department of the treasury person to contact employee id number tal fax refer reply to ap-fe dal in re eee ssn ein number tax period s ended internal_revenue_service appeals_office alpha road suite dollar_figure mc bq000onwsat dallas tx release number release date date feb ie legend a b dear this is our final_determination that you do not qualify for exemption from federal_income_tax under internal_revenue_code irc sec_501 a as an organization described in sec_50t c our adverse determination was made for the following reason s a labor_organization exempt under sec_501 c is an organization that primarily serves the interests of employeas as distinguished from serving the interests of sef-employed persons your primary activity is to promote harness racing in provide welfare insurance for an on behalf of your members none of whom are employees organized under a collective bargaining agreemant you are therefore not a labor_organization as defined under sec_501 d improve working conditions and you are required to file federal_income_tax returns on forn for the tax periods indicated above you should file these retums within days from the date of this jetter uniass a request for an extension of time is granted file the retums in accordance with their instructions and do not send them to this office faiiure to file the returns timely may result in a penalty if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this fetter sincerely team manager coverment erties feb xkxxak ooo xxxkx ee - department of the treasury interna rewenue service dearborn street tb ge 4826chi chicago il taxpayer_identification_number form tax_year s ended december person to contactid number contact numbers telephone fax certified mail -- return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe an adjustment of your organization's exempt status is necessary if you do not agree with our position you may appeal your case the enclosed publication the examination process explains haw to appeal sn intemat revenue service irs decision publication also includes information on your rights as a taxpayer and the irs collection process if you request a conference we will forward your written_statement of protest to the appeals_office and they wilt contact you for your convenience an envelope is enclosed if you and appeats do not agrae on some of all of the issues after your appeals_conference or if you do not request an appeals_conference you may file suil in united_states tax_court the united_states court of federal claims or united_states district_court after salistying procedural and jurisdictional requirement sec_38 described in publicalion letier catalog number eoi lfa you may also request that we refer this matter for technical_advice as explained in publication exempt_organization appeal procedures for unagreed issues determination_letter is issued to you based on technical_advice no further administrative appeal is available to you within the irs on the issue that was the sudject of the technical_advice if you accept our findings please sign and return the anclosed form_6018 consent fo proposed adverse action we will then send you a final letter modifying or revoking exempt status hf we do not hear from you within days from the date of this letter we will process your case on the basis of the recommendations shown in the report of in that event you will be required to file examination and this letter wil become final federal_income_tax returns for the tax period s shown above file these returns with the ogden service_center within days from the date of this letter unless a request for an extension of time is granted fite returns for later tax years with the appropriate service_center indicated in the instructions for those retums you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established rs procedures such ae the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax detacnination or extend the time fixed by law that you nave to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at local taxpayer_advocate if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call f we need to contact you if you write please provide a telephone number and letter catalog number 4801v sincerely internal revenue_agent thank you for your cooperation enclosures publication publication form_6016 report of examination envelope letter catslag number 1b01v porm bbga name of taxpayer yen ten toren neni ravan hae explanation of items schedule oe no oor year period eaded december 3t issue should the federal tax exempt status under sec_501 be revoked a sec_2 labor_union facts pursuant to the articles of incorporation the was formed for the following purposes a b to provide and improve harness racing interest in the state to secure friendly cooperation of racing of associations owners breeders trainers drivers and grooms or any cther help employed by a racing stable at harness racing tracks to assist in improving moral and social conditions or owners grivers grooms and other employees of such racing stables c sponsor and promote colt races stake and closing events d corporation is to be in the nature of a trade essociation and is not to in any way function as a labor_union are self employed independent of the members of the its revenues through contracts with all contractors during the year ending december received approximately of the narness horse race tracks in established the benefit trust to provide health and welfare benefits for eligible periodically transfer funds to the welfare members of benefit trust account for the purpose of partially funding these insurance and administrative expenses during the year ending toward insurance premiums approximately of total expenses are expendec in june of ‘ _ ' law of the internal_revenue_code provides for the section sol c exemption of labor agricultural or horticulture organizations the benefit of any member which have no net_earnings inuring to and have as their objects the betterment of persons engaged in the pursuits of labor agriculture or the conditions of eorm b6 arner dapartssent of the treasury - insernal revenue service page -1- depormnnr of ts foysny- tenermel besyeee rerete explanation of items scherhvle no of exhibit form 886a december horticulture the improvements of the grade of their products ana the development of a higher degree of efficiency in their respective occupations revrul_73_288 1978_2_cb_179 provides an organization whose members are engaged in harness racing in a specific geographic area as drivers trainers and horse owners most of whom are independent contractors or entrepreneurs and that negotiates with operators of area raceways for larger purses betrer hours and sager operating conditions does not qualify for of the exemption as a labor_organization under sec_50l c code revrul_74_167 1974_1_cb_134 provides the inclusion of some self-employed persons in the membership of a qualified labor_organization does not affect the organization's exempt status under section sec_501i c of the code conclusion - primary activities - dmprove working the are to promote harness racing in conditions and provide welfare insurance for and on behalf on its members however none of the organization's members are employees organized under a collective bargaining agreement to an organization must be a labor_organization under sec_501 primarily serve the interest of tabor the term labor is commonly accepted as meaning the performance of service as employees and not independent contractors in addition sec_530 is only applicable for payroll tax purposes and not applicable to federal tax exemption accordingly it you are not a labor_organization within the meaning of section of the internal_revenue_code therefore the ruling c jetter dared federal_income_tax under sec_501 c of the code is herehy revoked effective for taxable years beginning december you are required to file income_tax return on form_1120 - which held you exempc frou is neld that - form 886-ajte 40p page -2- depatemens of che ‘tresnuey - interaas revenue service


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp plr-117095 -98 date date parent_corporation a corporation b corporation c_corporation d distributing controlled sub plr-117095-98 sub sub sub sub sub sub sub controlled disregarded newco holdco type x type y a b c d plr-117095-98 e f business a country a country b date x date y date z dear this letter responds to your date request for rulings on certain federal_income_tax consequences of a transaction the information submitted in that request and later correspondence is summarized below summary of facts publicly held parent is the common parent of a consolidated_group engaged in business a parent wholly owns corporation a and owns all of the type x voting common_stock of corporation b corporation a owns a percent of the type y voting common_stock of corporation b the remaining type y voting common_stock of corporation b is owned by five members of the board_of directors of corporation b in trust for the benefit of corporation a corporation a wholly owns corporation c and owns b shares all but one of corporation d the sole remaining share of corporation d is owned by corporation c_corporation c wholly owns distributing distributing wholly owns controlled sub sub sub and sub distributing owns all but c shares of sub all but d shares of sub and all but c shares of sub the remaining shares of sub sub and sub are owned by corporation c distributing owns e percent of sub and controlled owns the remaining shares of sub parent_corporation a and corporation c are domestic corporations and join in the filing of a consolidated federal_income_tax return sub sub sub sub sub sub sub sub the indicated affiliates distributing_corporation b corporation d and controlled are foreign_corporations plr-117095-98 we have received financial information indicating that each of distributing the indicated affiliates and controlled has had gross_receipts and operating_expenses in business a representing the active_conduct_of_a_trade_or_business for each of the past five years prior to the proposed transaction described below distributing will distribute cash to corporation c to reduce the stated capital of its common shares and to redeem preferred shares for country a purposes the pre-transaction dividend distributing represents that to its best knowledge and belief the pre-transaction dividend will be treated as a dividend distribution under sec_301 and sec_302 of the internal_revenue_code proposed transaction to achieve significant cost savings parent has proposed the following transaction i distributing incorporated controlled a country b limited_liability_company on date x in anticipation of the transaction controlled will be treated as a corporation for u s federal tax purposes distributing will transfer all of its shares of the indicated affiliates to controlled in exchange for additional common shares of controlled the first contribution ii distributing will recapitalize issuing preferred and common shares to corporation c in exchange for all of corporation c's distributing common shares the preferred shares issued by distributing will have an aggregate fair_market_value equal to the aggregate fair_market_value of the shares of the indicated affiliates transferred in the first contribution and the shares of controlled iii corporation c incorporated disregarded a country a unlimited liability company on date y in anticipation of the transaction corporation c will contribute all of its distributing preferred_stock to disregarded in exchange for common shares of disregarded taxpayer represents that disregarded will be disregarded as an entity separate from corporation c for u s federal tax purposes iv disregarded incorporated newco a wholly owned country a limited_liability_company with an authorized share capital of common and preferred shares on date y in anticipation of the transaction disregarded subscribed for newco common shares for nominal consideration v distributing will transfer all of its controlled common shares and controlled common shares to newco in exchange for newco preferred shares the newco preferred shares will be redeemable for an amount equal to the aggregate fair market plr-117095-98 value of controlled and controlled at the time of the transfer plus any accrued but unpaid dividends on the newco preferred shares the redemption amount vi newco will redeem the newco preferred shares held by distributing at the redemption amount the redemption amount will be satisfied by newco’s issuance of a demand non-interest bearing promissory note to distributing the newco note vii newco will be voluntarily dissolved and liquidated and its assets will be transferred to and its liabilities assumed by disregarded specifically disregarded will acquire all of the common shares of both controlled and controlled and will assume the obligation under the newco note viii distributing will purchase for cancellation the distributing preferred shares held by disregarded in exchange for a demand non-interest bearing note for the redemption amount issued by distributing to disregarded the distributing note distributing will cancel the preferred shares so purchased ix the distributing note and the newco note will be set off against each other and canceled x parent will contribute all of its corporation b shares to corporation a the second contribution xi corporation a will contribute all of its corporation b and corporation d shares to corporation c the third contribution xii corporation c formed holdco a domestic_corporation on date z in anticipation of the proposed transaction corporation c will contribute all of its interests in corporation b corporation d sub sub and sub to holdco in exchange for holdco voting common shares the fourth contribution xiii disregarded will transfer all of the outstanding shares of both controlled and controlled to holdco in exchange for holdco voting preferred shares of equal value the fifth contribution xiv holdco will establish a country b branch and will allocate to that branch all of its outstanding shares of controlled for an interest-free intracompany advance with a principal_amount equal to the fair_market_value of the controlled shares which equals the aggregate value of the indicated affiliates except for the value of the shares of sub owned by controlled holdco's country b branch will be a branch for u s tax law and country b commercial and tax law purposes representations plr-117095-98 parent requests rulings that the transfers and exchanges described above in steps ii through ix will be treated for federal_income_tax purposes as if distributing had distributed the stock of controlled to corporation c the first distribution and distributed the stock of controlled to corporation c the second distribution first distribution representations parent has made the following representations concerning the first distribution a controlled will not be indebted to distributing after the first distribution b no part of the consideration distributed by distributing will be received by corporation c as a creditor employee or in any capacity other than that of a shareholder of distributing c the five years of financial information submitted on behalf of distributing and controlled represents each corporation’s present operation and with regard to each corporation there have been no substantial operational changes since the date of the last financial statements submitted d immediately after the first distribution the gross assets of the businesses conducted directly by distributing and controlled and not by any subsidiaries of those corporations will have a fair_market_value of at least five percent of the total fair_market_value of each corporation's gross assets including the stock of each corporation's subsidiaries if any e following the first distribution distributing and controlled each will continue the active_conduct of its business independently and with its separate employees f the first distribution will be carried out to achieve significant cost savings see revproc_96_30 appendix a sec_2 1996_1_cb_696 the first distribution is motivated in whole or substantial part by this corporate business_purpose the first distribution is also motivated by a desire to accomplish a geographic realignment g except for the transfer of controlled stock from disregarded to holdco in the fifth contribution there is no plan or intention by corporation c or disregarded to sell exchange transfer by gift or otherwise dispose_of any of its stock in either distributing or controlled after the first distribution h there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the first distribution plr-117095-98 i there is no plan or intention to liquidate distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after the first distribution except in the ordinary course of business j no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the first distribution except for an intercompany loan owed by distributing to controlled of dollar_figuref bearing an arms-length interest rate and trade receivables owed by distributing to controlled which arose in the ordinary course of business k distributing does not join in the filing of a consolidated federal return l payments made in all continuing transactions between distributing or one or more of its subsidiaries and controlled or one or more of its subsidiaries will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length m pursuant to sec_355 the first distribution is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons not including a member of the parent affiliated_group as defined in sec_1504 without regard to sec_1504 will acquire directly or indirectly stock possessing percent or more of the total combined voting power of all classes of stock of either distributing or controlled or stock possessing percent or more of the total value of all classes of stock of either distributing or controlled plr-117095-98 first contribution and second distribution representations parent has made the following representations concerning the first contribution and the second distribution n controlled will not be indebted to distributing after the second distribution o no part of the consideration distributed by distributing will be received by corporation c as a creditor employee or in any capacity other than that of a shareholder of distributing p the five years of financial information submitted on behalf of distributing and each of the indicated affiliates represents each corporation’s present operation and with regard to each corporation there have been no substantial operational changes since the date of the last financial statements submitted q immediately after the second distribution at least percent of the fair_market_value of the gross assets of controlled will consist of the stock and securities of controlled corporations the indicated affiliates that are engaged in the active_conduct_of_a_trade_or_business as defined in sec_355 r immediately after the second distribution the gross assets of the businesses conducted directly by distributing and each of the indicated affiliates and not by any subsidiaries of those corporations will have a fair_market_value of at least five percent of the total fair_market_value of each corporation's gross assets including the stock of each corporation's subsidiaries if any s following the second distribution distributing and controlled through the indicated affiliates each will continue the active_conduct of its business independently and with its separate employees t the second distribution will be carried out to achieve significant cost savings the second distribution is motivated in whole or substantial part by this corporate business_purpose the second distribution is also motivated by a desire to accomplish a geographic realignment u except for the transfer of controlled stock from disregarded to holdco in the fifth contribution there is no plan or intention by corporation c or disregarded to sell exchange transfer by gift or otherwise dispose_of any of its stock in either distributing or controlled after the second distribution v there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the second distribution plr-117095-98 w there is no plan or intention to liquidate distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after the second distribution except in the ordinary course of business x controlled will not assume any liabilities or receive any assets subject_to liabilities as a result of or in connection with the first contribution y the proposed transaction does not involve and will not result in a situation in which one party recognizes income but another party the deductions associated with that income or one party owns property but another party recognizes the income associated with that property z no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the second distribution aa distributing does not join in the filing of a consolidated federal return bb payments made in all continuing transactions between distributing or one or more of its subsidiaries and controlled or one or more of its subsidiaries will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length cc no two parties to the transaction are investment companies as defined in sec_368 and iv dd pursuant to sec_355 the second distribution is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons not including a member of the parent affiliated_group as defined in sec_1504 without regard to sec_1504 will acquire directly or indirectly stock possessing percent or more of the total combined voting power of all classes of stock of either distributing or controlled or stock possessing percent or more of the total value of all classes of stock of either distributing or controlled other representations parent has made the following additional representations ee each of the second contribution the third contribution the fourth contribution with respect to the interests in corporation b and corporation d and the fifth contribution will constitute an exchange described in sec_351 and sec_368 ff the fourth contribution with respect to the interests in sub sub and sub will constitute an exchange described in sec_351 plr-117095-98 gg the holdco preferred_stock issued in the fifth contribution will not be nonqualified_preferred_stock under sec_351 hh disregarded a disregarded_entity of corporation c pursuant to sec_301 b ii a of the income_tax regulations will remain a disregarded_entity of corporation c under that provision for the 60-month period beginning with the date of the proposed restructuring transactions except to the extent necessitated by a change in u s or country a law relating to the classification of disregarded as a disregarded_entity for u s federal tax purposes or a corporation for country a tax purposes ii in effectuating the proposed restructuring transactions parent does not have a principal purpose to achieve different tax results or consequences under foreign and u s law that are inconsistent with the purposes of u s tax law jj parent has no plan or intent to have any additional partners shareholders or owners other than members of the parent affiliated_group in disregarded holdco including the country b branch of holdco controlled or controlled kk controlled disregarded newco and holdco each was formed in anticipation of the transaction and neither controlled disregarded newco nor holdco will have conducted any business prior to the transaction rulings based solely on the information submitted and on the representations set forth above and provided that the requirements of the temporary and final regulations under sec_367 are satisfied including the notice provisions of sec_1_367_b_-1 and b -1 c through d we rule as follows regarding the proposed transaction characterization for federal_income_tax purposes for federal_income_tax purposes steps ii - ix of the proposed transaction described above will be treated as if distributing distributed all the stock of controlled to corporation c in the first distribution and after the first contribution distributed all the stock of controlled to corporation c in the second distribution rev_rul 1983_2_cb_68 revrul_77_191 1977_1_cb_94 revrul_67_448 c b first distribution rulings no gain_or_loss will be recognized by distributing on the first distribution sec_355 and e c revrul_98_27 i r b plr-117095-98 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of corporation c on the first distribution sec_355 revrul_98_27 i r b the holding_period of the controlled stock received by corporation c in the first distribution will include the period during which corporation c held the distributing stock on which the first distribution will be made provided the distributing stock is held as a capital_asset on the date of the first distribution sec_1223 the first distribution will be an exchange to which b -10 c of the temporary income_tax regulations applies and the requirements of paragraphs d through h of b -10 must be satisfied first contribution and second distribution rulings the first contribution followed by the second distribution will be a reorganization under sec_368 sec_368 revrul_98_44 i r b distributing and controlled each will be a_party_to_a_reorganization under sec_368 no gain_or_loss will be recognized by distributing on the first contribution sec_361 and sec_357 no gain_or_loss will be recognized by controlled on the first contribution sec_1032 the basis of the stock of each of the indicated affiliates received by controlled in the first contribution will equal the basis of the stock of each of the indicated affiliates in the hands of distributing immediately before the first contribution sec_362 the holding_period of the stock of each of the indicated affiliates received by controlled in the first contribution will include the period during which distributing held the stock of each of the indicated affiliates sec_1223 no gain_or_loss will be recognized by distributing on the second distribution sec_361 and sec_355 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of corporation c on receipt of the controlled stock in the second distribution sec_355 revrul_98_27 1998_22_irb_4 revrul_98_44 i r b the holding_period of the controlled stock received by corporation c in plr-117095-98 the second distribution will include the holding_period of the distributing stock on which the second distribution will be made provided the distributing stock is held as a capital_asset on the date of the second distribution sec_1223 the second distribution will be an exchange to which b -10 c of the temporary income_tax regulations applies and the requirements of paragraphs d through h of b -10 must be satisfied other rulings the earnings_and_profits of corporation b to the extent attributable to such stock under sec_1_1248-2 or sec_1_1248-3 whichever is applicable which were accumulated in taxable years of such foreign_corporation beginning after date during the period parent held corporation b stock or was considered as holding it by reason of the application of sec_1223 while corporation b was a controlled_foreign_corporation shall be attributable to such stock held by corporation a sec_1_1248-1 the earnings_and_profits of corporation b and corporation d to the extent attributable to the stock of each respective corporation under sec_1_1248-2 or sec_1_1248-3 whichever is applicable which were accumulated in taxable years of each respective foreign_corporation beginning after date during the period corporation a held corporation b and corporation d stock respectively or was considered as holding it by reason of the application of sec_1223 while corporation b or corporation d was a controlled_foreign_corporation shall be attributable to such stock held by corporation c sec_1_1248-1 the earnings_and_profits of corporation b corporation d controlled controlled sub sub and sub to the extent attributable to the stock of each respective corporation under sec_1_1248-2 or sec_1_1248-3 whichever is applicable which were accumulated in taxable years of each respective foreign_corporation beginning after date during the period corporation c held corporation b corporation d controlled controlled sub sub and sub stock respectively or was considered as holding it by reason of the application of sec_1223 while corporation b corporation d controlled controlled sub sub or sub was a controlled_foreign_corporation shall be attributable to such stock held by holdco sec_1_1248-1 caveats we express no opinion about the tax treatment of the transaction under any other provision of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction not specifically covered by the above rulings in particular we express no opinion as to a treatment plr-117095-98 of the pre-transaction dividend b the application of sec_306 to the preferred_stock to be issued by holdco in the fifth contribution c whether parent may claim a foreign_tax_credit under sec_901 on any_tax imposed by country a on any amounts distributed under country a law from disregarded to corporation c or d except as specifically described in rulings - the second contribution the third contribution the fourth contribution or the fifth contribution the rulings in this letter are based on the facts and representations submitted under penalties of perjury in support of the request verification of that information may be required as part of the audit process temporary or final regulations pertaining to one or more of the issues addressed in this ruling letter including regulations under sec_358 have not yet been adopted therefore this ruling letter will be modified or revoked if adopted temporary or final regulations are inconsistent with any conclusions in the ruling letter see dollar_figure of revproc_98_1 1998_1_irb_7 however when the criteria in dollar_figure of revproc_98_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances procedural matters this ruling has no effect on any earlier document and is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent each taxpayer involved in the proposed transaction must attach a copy of this letter to the federal_income_tax return of the taxpayer for the taxable_year in which the transaction is completed plr-117095-98 pursuant to a power_of_attorney on file in this office we are forwarding a copy of this letter to the taxpayer sincerely yours assistant chief_counsel corporate by __________________________ robert t hawkes assistant to the chief branch


department of the treasury internal_revenue_service washington d c may tax_exempt_and_government_entities_division uniform issue list and tiley rat legend taxpayer a plan b company c financial_institution d ira e financial_institution f irag financial_institution h amount amount amount amount amount amount amount amount amount amount dear this letter is in response to a request for a letter_ruling dated date as supplemented by additional information dated date from your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_402 and sec_408 of the internal_revenue_code code regarding the distribution of amount from plan b and amount from ira e respectively the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that he took distributions of amount from pian b and percent amount from ira e the distribution of amount was subject_to_withholding for federal_income_tax amount under sec_3405 of the code coinciding with the distribution of amount from ira e amount was remitted to the internal_revenue_service service to cover the withholding_tax and penalties - owed on amount taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by sec_402 and sec_408 of the code with respect to amount sec_2 and that were withheld on distributions from plan b and ira e respectively was the result of taxpayer a not knowing how the income_tax_withholding rules could affect the amount of the plan b or ira e distributions that could be rolled over in july of taxpayer a participated in plan b a cash_or_deferred_arrangement under sec_401 of the code sponsored by his employer company c funds in plan b _ taxpayer a was terminated were held by financial_institution d from his position with company c taxpayer a took a distribution of monthly alimony obligation on august amount from plan b from this distribution amount represents mandatory percent of the distribution which was paid to the service withholding of amount was used to pay off a loan owed to plan b amount was paid to taxpayer a and on september was deposited by taxpayer a into ira g with financial_institution h in order to cover his living_expenses and a portion of amount ie amount in addition to participating in plan b taxpayer a maintained ira e with financial_institution f also for purposes of financial planning on july taxpayer a withdrew amount from ira e from this distribution amount represents percent withholding for federal_income_tax as elected by taxpayer a amount was paid to taxpayer a and on july a portion of amount ie amount was deposited by taxpayer a into ira g with financial_institution h the total amount from the distributions of amount sec_1 and deposited into ira g was amount amount plus amount taxpayer a was eventually able to find new employment at the time he took the distributions from plan b and ira e taxpayer a was not fully aware of the tax percent of amount for consequences which included a penalty equal to premature distributions from an ira under sec_72 of the code the distribution of amount from plan b however was not subject_to the percent penalty because it satisfied an exception to the application of code sec_72 when taxpayer a filed his form_1040 tax_return for it was anticipated he would receive a refund of a significant percentage of the taxes withheld from both the distribution of amount from plan b pursuant to sec_3405 of the code and the distribution of amount from ira e pursuant to sec_3405 of the code _ based on the above facts and representations you request that the service waive the 60-day rollover requirement contained in sec_402 and sec_408 of the code with respect to the full amount of the refund of income taxes withheld on both the distribution from plan b and the distribution from ira e that taxpayer a anticipated receiving when he filed his tax_return for sec_402 of the code provides that if any portion of the balance_to_the_credit of an employee in a qualified_trust is paid to the employee in an eligible_rollover_distribution and the distributee transfers any portion of the property received in such distribution to an eligible_retirement_plan and in the case of a distribution_of_property other than money the amount so transferred consists of the property distributed then such distribution to the extent transferred shall not be includible in gross_income for the taxable_year in which paid sec_402 a of the code states that such rollover must be accomplished within days following the day on which the distributee received the property an individual_retirement_account ira constitutes one form of eligible_retirement_plan sec_402 of the code provides in relevant part that the secretary may waive the 60-day requirement under sec_402 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_402 of the code sec_402 of the code provides that an eligible_rollover_distribution shall not include any distribution to the extent such distribution is required under sec_401 sec_1_402_c_-2 q a-11 of the income_tax regulations regulations allows an employee to roll over an amount equal to the percent withholding of federal income taxes within the 60-day period if the employee has other funds to do the rollover specifically the regulation provides that if an eligible_rollover_distribution is paid to an employee and the employee contributes all or part of the eligible_rollover_distribution to an eligible retirement plan within days the amount contributed is not currently includible in gross_income provided that it is contributed to the eligible_retirement_plan no later than the 60th day following the day on which the employee received the distribution if more than one distribution is received by an employee from a qualified_plan during a taxable_year the 60-day rule applies separately to each distribution because the amount withheld as income_tax under sec_3405 is considered an amount distributed under sec_402 an amount equal to all or any portion of the amount withheld can be contributed as a rollover to an eligible retirement pian within the 60-day period in addition to the net amount of the eligible_rollover_distribution actually received by the employee however if all or any portion of an amount equal to the amount withheld is not contributed as a rollover it is included in the employee's gross_income to the extent required under sec_402 and also may be subject_to the 10-percent additional income_tax under sec_72 sec_408 of the code provides that except as otherwise provided in sec_408 of the code any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if - i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 of the code sec_408 of the code provides that sec_408 of the code does not apply to any amount described in sec_408 of the code received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 of the code from an ira which was not includible in gross_income because of the application of sec_408 of the code sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_402 and sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and the documentation submitted in this case indicates that taxpayer a withdrew amount from plan b and amount from ira e with the stated intent of covering his living and alimony expenses while he looked for new employment from the distributions of amount sec_1 and amount sec_2 and respectively were remitted to the service for income_tax_withholding purposes taxpayer a asserts that had he known how the income_tax_withholding rules can affect the amount of the plan b or ira e distributions that can be rolled over he would have chosen to withhold less so that he could have transferred a greater amount of the distributions to ira g amount equal to the amount withholdings on the plan b distribution of amount the service has the authority to waive the 60-day rollover requirement for a distribution from an ira where the individual failed to complete a rollover to another qualified_plan or ira within the 60-day rollover period but was prevented from doing so because of one of the factors enumerated in revproc_2003_16 for example errors committed by a financial_institution death hospitalization postal error incarceration and or disability in this instance taxpayer a has not presented any evidence to the service as to how any of the factors outlined in revproc_2003_16 affected his ability to timely roll over an twenty percent amount of the distribution of amount from plan b was subject - to mandatory income_tax_withholding sec_1_402_c_-2 q a-11 of the regulations provides that an amount equal to all or any portion of the amount withheld can be contributed as a rollover to an eligible_retirement_plan within the 60-day period in addition to the net amount of the eligible_rollover_distribution actually received by the employee while taxpayer a was permitted to use funds equal to amount from other sources for deposit into ira g during the 60-day rollover period he had no funds available from any source the information presented indicates that the failure to roll over funds equal to the amount withheld amount on the distribution of amount into another qualified_plan or ira within the 60-day rollover period was because taxpayer a had no other funds which could be used for this purpose under these circumstances the service has no authority to extend the 60-day rollover period contained in sec_1_402_c_-2 q a-11 of the regulations with respect to any refund of taxes withheld mandatorily on the distribution of amount from plan b regarding the distribution of amount from ira e a portion amount of this distribution was remitted to the service for income_tax_withholding purposes the portion remitted to the service amount equaled percent of amount should be noted that taxpayer a elected this withholding sec_3405 of the code provides that nonperiodic distributions from iras are subject_to __ percent withholding however a taxpayer may elect out of the requirement the information presented indicates that the failure to roll over funds equal to the amount remitted to the service amount for income_tax_withholding purposes amount on the distribution of amount into another qualified_plan or ira within the 60-day rollover period was at all times within the reasonable control of taxpayer a taxpayer a could have elected to roll over amount instead of having it withheld and remitted to the service by checking the do not withhold federal_income_tax from my ira distribution box provided for on the distribution form for ira e percent withholding it under the circumstances presented in this case the service hereby declines to waive the 60-day rollover requirement contained in sec_402 and sec_408 of the code with respect to the amount of the taxes withheld on distributions from plan b and ira e no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter_ruling has been sent to your authorized representative pursuant to a power_of_attorney on file in this office if you wish to inquire about this ruling please contact at d sincerely yours callen wseins manager employee_plans technical group cc


office_of_chief_counsel internal_revenue_service memorandum number release date cc tege eoeg et1 postn-161050-04 uilc date date to director submission processing cincinnati oh attn entity unit from office of division counsel associate chief_counsel tax exempt government entities subject railroad_retirement_tax_act 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 ------------------------- ------------------------------------------ --------------------------------------------------------- ------------------------------------ ------------------------------------------------------ we have reviewed the opinion of the rrb and based upon the information submitted to us by the rrb we also conclude that -----------------------------------------became an employer under the railroad_retirement_tax_act effective ------------------------ please take the appropriate action regarding this business cc _____________________________ janine cook


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 b03 plr-147251-08 date date legend x y ----------------------------------------------------------------------------------------------------- ---------------------- ------------------------------------------------ state ------------- date -------------------------- dear ------------- we received your letter dated date submitted on behalf of x requesting a ruling under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to file an election to be treated as an association_taxable_as_a_corporation under sec_301_7701-3 this letter responds to your request facts x was formed on date as a state limited_liability_company x is wholly-owned by y y intended that x be treated as an association_taxable_as_a_corporation for federal tax purposes effective date however x inadvertently failed to timely file a form_8832 entity classification election law and analysis plr-147251-08 sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with a single owner can elect to be classified as an association and thus a corporation under sec_301_7701-2 or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301_7701-3 unless the entity elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed if an election specifies an effective date more than days prior to the date on which the election is filed it will be effective days prior to the date it was filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion plr-147251-08 based solely on the facts submitted and the representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 accordingly x is granted an extension of time of sixty days from the date of this letter to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes effective date the election should be made by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling 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 sent to your authorized representatives the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely s curtis g wilson 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 fip b05 plr-142149-07 date date legend agency ------------------------------------------------------------------------ ------------- ------------------------ ----------------------------- --------------------------------- state city county committee resolution resolution project --------------------------------------------------------------------------------------------------------- project bonds --------------------------------------------------------- ----------------------------------------- ----------------------------------------- ---------------------------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ---------------- date date year -------------- ------------------- ------- ------- --------------- --------------- plr-142149-07 year a b dear ----------------- this is in response to the agency’s request for an extension of time under sec_301_9100-1 of the procedure and administration regulations to file a form_8328 carryforward election of unused private_activity_bond volume_cap to make a carryforward election under sec_146 of the internal_revenue_code with respect to dollar_figurea and dollar_figureb of the agency’s year private_activity_bond volume_cap facts and representations you make the following factual representations the agency is a local public agency created under state law the agency is authorized to issue bonds including multifamily residential rental bonds committee administers the system established by the state pursuant to sec_146 to allocate the state's private_activity_bond volume_cap in year committee passed resolution sec_1 and awarding the agency dollar_figurea and dollar_figureb of state_ceiling on a carryforward basis to finance project sec_1 and respectively in year after the due_date to file the form_8328 for year allocations had passed the agency issued the bonds utilizing dollar_figurea of the year volume_cap to finance project agency has not yet issued bonds for project the agency was not aware of its obligation to file a form_8328 with the internal_revenue_service and did not timely file the form_8328 with respect to allocations of dollar_figurea and dollar_figureb the agency became aware of its obligation to file a form_8328 on or after date year when in preparation for issuing bonds pursuant to allocation of dollar_figureb of the agency’s unused private_activity_bond volume_cap for project bond counsel discovered that the form_8328 had not been filed with respect to allocations dollar_figurea and dollar_figureb soon thereafter on date year agency submitted a ruling_request for an extension of time to file the form_8328 the agency sought relief before the failure_to_file the form_8328 was discovered by the service law and analysis sec_146 provides that if an issuing authority's volume_cap for any calendar_year after exceeds the aggregate amount of tax-exempt private_activity_bonds issued during the calendar_year by the authority the authority may elect to treat all or any portion of the excess as a carryforward for one or more carryforward purposes plr-142149-07 the election is made by filing form_8328 with the internal_revenue_service center ogden ut under notice_89_12 1989_1_cb_633 form_8328 must be filed by the earlier of february of the calendar_year following the year in which the excess_amount arises or the date_of_issue of bonds issued pursuant to the carryforward election while revproc_2005_30 2005_1_cb_1148 provides for an automatic_extension of six months from the due_date of the carryforward election to make the carryforward election it does not apply in this case the election must identify the purpose for which the carryforward is elected and specify the amount to be carried forward for that purpose sec_146 carryforward elections and any identifications or specifications stated therein are irrevocable sec_146 sec_301_9100-1 of the procedure and administration regulations provides in part that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulations published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements for automatic extensions in sec_301_9100-2 must be made under the rules of sec_301_9100-3 requests for relief will be granted if the taxpayer provides evidence establishing to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides in part that the taxpayer is generally deemed to have acted reasonably and in good_faith if the taxpayer requested relief under that section before the failure to make the regulatory election is discovered by the irs sec_301_9100-3 provides in part that the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability than the taxpayer would have had if the election had been timely taking into account the time_value_of_money conclusion under the facts and circumstances of this case we conclude that the agency acted reasonably and in good_faith and that granting an extension of time under sec_301_9100-1 to file a form_8328 to carry forward dollar_figurea and dollar_figureb of unused volume_cap from year will not prejudice the interests of the government agency is granted an extension of time of plr-142149-07 days from the date of this letter_ruling to file the form_8328 to carry forward dollar_figurea plus dollar_figureb of unused volume_cap from year 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 including without limitation whether the interest on the bonds or any other bonds issued pursuant to resolution sec_1 and is excludable from income under sec_103 of the 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 sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely __________________________ rebecca l harrigal branch chief branch office of the associate chief_counsel financial institutions and products 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-130633-05 date date --------------------- --------------------- --------------------------------------------------- legend x ----------------------------------------- country date dear ----- -------- requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to elect to be treated as a disregarded_entity under sec_301_7701-3 x represents that x is a foreign_entity eligible to elect to be treated as a disregarded_entity however x inadvertently failed to timely file a form_8832 entity classification election electing to treat x as a disregarded_entity effective date entity for federal_income_tax purposes generally a foreign eligible_entity is treated as the information submitted states that x was formed under the laws of country sec_301_7701-3 provides guidance on the classification of a foreign this responds to a letter dated date submitted on behalf of x sec_301_9100-1 through provide the standards the sec_301_9100-1 provides that the commissioner may grant a reasonable sec_301_7701-3 provides that an entity classification election must be filed plr-130633-05 an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief 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 granting relief will not prejudice the interests of the government conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose federal tax consequences of the facts described above under any other provision of the code provides that it may not be used or cited as precedent except as specifically set forth above no opinion is expressed concerning the based solely on the information submitted and the representations made we this ruling is directed only to the taxpayer requesting it sec_6110 pursuant to a power_of_attorney on file with this office a copy of this letter is sincerely heather c maloy associate chief_counsel passthroughs and special industries plr-130633-05 being sent to x’s authorized representative enclosures cc copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court nik lamas-richie and shayne lamas-richie petitioners v commissioner of internal revenue respondent docket no filed date nik lamas-richie and shayne lamas-richie pro sese sebastian voth for respondent memorandum findings_of_fact and opinion lauber judge with respect to petitioners’ federal_income_tax for the internal_revenue_service irs or respondent determined a tax_deficiency of dollar_figure and an accuracy-related_penalty of dollar_figure under sec_6662 after unless otherwise indicated all statutory references are to the internal continued concessions the principal issue for decision is whether petitioners are tax- able on petitioner husband’s distributive_share of partnership income that was not actually distributed to him during we answer this question yes but hold that petitioners are not liable for the penalty with respect to this item findings_of_fact the parties submitted before trial a partial stipulation of settled issues and a stipulation of facts we incorporate the stipulation of settled issues the stipulation of facts and the related exhibits by this reference petitioners resided in california when they timely filed their petition nik lamas-richie petitioner previously lived in scottsdale arizona and did credit card processing for the financial industry finding life as a cubicle warrior intellectually unsatisfying and cognizant of the success of reality tv he wondered whether reality internet could be his ticket to success in early he started a gossip blog on a web site with a uniform resource locator url of continued revenue code code as amended and in effect for the taxable_year in issue and all rule references are to the tax_court rules_of_practice and procedure we round all monetary amounts to the nearest dollar petitioners concede that respondent properly adjusted their taxable_income for to include unemployment_compensation of dollar_figure interest of dollar_figure and additional wages of dollar_figure thedirtyscottsdale com this web site initially posted gossip about local topics including the cool kids in scottsdale who thought they were celebrities he later branched out by posting gossip of possible regional and national interest as the web site gained more viewers it attracted the attention of investors an investor named james grdina approached petitioner and suggested the forma- tion of a partnership that would take over the web site and supply capital to help it expand the partnership was called dirty world llc dirty world and it began operations in date mr grdina provided capital by causing intrigue investment co intrigue to lend the partnership dollar_figure mr grdina and intrigue together owned a interest in the partnership petitioner received a limited_partnership_interest to reflect the venture’s intended breadth of scope the url for the web site was changed to thedirty com petitioner operated the web site much as he had before essentially functioning as an editor people would upload gossip to the site for posting and petitioner would filter out material he deemed salacious or otherwise unfit for publication he would often append amusing notations to the gossip he published not infrequently dirty world was sued by the people who were the subject of this gossip and petitioner spent a fair amount of time dealing with these lawsuits petitioner entered into an employment contract with inetwork group llc another venture owned by mr grdina to compensate him for his services in editing the gossip and managing the blog this contract was apparently oral for inetwork furnished petitioner a form_w-2 wage and tax statement report- ing that it had paid him wages of dollar_figure for that year petitioners timely filed a federal_income_tax return for on date this return was prepared by a professional and competent tax_return pre- parer in mission viejo california the return reported petitioner’s wages of dollar_figure from inetwork and separately reported on schedule c profit or loss from business sole_proprietorship income of dollar_figure from lamas richie productions llc the return did not include a schedule e supplemental income and loss and it did not otherwise report any income or loss stemming from petitioner’ sec_41 limited_partnership_interest in dirty world on date dirty world filed a return on form_1065 u s return of partnership income this return was prepared by an accounting firm and signed by mr grdina on line the return reported for calendar_year ordinary business income of dollar_figure from operation of the web site this income consisted chiefly of advertising revenue the form_1065 included a schedule_k-1 partner’s share of income de- ductions credits etc for petitioner this schedule_k-1 reported that petitioner’s distributive_share of dirty world’s ordinary business income for was dollar_figure dollar_figure petitioner did not receive a copy of this schedule_k-1 and was not aware of the contents of dirty world’s form_1065 until the irs began its examination of hi sec_2011 return petitioner credibly testified that dirty world had never previously reported any net profit the schedule_k-1 for shows no distributions to him apparently because of litigation concerns petitioner during relin- quished hi sec_41 partnership_interest in dirty world the record does not reveal how this transaction was consummated he nevertheless continued to serve as editor of the web site evidently as a salaried employee of inetwork petitioner testified that the gossip blog continues to thrive with operations now in markets worldwide and million unique visitors to the web site monthly i burden_of_proof opinion the commissioner’s determinations in a notice_of_deficiency are generally presumed correct rule a 290_us_111 for the presumption of correctness to attach with respect to unreported income the commissioner must establish a minimal evidentiary showing connecting the taxpayer with the income-producing activity see 994_f2d_1542 11th cir aff’g tcmemo_1991_ 596_f2d_358 9th cir rev’g 67_tc_672 respondent met this evidentiary threshold by establishing that petitioner held a limited_partnership_interest in dirty world and that dirty world reported ordinary business income of dollar_figure for the burden_of_proof thus shifts to petitioners to prove by a preponderance_of_the_evidence that respondent’s determination is incorrect see 293_us_507 87_tc_74 petitioners do not contend and the evidence does not establish that the burden_of_proof shifts to respondent as to any issue of fact see sec_7491 ii partnership income partnerships are not subject_to federal_income_tax sec_701 after items of income and expense are determined at the partnership level e ach partner is re- quired to take into account separately in his return his distributive_share whether or not distributed of each class or item of partnership income gain loss deduction or credit sec_1_702-1 income_tax regs a partner’s distributive_share of each item is generally determined by the partnership_agreement sec a 136_tc_137 it was established long ago that a partner must report his distributive_share whether received or not 62_f2d_648 4th cir aff’g 23_bta_1288 see jones v commissioner tcmemo_2010_112 99_tcm_1457 burke v commissioner tcmemo_2005_297 90_tcm_635 aff’d 485_f3d_171 1st cir sec_1_702-1 income_tax regs a partner must report his distributive_share of partnership income even if he was not aware that such income existed at the time it was earned 208_f2d_903 3d cir aff’g 12_tcm_267 see pridgen v commissioner tcmemo_1999_188 77_tcm_2117 aff’d 2_fedappx_264 4th cir brooks v commissioner tcmemo_1995_400 70_tcm_458 petitioner conceded at trial that he held a limited_partnership_interest in dirty world during and his schedule_k-1 show sec_41 as his distributive_share of the partnership’s profits dirty world filed a form_1065 reporting for ordinary business income of dollar_figure this return was signed by mr grdina who was effectively the controlling partner and petitioner has provided no reason to believe that this figure was incorrect petitioner must report hi sec_41 distribu- tive share of dirty world’s profits or dollar_figure even though no distributions were made to him during see chama v commissioner tcmemo_2001_ 82_tcm_642 johnston v commissioner tcmemo_1984_ 48_tcm_553 holding that each partner is taxed on his distributive_share of partnership income without regard to whether the amount is actually distributed to him dirty world did not file its form_1065 for until date six months after petitioners filed their individual return the partnership’s failure to supply petitioners with a timely schedule_k-1 however does not relieve them of their obligation to include in income petitioner’s distributive_share of the par- tnership’s profits as noted earlier a partner is taxable on her distributive_share of partnership income regardless of whether she receives it or is even aware of its existence brooks t c m cch pincite cf healey v commissioner tcmemo_1996_260 71_tcm_3148 nonreceipt of schedule_k-1 does not relieve taxpayer of obligation to make reasonable estimate of income on form_4868 application_for automatic_extension of time to file u s individual_income_tax_return although petitioner testified that dirty world had losses for prior years he introduced no evidence at trial concerning the magnitude of those losses or the existence of any loss carryforward to we accordingly have no alternative but to sustain respondent’s determination that petitioner’s distributive_share of dirty world’s business income constituted taxable_income to petitioners for iii penalty the code imposes a penalty upon the portion of any underpayment_of_tax that is attributable among other things to a ny substantial_understatement_of_income_tax sec_6662 b an understatement of income_tax is substan- tial if it exceeds the greater of dollar_figure or of the tax required to be shown on the return sec_6662 under sec_7491 the commissioner bears the burden of production with respect to the liability of an individual for any penalty see 116_tc_438 the deficiency that respondent determined which we have sustained is dollar_figure that amount exceeds dollar_figure and of dollar_figure the tax required to be shown on petitioners’ return respondent has thus carried his burden of production by demonstrating a substantial understate- ment of income_tax see sec_7491 the sec_6662 penalty does not apply to any portion of an underpayment if it is shown that there was a reasonable_cause for such portion and that the tax- payer acted in good_faith with respect to it sec_6664 the taxpayer bears the burden of proving reasonable_cause and good_faith higbee t c pincite47 the decision whether the taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account all pertinent facts and circumstances sec_1_6664-4 income_tax regs generally the most important factor in determining the existence of rea- sonable cause is the taxpayer’s effort to ascertain his or her tax_liability correctly reasonable_cause can be shown by good-faith reliance on the advice of a qualified_tax professional sec_1_6664-4 c income_tax regs to justify such reli- ance t he advice must be based upon all pertinent facts and circumstances id para c i other circumstances that may signal reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in light of all the facts and circumstances including the experience knowledge and edu- cation of the taxpayer id para b petitioners do not contend and the evidence does not establish that they had reasonable_cause for neglecting to report unemployment_compensation of dollar_figure interest of dollar_figure or additional wages of dollar_figure see supra note they challenge the penalty only with respect to their failure to report petitioner’s dollar_figure distributive_share of dirty world’s business income with respect to this item we find that petitioners acted in good_faith and made a genuine effort to ascer- tain their tax_liability correctly petitioner credibly testified that he viewed himself as an employee of dirty world and he properly reported the wages of dollar_figure that he received through inetwork for his editorial and related_services he had not received a schedule_k-1 from dirty world at the time petitioners filed their return and he credibly testified that dirty world had not previously earned_income that he would have been required to report petitioners supplied their return preparer with all tax-related documents relevant to this issue and we find that they reasonably relied on his assurance that the return in that respect was correct as filed see 115_tc_43 aff’d 299_f3d_221 3d cir sec_1_6664-4 c income_tax regs to reflect the foregoing decision will be entered under rule