internal_revenue_service number release date index number ------------------------------------------- ------------------------------- --------------------------------------------- ------------------- ----------------------------------------- ------------------------------ ----------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-150500-04 date date legend legend x -------------------- ----------------------- ----------- ----------------------- country d dear -------------- this letter responds to the letter dated date and related correspondence written on behalf of x requesting an extension of time under ' and ' of the procedure and administration regulations to file an entity classification election facts the information submitted discloses that x was organized as an unlimited liability company under the laws of country on d x intended to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes as of d however form_8832 entity classification election was not filed sec_301_7701-3 provides that a business_entity that is not classified as a corporation under ' b or an eligible_entity can law and analysis plr-150500-04 elect its classification for federal tax purposes elections are necessary only when an eligible_entity does not want to be classified under the default classification or when an eligible_entity chooses to change its classification sec_301_7701-3 provides that except for certain existing entities described in sec_301_7701-3 unless a foreign eligible_entity elects otherwise the entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single member that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under ' b by filing form_8832 with the appropriate service_center under ' c iii this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the federal_register commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-1 through provide the standards the conclusion based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of and and therefore it is granted an extension of time of sixty days from the date of this letter to file a form_8832 to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes effective d a copy of this letter should be attached to the election a copy is enclosed for that purpose plr-150500-04 except as specifically set forth above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being mailed to your authorized representative sincerely s heather c maloy heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purposes


department of the treasury internal revenue servic washington d c tax_exempt_and_government_entities_division s i n - date may -7 contact person identification_number contact number ‘ eo employer_identification_number legend x y z dear this is in response to a letter from x’s ‘trust’ authorized representative who has requested certain rulings relating to the tax consequences of a proposed transaction the information submitted shows that the trust based on a determination_letter dated date is exempt from federal_income_tax under sec_501 of the internal_revenue_code the medical plan is a component of the trust the medical plan and the trust are sponsored by and related to y y is a z nonprofit corporation and the state's largest trade_association devoted exclusively to the representation of commercial banks y provides a variety of services to its members including certain welfare_benefit programs the medical plan provided medical coverage to eligible employees of participating y members through active self-funded plan to an inactive pian and no longer receives premium payments from y members commencing date medical coverage for participating y members was and is provided through third-party insurance the medical plan changed from an on approximately dollar_figure emains in the trust related to the medical plan and no further medical claims are anticipated the trust contains three other component plans the dental plan the life plan and the long-term disability plan at date the dental plan had participants and the long-term disability plan had participants the life plan had varticipants these participants are the employees of the y member banks throughout the state of z and only a small fraction are officers shareholders or highly compensated employees the trustees of the trust and y propose terminating the inactive medical plan and merging the remaining assets of the medical plan into the trust’s remaining plans the merging of assets would be divided equally among the trust's remaining plans sec_501 of the code provides for the exemption from federal_income_tax of voluntary employees’ beneficiary associations providing for the payment of life sick accident or other_benefits to the members of such association or their dependents or designated beneficiaries if no part of the net_earnings of such association inures other than through such payments to the benefit of any private_shareholder_or_individual sec_1_501_c_9_-4 of the income_tax regulations provides in part that whether prohibited inurement has occurred is a question to be determined with regard to all of the facts and circumstances taking into account the guidelines set forth in this section sec_1_501_c_9_-4 of the regulations provides that it will not constitute prohibited inurement if on termination of a plan funded through a veba any assets remaining after satisfying all liabilities to existing plan beneficiaries are applied to provide life sick accident or other appropriate welfare benefits pursuant to criteria that do not provide for disproportionate benefits to officers shareholders or highly compensated employees sec_4976 of the code imposes an excise_tax on an employer equal to of any disqualified_benefit provided by an employer-maintained welfare_benefit_fund sec_4976 of the code defines a disqualified_benefit to include any portion of a welfare fund reverting to the benefit of the employer the trust has requested a ruling that the termination of the medical plan and transfer of its assets into its other three component plans will not adversely impact the trust’s tax-exempt status or constitute a disqualified_benefit providing an impermissible reversion of assets based on a provision adopted by the trustees the trustees have the authority to determine the disposition of surplus assets upon medical plan termination provided that the surplus is used to provide benefits allowable under a_trust governed by sec_501 of the code assets transferred into the trust will be used to continue to provide permissible c benefits for employees of participating y members therefore the proposed merger will not constitute impermissible inurement under sec_501 of the code because the surplus assets will be used to provide permissible benefits on a nondiscriminatory basis under the component plans funded through the trust accordingly the termination and transfer of surplus will not adversely affect the trust’s tax-exempt status under sec_501 in addition the transfer of the surplus to the trust will not result in a reversion to an employer and will not be a disqualified_benefit within the meaning of sec_4976 of the code accordingly we rule as follows the transfer of the surplus into the trust will not adversely affect the tax-exempt status of the trust the transfer of the surplus from the medical plan to the trust will not be subject_to the excise_tax under sec_4976 of the code this ruling is directed only to the organization that 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 in this office a copy of this letter is being sent to trust’s authorized representative a copy of this letter should be kept in trust’s permanent records if there are any questions about this ruling please contact the person whose name and telephone are shown in the heading of this letter sincerely robert harper jr manager exempt_organizations technical group


t c memo united_states tax_court walter kowsh petitioner v commissioner of internal revenue respondent docket no filed date walter kowsh pro_se michelle l maniscalco for respondent memorandum findings_of_fact and opinion kroupa judge respondent determined an dollar_figure deficiency in petitioner’s income_tax for and a dollar_figure addition_to_tax for failure_to_file a return timely under sec_6651 a dollar_figure addition_to_tax for failure_to_pay_tax timely under sec_6651 and a dollar_figure addition_to_tax for failure to pay estimated_tax under sec_6654 after 1all section references are to the internal_revenue_code in effect for the year at issue unless otherwise specified concessions the remaining issues for decision3 are whether petitioner’s depression caused by his wife’s untimely death at age and the date attacks september attacks on the world trade center qualifies as a disability for purposes of the 10-percent additional tax on his pension distribution under sec_72 and qualifies as reasonable_cause for his failure_to_file a timely return timely pay taxes and pay estimated_tax we hold that petitioner’s depression does not qualify as a disability under sec_72 or as reasonable_cause for purposes of the additions to tax findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the accompanying exhibits are incorporated by this reference petitioner resided in new york at the time he filed the petition background petitioner’s wife died an untimely death from thyroid cancer at age in date leaving petitioner responsible for her aged mother and petitioner’s two teenage children petitioner managed six employees overseeing day-to-day operation of a large 2the parties stipulated after petitioner eventually filed the return for to petitioner’s items of income loss exemptions credits and self-employment_tax 3petitioner claimed a dollar_figure deduction for tuition and related fees to send his children to catholic school petitioner failed to substantiate these expenses at trial however in addition petitioner admits that he paid the amounts to a private middle or high school not to a post-secondary institution see sec_25a sec_222 we therefore find that petitioner is not entitled to the deduction computer system at deutsche bank at the time his wife died and at the time of the september attacks on the world trade center near the deutsche bank building petitioner lost a number of friends and neighbors in the september attacks including three or four people who had attended his wife’s funeral by date petitioner’s depression from his wife’s death and the september attacks became so severe that petitioner could no longer go to work petitioner also suffered from sleep apnea that caused him to have narcoleptic episodes and fall asleep the human resource department at deutsche bank instructed petitioner to seek aid through the bank’s employee assistance program which he did petitioner was given medication for depression and anxiety attacks petitioner testified that he took wellbutrin lexapro ativan and paxil commonly known antidepressants and or anti anxiety medications but petitioner was unable to specify when he took any of the medications moreover petitioner failed to provide any affidavits or testimony from any medical professionals regarding any illnesses petitioner failed to provide any reports or letters from doctors despite numerous requests from respondent in addition his doctor was unwilling to provide any certification that petitioner was disabled petitioner received both short-term and long-term disability payments through his disability insurance_policy with a private insurer petitioner provided no evidence that he applied for or received social_security disability benefits petitioner did not file an income_tax return for which was due on date respondent prepared a substitute for return with information from petitioner’s third-party payors and issued a deficiency_notice to petitioner petitioner timely filed a petition and petitioner subsequently in date prepared a proposed return we must decide his liability for the sec_72 additional tax and the additions to tax under sec_6651 and and sec_6654 petitioner argues that his depression qualifies as a disability for purposes of the 10-percent additional tax on his pension distribution under sec_72 and qualifies as reasonable_cause for his failure_to_file a return timely to pay taxes timely and to pay estimated_tax opinion we are asked to decide whether petitioner’s depression constituted a disability to absolve petitioner from the percent additional tax on an early distribution under sec_72 and whether such disability constitutes reasonable_cause to absolve petitioner from the additions to tax respondent stipulates that petitioner received short-term and long-term disability payments through an insurance carrier respondent argues however that disability for insurance purposes does not establish that petitioner was disabled within the meaning of sec_72 t or for purposes of establishing reasonable_cause 4petitioner concedes that he received a dollar_figure distribution from a qualified_retirement_plan during the year at issue continued for his failure_to_file a return to pay the tax due and to pay the estimated_tax we agree early distribution from pension account we first address whether petitioner is liable for the percent additional tax on early distributions under sec_72 sec_72 imposes a 10-percent additional tax on the amount of an early distribution from a qualified retirement account sec_72 provides for certain exceptions to the imposition of this 10-percent additional tax one such exception is a distribution attributable to an individual’s being disabled sec_72 an individual is disabled for this purpose if he or she is unable to engage in any substantial_gainful_activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or to be of long-continued and indefinite duration sec_72 an individual seeking to benefit from the exception must provide proof of his or her disability id petitioner argues that the depression he suffered due to his wife’s early death and the september attacks caused him to be totally disabled petitioner offered no documentary_evidence to corroborate his depression or anxiety however in addition no doctors testified nor did petitioner provide any affidavits from medical professionals no doctor was willing to certify continued petitioner fails to dispute that if the distribution was not attributable to his being disabled within the meaning of sec_72 he qualifies for none of the other exceptions of sec_72 that petitioner was disabled we find that petitioner’s uncorroborated testimony does not establish that he was disabled for sec_72 purposes moreover we agree with respondent that qualifying for disability insurance is not dispositive in determining whether an individual is disabled for purposes of the 10-percent additional tax under sec_72 thus petitioner is liable for the 10-percent additional tax under sec_72 that applies to the pension distribution petitioner received in additions to tax for failure_to_file and pay timely we next address whether petitioner’s failure_to_file a timely return and to timely pay the tax was due to reasonable_cause petitioner admits that he failed to file the return timely and pay the correct amount of tax petitioner argues however that his depression and sleep apnea constitute reasonable_cause sec_6651 provides for an addition_to_tax for failure to timely file a tax_return on or before the specified filing_date and sec_6651 provides for an addition_to_tax for failure to timely pay the tax due the additions to tax under sec_6651 do not apply however if the failure to timely file or timely pay is due to reasonable_cause and not to willful neglect 469_us_241 petitioner has the burden_of_proof with respect to defenses to the additions to tax under sec_6651 see 116_tc_438 to satisfy this burden a taxpayer must show that he or she exercised ordinary business care and prudence but was nevertheless unable to file the return within the prescribed time 92_tc_899 sec_301_6651-1 proced admin regs a taxpayer may have reasonable_cause for failure to timely file a return where the taxpayer experiences an illness or incapacity that prevents the taxpayer from filing his or her return see eg 46_bta_578 carnahan v commissioner tcmemo_1994_163 affd without published opinion 70_f3d_637 d c cir jones v commissioner tcmemo_1988_542 harris v commissioner tcmemo_1969_49 we do not find that petitioner’s depression and sleep apnea incapacitated him to such an extent that he was unable to file the return and pay the proper amount of taxes for petitioner offered no evidence to corroborate his accounts of depression or anxiety no doctors testified nor did petitioner provide any affidavits from medical professionals petitioner failed to meet his burden of proving 5the commissioner bears the burden of proving with respect to sec_6651 that he prepared a substitute for return that properly estimated the amount of tax due and fulfilled the requirements of sec_6020 127_tc_200 affd 521_f3d_1289 10th cir both parties concede that respondent has met his burden the commissioner has the burden to produce evidence that the return was filed late in respect of sec_6651 116_tc_438 petitioner admits that he failed to file the return timely reasonable_cause for his failure to timely file the return and pay the proper amount of taxes moreover petitioner’s failure to timely file continued for years beyond the due_date of the return we have held in similar situations that there is no reasonable_cause for a delay in filing beyond the term of the taxpayer’s illness see eg ramirez v commissioner tcmemo_2005_179 black v commissioner tcmemo_2002_307 affd 94_fedappx_968 3d cir wright v commissioner tcmemo_1998_224 petitioner’s depression and anxiety admittedly affected him during a portion of and likely for some time thereafter the return for remained unfiled however for almost years from its due_date and was filed only in preparation for trial in date we find that petitioner’s illness does not constitute reasonable_cause for his failure to timely file a return and pay the proper amount of taxes in sum petitioner has not shown that his failure to timely file an income_tax return for and pay the proper amount of tax was due to reasonable_cause and not to willful neglect thus we find that petitioner is liable for the additions to tax under sec_6651 and estimated_tax addition respondent also determined petitioner was liable for an addition_to_tax under sec_6654 for failure to make estimated_tax payments for sec_6654 imposes an addition_to_tax where a taxpayer underpays estimated_tax the estimated_tax addition is mandatory unless a statutory exception in sec_6654 applies see 91_tc_874 75_tc_1 see also 33_tc_1071 reasonable_cause and lack of willful neglect are not relevant considerations for estimated_tax addition notwithstanding the lack of reasonable_cause respondent must produce evidence sufficient for us to conclude that petitioner had a required_annual_payment under sec_6654 relating to tax_liability for the preceding tax_year to determine whether one of the exceptions applies see 127_tc_200 affd 521_f3d_1289 10th cir the record reflects that petitioner had dollar_figure withheld towards his tax_liability for and petitioner made no estimated_tax payments for the record fails to reflect however whether petitioner filed a return for the preceeding tax_year and if so what petitioner’s liability was for that year we therefore conclude that respondent failed to produce the requisite evidence and thus petitioner is not liable for the addition_to_tax under sec_6654 for underpaying estimated_tax for to reflect the foregoing and the concessions of the parties decision will be entered under rule


t c summary opinion united_states tax_court michael j kulzer and jan k bielman-kulzer petitioners v commissioner of internal revenue respondent docket no 20730-05s filed date michael j kulzer pro_se monica dianne gingras for respondent whalen judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case all 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 unless otherwise indicated this case involves petitioners' petition for redetermination of the deficiency of dollar_figure determined in their federal_income_tax for tax_year the sole issue is whether petitioners are liable for the 10-percent additional tax on early distributions from qualified_retirement_plans imposed by sec_72 with respect to a distribution of dollar_figure from an individual_retirement_account ira held by michael j kulzer petitioner in the orange county teachers federal credit_union hereinafter referred to as octfcu the parties have stipulated some of the facts in this case and the stipulation of facts filed by the parties is hereby incorporated in this opinion petitioners are husband and wife at the time they filed their petition petitioners resided in california for both taxable_year sec_2001 and sec_2002 petitioners filed a joint_return pursuant to sec_6013 petitioners' return for includes a schedule c profit or loss from business for a business operated by petitioner called income_tax preparation petitioners' return for includes a schedule c-ez net profit from business for the same income_tax preparation business petitioners' return for reports taxable pensions and annuities of dollar_figure on line 16b this is the distribution at issue by the end of petitioner who was born in had not attained age and there is nothing in petitioners' return to suggest that the distribution is not subject_to the additional tax imposed by sec_72 for example no form_5329 additional taxes on qualified_plans including iras and other tax-favored accounts is attached to the return claiming that the distribution is eligible for any of the exceptions to the tax enumerated in sec_72 accordingly respondent issued a notice_of_deficiency to petitioners in which he determined that the amount reported on line 16b of petitioners' return dollar_figure was an early distribution from a qualified_retirement_plan which is subject_to the 10-percent additional tax imposed by sec_72 during the year before the year in issue petitioners had received a distribution of dollar_figure from petitioner's ira in the octfcu during that year they had also received four distributions totaling dollar_figure from one or more retirement accounts with sbc communication inc hereinafter referred to as sbc of dollar_figure dollar_figure dollar_figure and dollar_figure the last distribution of dollar_figure was the balance of a loan from petitioner's sec_401 account that was not repaid within days of the termination of petitioner's employment with sbc attached to petitioners' return are three forms 1099-r distributions from pensions annuities retirement or profit- sharing plans iras insurance contracts etc those forms r which were prepared by petitioner show the following distributions to petitioner distribution octfcu sbc sbc 401k total amount dollar_figure big_number big_number big_number petitioners' return for reports total ira_distributions of dollar_figure on line 15b and total pensions and annuities of dollar_figure on line 16b the latter amount comprises the distributions from petitioner's retirement account or accounts with sbc viz dollar_figure plus dollar_figure attached to petitioners' return is internal_revenue_service form_5329 additional taxes on qualified_plans including iras and other tax-favored accounts part i of that form dealing with the tax on early distributions reports that early distributions of dollar_figure are included in petitioners' gross_income of that amount form_5329 reports that dollar_figure is subject_to the additional tax under sec_72 and dollar_figure is not subject_to the additional tax on account of an appropriate exception the exception claimed on the form is for distributions made as part of a series of substantially_equal_periodic_payments made at least annually for your life or life expectancy or the joint lives or joint life expectancies of you and your designated_beneficiary if from an employer plan payments must begin after separation_from_service during petitioners received a distribution of dollar_figure from octfcu petitioner claims that petitioners retained dollar_figure of that amount and rolled over the remainder dollar_figure to another retirement account during petitioners received a distribution of dollar_figure from pershing llc mr kulzer claims that petitioners retained dollar_figure of that amount and rolled over the remainder dollar_figure to another retirement account finally during petitioners received a distribution of dollar_figure but the record does not disclose the payor of that distribution as stated above the sole issue is whether the distribution of dollar_figure from petitioner's ira account with octfcu which is reported on petitioners' return for taxable_year is subject_to the 10-percent additional tax imposed by sec_72 on early distributions from qualified_retirement_plans petitioners argue that the distribution is one of a series of substantially equal annual payments made for petitioner's life expectancy and as such is not subject_to the additional tax pursuant to sec_72 petitioners concede that if the subject distribution does not qualify for the exception provided by sec_72 then it is subject_to the 10-percent additional tax on early distributions imposed by sec_72 initially the internal_revenue_service promulgated guidance concerning the exception for substantially_equal_periodic_payments in notice_89_25 q a-12 1989_1_cb_662 that notice states that payments will be considered to be substantially_equal_periodic_payments if the annual payment is determined by one of three methods under a method that would be acceptable for purposes of calculating the minimum distribution required under sec_401 by amortizing the taxpayer's account balance over the life expectancy of the account owner or the joint life and last survivor expectancy of the account owner and beneficiary at an interest rate that does not exceed a reasonable interest rate on the date payments commence or by dividing the taxpayer's account balance by an annuity factor the present_value of an annuity of dollar_figure per year beginning at the taxpayer's age attained in the first distribution year and continuing for the life of the taxpayer with such annuity factors derived using a reasonable mortality_table and using an interest rate that does not exceed a reasonable interest rate on the date payments commence notice_89_25 supra also refers to the so-called recapture rule set forth in sec_72 which applies if the series of periodic_payments is subsequently modified other than by death or disability within years of the date of the first payment or if later before the employee attains age in that event sec_72 provides that the exception to the percent additional tax set forth in sec_72 does not apply and the taxpayer's tax for the year of the modification shall be increased by an amount which is equal to the amount which would have been imposed plus interest for the deferred period in revrul_2002_62 2002_2_cb_710 the internal_revenue_service promulgated further guidance about what constitutes a series of substantially_equal_periodic_payments within the meaning of sec_72 it states that payments will be considered to be substantially_equal_periodic_payments if they are made in accordance with one of the three methods described in notice_89_25 q a-12 the required_minimum_distribution method the fixed amortization_method or the fixed annuitization method revrul_2002_62 sec d c b pincite describes how to determine the account balance used to determine periodic_payments as follows d account balance the account balance that is used to determine payments must be determined in a reasonable manner based on the facts and circumstances for example for an ira with daily valuations that made its first distribution on date it would be reasonable to determine the yearly account balance when using the required_minimum_distribution method based on the value of the ira from date to date for subsequent years under the required_minimum_distribution method it would be reasonable to use the value either on december of the prior year or on a date within a reasonable period before that year's distribution revrul_2002_62 sec e c b pincite also discusses the effect of changes to account balances as follows e changes to account balance under all three methods substantially_equal_periodic_payments are calculated with respect to an account balance as of the first valuation_date selected in paragraph d above thus a modification to the series of payments will occur if after such date there is i any addition to the account balance other than gains or losses ii any nontaxable transfer of a portion of the account balance to another retirement_plan or iii a rollover by the taxpayer of the amount received resulting in such amount not being taxable emphasis supplied as mentioned above if there is a modification within a year period beginning on the date of the first payment or if later before the employee attains age then the recapture rule_of sec_72 provides that the exception to the percent additional tax does not apply and the taxpayer's tax for the year of modification shall be increased by an amount which but for the exception would have been imposed plus interest for the deferral_period sec_74 revrul_2002_62 supra also provides authorization for taxpayers to make a one-time change to the required_minimum_distribution method revrul_2002_62 sec_2 b c b pincite states as follows one-time change to required_minimum_distribution method an individual who begins distributions in a year using either the fixed amortization_method or the fixed annuitization method may in any subsequent year switch to the required_minimum_distribution method to determine the payment for the year of the switch and all subsequent years and the change in method will not be treated as a modification within the meaning of sec_72 once a change is made under this paragraph the required_minimum_distribution method must be followed in all subsequent years any subsequent change will be a modification for purposes of sec_72 petitioners claim that mr kulzer used the fixed amortization_method described in notice_89_25 supra to compute the substantially_equal_periodic_payments to be withdrawn from his retirement account s thus the parties agree that the fixed amortization_method described in notice_89_25 supra is a permissible way in which to calculate a series of substantially_equal_periodic_payments for purposes of sec_72 notice_89_25 q a-12 c b pincite describes the fixed amortization_method as follows payments will also be treated as substantially_equal_periodic_payments within the meaning of sec_72 if the amount to be distributed annually is determined by amortizing the taxpayer's account balance over a number of years equal to the life expectancy of the account owner or the joint life and last survivor expectancy of the account owner and beneficiary with life expectancies determined in accordance with proposed sec_1_401_a_9_-1 of the regulations at an interest rate that does not exceed a reasonable interest rate on the date payments commence for example a year old individual with a life expectancy of having an account balance of dollar_figure and assuming an interest rate of percent could satisfy sec_72 by distributing dollar_figure annually derived by amortizing dollar_figure over years pincite percent interest an addendum to petitioner's letter to an appeals officer of the internal_revenue_service dated date describes his calculation as follows the purpose of this addendum is to certify that while i do not have a record of my original calculations that i used to determine my equal pay exception this is my best memory of how i arrived at that amount in date i reached years of age my ira balances were dollar_figure sic i found an insurance mortality_table that estimated my life expectancy pincite so i used years for my calculation i used an interest rate i remember that because my dad suggested i use but of course i knew better sic attached to petitioner's addendum is a schedule purporting to show the amortization of dollar_figure over years at 8-percent interest with annual payments of dollar_figure petitioner's schedule is reproduced as follows col col col col col col big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number we note four preliminary points about petitioner's calculation first the annual account balance is reduced by dollar_figure see col above before the stated_interest rate percent is applied to the balance see col above the amount of interest thus computed is then increased by dollar_figure presumably this dollar_figure increase is intended to be the interest on the dollar_figure payment in making the calculation in this way we believe that the real rate of interest used in petitioner's calculation is percent not percent second according to petitioner's calculation the account balance is not fully amortized by the end of the 27th year as shown in petitioner's schedule reproduced above there remains a balance of dollar_figure at the end of the 27th year therefore petitioner's calculation uses slightly more than years to amortize the account balance third petitioner states that the life expectancy of years is based upon an insurance mortality_table that he found significantly this life expectancy is substantially less than the life expectancy that would be determined in accordance with sec_1_401_a_9_-1 proposed income_tax regs fed reg date according to the single life expectancy table in sec_1_401_a_9_-9 q a-1 income_tax regs the life expectancy of a 48-year-old person i sec_36 years finally using traditional methods of financial calculation we believe that annual payments of dollar_figure would have to be made to amortize dollar_figure over years pincite percent interest according to our calculation we also believe that annual payments of dollar_figure would be necessary in order to amortize dollar_figure over years pincite percent interest as stated above petitioner claims that the subject distribution of dollar_figure from his ira in the octfcu is a part of the series of substantially_equal_periodic_payments that began in he claims to have computed this amount using the fixed amortization_method described by notice_89_25 supra under the fixed amortization_method described by notice_89_ supra the amount of the periodic_payment once computed does not change the amount is fixed and is distributed from the taxpayer's retirement account at each chosen period thereafter not less frequently than annually see notice_89_ supra the following distributions were made from petitioner's retirement accounts year sbc sbc 401k octfcu other dollar_figure --- --- --- --- dollar_figure --- --- --- --- dollar_figure big_number big_number --- --- --- --- --- dollar_figure big_number of the above distributions petitioners claim that the following amounts are part of the series of substantially equal annual payments that began in year sbc sbc 401k octfcu other dollar_figure --- --- --- --- --- --- --- --- --- --- --- dollar_figure --- big_number --- --- --- dollar_figure big_number as shown above the distributions that petitioners claim to be part of the series of substantially_equal_periodic_payments were made in different amounts the amount of the annual payment for and is dollar_figure whereas the amount of each of the annual payments allegedly made after is dollar_figure furthermore the distributions that petitioners claim to be part of the series of substantially_equal_periodic_payments were made from different accounts the account from which the alleged periodic_payment was distributed in ie octfcu is different from the account from which the payment was distributed for ie sbc we also note that the payment for was distributed from still a different account petitioners attempt to explain away these problems petitioner testified that the balance of his sbc account of dollar_figure was rolled over to the octfcu in late october or november of and thereafter was maintained separately in that account he testified they the two accounts were together but they were separate because they have a sub-code that differentiates accounts however there is no evidence of that in the record other than petitioner's vague and self- serving testimony petitioner also testified that the change in amounts was due to the one-time change to required_minimum_distribution method permitted by revrul_2002_62 sec_2 b quoted above however under the required_minimum_distribution method the annual payment is recomputed each year on the basis of the account balance and the life expectancy for that year it would be extremely unlikely if not impossible for the minimum distribution for and to equal the same exact amount ie dollar_figure at trial petitioner stated that he had no documentation of his calculation of those amounts the most serious difficulty we have with petitioners' position is that the record does not establish the taxpayer's account balance as that phrase is used in notice_89_25 supra for purposes of computing a series of substantially_equal_periodic_payments in fact considering petitioner's vague and confusing testimony we are not even certain how many retirement accounts petitioner held with sbc during and for example at trial he testified that during the year he withdrew dollar_figure from his retirement accounts he described his withdrawals as follows i had several retirement accounts including iras within local you know credit_union institutions and i think there's probably or different withdrawals that between all of my retirement accounts they totaled the dollar_figure-plus i would say to be accurate that big_number of the big_number is my k the remaining big_number on that line and the big_number above were from different accounts other than my k the above testimony suggests that the distribution of dollar_figure came from his sec_401 account with sbc and the remaining big_number came from a different sbc account or accounts this conclusion is consistent with the fact that there are two forms 1099-r for sbc attached to petitioners' return one form 1099-r reports a gross distribution of dollar_figure from sbc a second form 1099-r reports a gross distribution of dollar_figure from sbc 401k furthermore there is very little evidence in the record regarding the balance of petitioner's ira at octfcu or the balance of his retirement account or accounts with sbc the record contains only one statement from sbc dated date which shows the remaining market_value of the three accounts included in petitioner's sbc savings_plan the employee deferred_tax_account the company contributions account and the rollover account according to that statement the grand total of those accounts amounted to dollar_figure after a withdrawal of dollar_figure from the rollover account on the basis of that single statement petitioner contends that the balance of his sbc account was dollar_figure as of date the date of the dollar_figure distribution similarly the record contains page of only one statement from petitioner's account with octfcu the other pages of the statement were not introduced into evidence on the basis of that partial statement petitioners contend that the balance in petitioner's octfcu ira was dollar_figure on date in a memorandum dated date to respondent's attorney petitioner attempts to explain how he had arrived at dollar_figure the account balance he used in his calculation of substantially_equal_periodic_payments petitioner's memorandum states i cannot recreate exactly dollar_figure but i will get very close petitioner's memorandum refers to the statement of his sbc account and the statement of his octfcu account which are described above petitioner's memorandum then states as follows so if on date i had attachment i dollar_figure and on date i had attachment ii dollar_figure dollar_figure retirement accounts from above distributions requiring penalty dollar_figure dollar_figure which i paid on return dollar_figure so this reflects that sometime in after withdrawing dollar_figure i had a balance that on this document was dollar_figure but that was a snapshot of two different dates in but it's likely that sometime that year it could have been dollar_figure this is very close to the dollar_figure i used when i tried to recreate the balances when i calculated how much i could withdraw each year using the substantially equal payments method emphasis supplied as we read it the thrust of petitioner's memorandum is that petitioner took into consideration both his octfcu and sbc accounts in calculating the account balance used in his computation of substantially_equal_periodic_payments for purposes of sec_72 at trial petitioner's testimony was different he stated that he took into consideration only the balance of his sbc account in computing periodic_payments and that he did not use his octfcu ira in that computation petitioner's testimony at trial is as follows by ms gingras q a q looking at this exhibit page five you determined that the account balance that you used for your method of calculation was dollar_figure yes and when determining that account balance you aggregated the balance of two different retirement accounts a no i used -- to clarify i did not -- i said that i did not prepare this document at the time that i prepared the tax_return i'm a budget analyst by trade i go to a lot of meetings i'm required to analyze things very quickly so i did not put this to paper at the time i prepared my tax_return so to answer your question i used what i had in my sbc balance i remembered it to be but i'd already withdrawn big_number so there's a document in here that shows i had a balance of so it was one account and that's what i used to calculate this amortization schedule the court so -- go ahead counsel by ms gingras q a so it does not involve the orange county teachers federal credit_union account at this time correct we find that the record does not identify what retirement accounts petitioner took into consideration in allegedly computing the amount of the periodic_payments for purposes of sec_72 furthermore the record does not show the balances of those accounts at the time the first distribution was made indeed petitioner testified that he could not state the date and amount of any distribution that was a part of the distribution of dollar_figure made during other than the distribution of dollar_figure made by one of petitioner's sbc accounts on or about date in general the commissioner's determination as set forth in a notice_of_deficiency is presumed correct and the taxpayer bears the burden of proving that the determination is wrong see rule a in certain circumstances if the taxpayer introduces credible_evidence with respect to a factual issue relevant to ascertaining the proper tax_liability sec_7491 shifts the burden_of_proof to the commissioner sec_7491 rule a furthermore sec_7491 provides that the commissioner shall have the burden of production in any court_proceeding with respect to the liability of any individual for any penalty addition_to_tax or additional_amount imposed by the internal_revenue_code petitioners do not argue that sec_7491 is applicable and they have not established that the burden_of_proof should shift to respondent pursuant to sec_7491 furthermore as discussed above the record shows that petitioner received a distribution of dollar_figure from a qualified_retirement_plan during before he had attained age thus even if the additional tax under sec_72 is a penalty addition_to_tax or additional_amount within the meaning of sec_7491 a point we do not decide there is ample evidence in the record to satisfy any burden of production imposed by sec_7491 accordingly petitioners bear the burden of proving that respondent's determination in the notice_of_deficiency is erroneous see rule a in order for petitioners to prevail they must prove that the distribution of dollar_figure made in by petitioner's ira in the octfcu is part of a series of substantially_equal_periodic_payments as described by sec_72 t a iv see 111_tc_250 for the reasons discussed above we find that petitioners have not met their burden of establishing that the subject distribution of dollar_figure is part of a series of substantially_equal_periodic_payments as described by sec_72 t a iv on the basis of the foregoing decision will be entered for respondent


t c memo united_states tax_court emmanuel ugochukwu amadi and omole aina amadi petitioners v commissioner of internal revenue respondent docket no filed date omotayo j lawal for petitioners portia neomi rose gordon p sanz and yvette nunez for respondent memorandum findings_of_fact and opinion lauber judge with respect to petitioners’ federal_income_tax for and the internal_revenue_service irs or respondent determined defici- encies of dollar_figure and dollar_figure respectively and accuracy-related_penalties under sec_6662 of dollar_figure and dollar_figure respectively the parties filed before trial a stipulation of settled issues in which petitioners admitted their liability for a sec_6662 penalty for each year and made various other concessions the issues remaining for decision involve deductions for three categories of expenses that petitioner-husband allegedly incurred in his consulting business respondent disallowed these deductions in their entirety for lack of substantiation we will sustain respondent’s determination findings_of_fact some of the facts were stipulated and are so found the stipulation of facts and the accompanying exhibits are incorporated by this reference petitioners re- sided in texas when they timely petitioned this court all further references to petitioner in the singular are to petitioner-husband emmanuel ugochukwu amadi all statutory references are to the internal_revenue_code as in effect for the tax years at issue and all rule references are to the tax_court rules_of_practice and procedure we round all dollar amounts to the nearest dollar the parties agree that petitioners’ gross_income should be increased in the amount of dollar_figure due to qualified dividends for and petitioners’ gross_income should be increased in the amount of dollar_figure due to a capital_gain for petitioners are not entitled to claim charitable_contribution deduc- tions of dollar_figure and dollar_figure for and respectively and petitioners’ federal_income_tax withholding should be increased in the amount of dollar_figure for and petitioner was born in nigeria after arriving in the united_states he worked in the oil services industry he was employed in the united_states by baker hughes and other employers until when he lost his job after several months of unemployment he decided to return to nigeria to look for work petitioner found work as a contractor for petro-dynamics ltd a nigeria- based company that provides oil_and_gas drilling services his work focused chiefly on onshore drilling rigs he returned regularly to the united_states but resided in port harcourt when in nigeria he appears to have maintained an office in port harcourt either at his residence or nearby petitioners included with their return for each year a schedule c profit or loss from business reporting income and expenses for petitioner’s nigerian business activity each schedule c described petitioner’s activity as drilling consultancy and listed his business address as petitioners’ home address in texas the schedule c for reported income of dollar_figure and expenses of dollar_figure for a reported net profit of dollar_figure the schedule c for reported income of dollar_figure and expenses of dollar_figure for a reported net_loss of dollar_figure petitioners conceded at trial that petitioner’s nigerian-source income was not eligible for exclusion as foreign_earned_income because he did not meet the requirements of sec_911 upon examination of these returns the irs allowed petitioners’ claimed schedule c deductions for office expenses meals telephone and oil-rig-related clothing in the aggregate amounts of dollar_figure for and dollar_figure for the irs disallowed for lack of substantiation the deductions petitioners claimed for the following expenses expense contract labor advertising travel total disallowed dollar_figure big_number big_number big_number dollar_figure big_number big_number big_number in an effort to substantiate these expenses petitioner at trial offered his testimony and limited documentary_evidence we did not find petitioner’s testi- mony credible his documentary_evidence consisted of bank statements from his nigerian bank and what purported to be cash receipts and invoices from various vendors few of these documents apart from the bank statements appeared to be genuine petitioner testified that he incurred expenses for two types of contract labor in nigeria the first was for security at his office and residence to document those expenses he submitted five purported cash receipts from joston enter- prises stating that it had received various amounts of cash from petitioner for supplying 3mobil sic men for the provision of security at office residential premises in port harcourt for various periods during and he submitted no other documentation for these expenses the second type of contract labor expense was for workers petitioner al- legedly hired to help him with minor tasks connected with his drilling activities to document those expenses he submitted three purported cash receipts from joston enterprises stating that it had received various amounts of cash from peti- tioner for furnishing labour supply for various six-month periods these re- ceipts do not indicate how many workers were provided or how many days or weeks they supposedly worked petitioner was unable to identify any of the workers by name he submitted no other documentation for these expenses these cash receipts from joston enterprises do not bear the earmarks of authenticity the descriptions of the services provided allegedly drafted at vari- ous times over two years are exactly the same even to the point of including the same typographical error the receipts are all numbered but the numbers on the receipts for the later months are often lower than the numbers on the receipts for the earlier months it appeared to the court that these receipts were created at the same time by cutting-and-pasting text electronically petitioner testified that he incurred two types of advertising expenses the first was for items that he allegedly donated to the local community to generate goodwill to document those expenses he submitted two purported invoices from house of hope which he first testified was a church and later testified was a supplier the two supposed invoices bear the same date one year apart they de- scribe petitioner as a donor but incongruously proceed to list products that he supposedly purchased from house of hope namely big_number plastic tables big_number plastic chairs and bags of rice each invoice bears an identical notation goods delivered in good condition no refund after payment the second type of supposed advertising expense was for branded items petitioner allegedly purchased for distribution to enhance his name recognition to document those expenses he submitted two purported invoices from deep multimedia these invoices state that petitioner during purchased big_number branded t-shirts big_number branded towels big_number branded pens big_number branded jugs big_number diaries and big_number calendars each purported invoice bears a notation identical to and in the same typeface and font as the notation appearing on the two house of hope invoices goods delivered in good condition no refund after payment though supposedly generated by different suppliers in different years all four invoices are printed using exactly the same template it appeared to the court that all four were created at the same time by cutting-and-pasting text electronically petitioner testified that he incurred two types of travel_expenses the first was for rental of cars and trucks that he and his supposed contract workers al- legedly used for transport to the drilling sites to document those expenses peti- tioner submitted purported cash receipts from cajetan car hire stating that it had received various amounts of cash from petitioner for provision of car hiring service for various six-month periods these receipts do not indicate what the vehicles were or how many of them were supplied petitioner testified that he occasionally visited his ancestral village in nigeria he offered no evidence to demonstrate that the vehicles he allegedly rented were used for business rather than personal purposes the second type of travel expense was for airfare and hotel costs petitioner allegedly incurred during for travel to locations distant from port harcourt to document those expenses petitioner submitted a purported cash receipt from hamca travels and tours stating that it had received about dollar_figure in cash from petitioner for the cost of local travel and hotel accommodation to benin warri abuja and lagos for year this purported receipt is dated date petitioner could not explain how a receipt could have been issued in early date for travel costs that he incurred throughout that year even if one were to assume that this receipt was genuine petitioner offered no evidence to establish what these trips involved or that they were business-related opinion the commissioner’s determinations in a notice_of_deficiency are generally presumed correct and the taxpayer bears the burden of proving those determina- tions erroneous rule a 290_us_111 petitioner does not contend and the evidence does not establish that the burden_of_proof shifts to respondent under sec_7491 as to any issue of fact sec_162 allows the deduction of all the ordinary and necessary ex- penses paid_or_incurred during the taxable_year in carrying on any trade or busi- ness deductions are a matter of legislative grace the taxpayer bears the burden of substantiating his claimed deductions by keeping and producing records suf- ficient to enable the commissioner to determine the correct_tax liability sec_6001 503_us_79 sec_1_6001-1 e income_tax regs the failure to keep and present accurate records counts heavily against a taxpayer’s attempted proof rogers v commissioner tcmemo_2014_141 at in certain circumstances the court may approximate the amount of an ex- pense if the taxpayer proves that it was incurred but cannot substantiate the exact amount 39_f2d_540 2d cir but the taxpayer must provide some basis for such an estimate 85_tc_731 sec_274 imposes more rigorous substantiation requirements for cer- tain expenses including those for travel such deductions are disallowed unless the taxpayer substantiates by adequate_records or by sufficient evidence corrobora- ting his own statement the amount of the expense the time and place of the travel or use of the property and the business_purpose of the expense ibid expenses subject_to sec_274 cannot be estimated using the cohan_rule see 50_tc_823 aff’d 412_f2d_201 2d cir we find that petitioner has completely failed to substantiate the expenses in question his nigerian bank account records were introduced into evidence they show numerous payments by check and bank transfer but no payments of any kind to the vendors petitioner supposedly paid petitioner testified that he with- drew cash from that account and delivered it to his vendors in exchange for cash receipts but these alleged payments often exceeded dollar_figure and totaled dollar_figure over the two years petitioner testified that he faced serious security risks in nigeria if that was so it is implausible that he would have hand- carried large amounts of cash when he could have safely effected payment by check or bank transfer the implausibility of petitioner’s story is confirmed by review of the purported invoices and receipts none of which appears to be genuine acknowledging defects in his documentation petitioner urges that we allow him a reasonable amount of expenses for each year petitioner’s travel_expenses are subject_to sec_274 and are thus ineligible for estimating and we will not attempt to estimate his advertising or contract labor expenses because he has failed to convince us that he actually incurred any expenses of either sort a trial_court may not be compelled to guess or estimate even though such an estimate if made might have been affirmed see hom v commissioner __ f app’x __ wl 9th cir date quoting 939_f2d_874 9th cir miller v commissioner tcmemo_1988_15 we would not be inclined to exercise our discretion to estimate expenses for a taxpayer who presented this court with fictitious documents even if he had convinced us that he actually incurred some expenses which petitioner did not do to reflect the foregoing decision will be entered for respondent


office_of_chief_counsel department of the treasury i n t e r n a l r e v e n u e s e r v i c e washington d c number info release date conex-134505-05 cc ita b1 uil the honorable mark green u s house of representatives washington dc attention casey buboltz dear mr green this letter responds to your email dated date which forwarded to us a message from the executive director of ------------------------------------------- the message ha sec_11 questions and comments on the new rules for vehicle donations under sec_170 of the internal_revenue_code the code i am responding to each of the questions and comments in the order presented in the executive director’s email question can the time frame for providing the contemporaneous written acknowledgment to a donor be extended to days in the case of a vehicle for which the donee organization intends a significant intervening use or a material improvement response the law requires that in the case of a vehicle for which a donee organization intends a significant intervening use or material improvement a written acknowledgment must be provided to the donor within days of the date of the contribution any change would require legislative action question can the donor claim a year-end contribution of a vehicle as a charitable_contribution_deduction either in the year in which the donor makes the contribution or in the year the donee organization sells the vehicle response the law permits a charitable_contribution_deduction only in the year of the payment in the case of a vehicle contribution the payment occurs in the year the vehicle has been delivered to the donee organization when and whether delivery occurs is a matter of state law in many cases delivery of a vehicle occurs when legal or equitable_title passes from the donor to the donee and question can a donor of a vehicle that ------------subsequently sells be allowed the option of deducting the vehicle’s fair_market_value response the law provides that the charitable_contribution_deduction for a vehicle the donee organization sells without any significant intervening use or material improvement may not exceed the gross_proceeds received from the vehicle’s sale the gross_proceeds rule sec_170 of the code the only exceptions from the gross_proceeds rule are if the donee organization makes a significant intervening use of the vehicle materially improves the vehicle or sells the vehicle to a needy individual at a price significantly below fair_market_value or gratuitously transfers a vehicle to a needy individual in direct furtherance of a charitable purpose of the donee organization of relieving the poor and distressed or the underprivileged who need a means of transportation the direct furtherance exception a private_letter_ruling may be requested on whether ---------------use of a vehicle meets the requirements for the significant intervening use material improvement or direct furtherance exceptions and thus whether a vehicle contributed to --------------- may be exempt from the gross_proceeds rule i am enclosing revproc_2005_1 2005_1_irb_1 which explains how to request a private_letter_ruling question why can donors of vehicles valued at more than dollar_figure use an appraisal to determine value can all donors of vehicles regardless of a vehicle’s value be allowed to use appraisals or a value guide to establish the value of a vehicle response the same answer applies as in question sec_3 and above the new rules provide that the charitable_contribution_deduction for a donated vehicle may not exceed the gross_proceeds received from the vehicle’s sale unless the organization meets the requirements for any of the following exceptions significant intervening use material improvement or direct furtherance all contributions of vehicles for which the donor claims a value of more than dollar_figure are subject_to the new rules thus the charitable_contribution_deduction for a vehicle appraised at more than dollar_figure is subject_to the gross_proceeds rule if the donee organization sells the vehicle without a significant intervening use or material improvement and does not meet the requirements for the direct furtherance exception in such a case an appraisal will not substantiate the donor’s deduction nor is one required sec_170 of the code comment the executive director states that ------------is opposed to using dealer trade-in value as the standard for establishing value for donated vehicles and explains that ------------supports the private party value as the appropriate standard response we requested comments on this issue in notice_2005_44 2005_25_irb_1297 section enclosed we appreciate receiving the executive director’s comments and will consider them when drafting future guidance question what is the due_date to the internal_revenue_service of form 1098-c response we plan to issue published guidance on the new vehicle donation donee macro form rev department of the treasury - internal_revenue_service reporting requirements although we cannot provide a specific date we will give donee organizations a reasonable period of time to comply with all the new reporting requirements including the due_date to the irs of forms 1098-c question will the irs deny the donor the deduction or subject the non-profit organization to fines if it does not send the contemporaneous written acknowledgment to the donor within the prescribed days response the new law requires that for the donor to take the deduction the donor must obtain a written acknowledgment of the contribution within days of either the sale or contribution of the vehicle as applicable sec_170 of the code the law does not provide any exception to these time limits the law may impose a penalty on any donee organization that knowingly furnishes a false or fraudulent acknowledgment or knowingly fails to furnish an acknowledgment in the manner at the time and showing the information required under sec_170 sec_6720 of the code as to whether the irs would subject a donee organization to the penalty if it makes a mistake on a written acknowledgment and does not provide a corrected acknowledgement within days of the contribution or the disposition of the vehicle without additional information on the nature of the mistake we cannot comment on this issue for additional information we recommend a review of the examples in section dollar_figure of notice_2005_44 question can the donee organization file with the internal_revenue_service a form 1098-c that does not include the donor’s social_security_number response the new law provides that a donee organization that must provide an acknowledgment under the new vehicle donation rules must also give to the irs the same information contained in the acknowledgment the information that the acknowledgment must contain includes the donor’s taxpayer_identification_number question what would the irs consider a material improvement to a donated vehicle under the new law response currently the only guidelines on material improvement are in notice_2005_44 section for example cleaning minor repairs and routine maintenance are not material improvements the following are also not considered material improvements application of paint or other types of finishes such as rustproofing or wax removal of dents and scratches cleaning or repair of upholstery and installation of theft deterrent devices in section of notice_2005_44 we asked for comments and suggestions for future guidance on implementation of the new rules we would appreciate any comments that can assist us in formulating additional guidelines for determining if an improvement is material for purposes of the new rules in addition a private_letter_ruling may be requested on the issue see response to question and macro form rev department of the treasury - internal_revenue_service questions how would the new law treat a donation if the donee organization disposes of the vehicle by raffle does a total raised through an auction serve as the gross_proceeds of sale for purposes of the new rules responses the amount raised by a sale of raffle tickets does not represent the gross_proceeds of sale of a vehicle if the requirements for the significant intervening use or material improvement exceptions are not met the law limits the deduction for a vehicle contributed to charity and disposed of by raffle to the lesser_of dollar_figure or the vehicle's fair_market_value generally a vehicle sold at auction generates gross_proceeds for purposes of the new rules in no case however may the deduction exceed the vehicle’s fair_market_value i hope this information is helpful if you need further assistance please contact me at -- ---------------------or --------------------- i d no ------------- at --------------------- sincerely thomas a luxner chief branch office of associate chief_counsel income_tax accounting enclosures revproc_2005_1 notice_2005_44 macro form rev department of the treasury - internal_revenue_service