors for example participants who disseminate false statements and knew they were false as part of their activities in organizing and promoting the bond offering such as a program advisor may have furnished false statements see 78_fsupp2d_856 e d wis aff'd 228_f3d_804 7th cir cert_denied 533_us_902 121_sct_2242 promoters who sold an informational program which contained false statements concerning tax benefits that provided instructions for postf-142432-05 avoiding federal income_taxation were considered to have furnished false statements to the purchasers of the program by the very act of selling them the program whether a person knows or has reason to know that such person's statement is false or fraudulent as to any material matter depends upon that person's role in the organization or sale h_r rep no pincite in addition the courts often look to three factors to determine whether a person had the requisite knowledge to violate sec_6700 the extent of the person's reliance on knowledgeable professionals the person's level of sophistication and education the person's familiarity with tax matters see eg 202_f3d_1093 9th cir participants can rely on matters of fact or material provided by other participants necessary to make their own statements or draw their own conclusions unless they have actual knowledge or a reason to know of its inaccuracy or the statement is not credible or reasonable on its face h_r rep no pincite in the facts as presented the participants identified appear involved enough that the transaction would not have happened without their involvement in addition these participants helped prepare or supervise the preparation of statements or documents concerning the transaction and the tax benefits of the transaction that were provided to investors these participants knew their statements were false and that the other participants using those statements knew or had reason to know they were false if the participant who provided the false or fraudulent material information or withheld information that necessitated a false conclusion was extensively involved in the transaction and knew another participant would use the information or its absence to make or furnish a statement regarding the tax benefits of the transaction then that participant made or furnished a statement with respect to the tax benefits of the transaction that was false with respect to a material matter consequently the service could impose the sec_6700 penalty against that participant in addition as the participants who used the information or its absence to make or furnish their own subsequent statements regarding the tax benefits of the transaction knew the information or its absence was false or necessitated a false conclusion the service also could impose the sec_6700 penalty against those participants as discussed above the service may impose the sec_6700 penalty on the person who actually made or furnished a false or fraudulent statement concerning the tax benefits of the transaction or against a person who caused such statement to be made sec_6700 does not limit by its terms the particular means by which a person may cause another person to make or furnish a false statement nor the degree of attenuation between these two people's actions section a of the omnibus budget reconciliation act obra of pub_l_no amended sec_6700 by inserting directly or indirectly after participates in paragraph b and by inserting or causes another person to make or furnish after makes or furnishes in paragraph the legislative_history states that the amendments made in were made to clarify that the penalty applies to direct and indirect actions h_r rep no pincite as even the indirect actions of participants may subject them to the postf-142432-05 sec_6700 penalty participants cannot try to avoid the penalty by using other participants to make false statements regarding the tax benefits of the transaction for example an individual was considered to have caused others to make fraudulent statements due to the individual’s high level of involvement in the transaction where the individual was involved in the management of an entity that participated in a plan or arrangement subject_to the sec_6700 penalty estate pres servs f 3d pincite the court also considered the fact that the individual voted to approve the materials distributed to investors which contained false statements concerning the tax benefits of the transaction id in the facts presented the participants were all sufficiently involved in making the bond offering and the preparation or supervision of documents necessary for the bond offering participants who made or furnished statements regarding the tax benefits of the transaction or facts necessary to determine the tax benefits of the transaction may have caused other participants to make such statements by providing them with or withholding information they knew the other participants needed and would use to make their statements regarding the transaction while whether the service may assert the sec_6700 penalty against participants in the bond offering depends on their role in a bond offering the service should conduct thorough examinations of the activities of the participants in question in order to determine whether the penalty should be asserted the question of whether the penalty should be asserted is a highly factual determination that will vary from case to case we will be pleased to continue to work closely with you when developing these cases 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 if 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