department of the treasury internal_revenue_service washington d c of f i c e of c h i e f c ou n s e l date number release date cc tege eoeg et2 wta-n-110385-00 uilc internal_revenue_service national_office field_service_advice memorandum for sb_se area ap mia from subject senior technician reviewer cc tege eoeg et proposed fica and futa adjustment for this chief_counsel_advice responds to your memorandum dated date in accordance with internal_revenue_code the code sec_6110 this chief_counsel_advice should not be cited as precedent disclosure statement this writing may contain privileged information any unauthorized disclosure of this writing may have an adverse effect on privileges such as the attorney client privilege if disclosure becomes necessary please contact this office for our views legend x corporation association articles city state issue whether amounts the corporation paid to x in and are wages subject_to federal_insurance_contributions_act fica and federal_unemployment_tax_act futa taxes wta-n-110385-00 conclusion the amounts the corporation paid to x in years and are wages subject_to fica and futa taxes facts the association was formed on date pursuant to the articles of association the articles executed by the members the association provides pilot services to vessels moving in and out of the port of city each member of the association is a state corporation and the sole shareholder and employee of each member is a pilot licensed under state law each member agrees to engage only in the business of piloting vessels for the association and to make its shareholder available for pilot duties on a 24-hour per day basis based upon our understanding of the articles the objectives in forming the association included providing pilots the opportunity to perform piloting services on an equal basis and distributing the fees received for performing such services on an equal basis among the association’s members the business of the association is conducted by an executive committee designated by the members the committee makes assignments bills for work completed collects fees and performs the other duties of the association on or before the last day of each month the association distributes an equal share of net_earnings to each member subject_to certain adjustments the articles provide that a member shall cease to be a member upon the death retirement or resignation of its sole shareholder article xii of the articles is entitled deferred_compensation plan this section provides that any pilot who attains age and has completed years of active_service as a pilot may retire from active_service and become a consultant pilot and participate in the earnings_of the association we note that the term pilot is undefined article xii also requires a consultant pilot to give advice and consultation concerning the operation of the association and the duties of an active pilot under this article a pilot who meets the age and service requirements and elects to retire receives for the remainder of his life percent of the association’s gross revenues provided that amount does not exceed percent of an active pilot’s share x became a licensed state pilot in date the corporation was formed as a c_corporation in date x was the sole shareholder officer the facts as specified are based upon this office’s understanding of the articles of association as a general matter the articles are imprecise making it difficult to determine the meaning of certain provisions wta-n-110385-00 director and employee of the corporation that is the taxpayer in this case the corporation acting through x in his capacity as president of the corporation signed the articles of association as a member on date no materials were provided to this office related to the formation or operation of the corporation on date x resigned as an officer and director of the corporation and the corporation elected to be treated as an s_corporation effective date we have assumed that x ceased performing services as a pilot for the corporation coincident with his resignation when x elected to retire he satisfied the age and years_of_service requirements in article xii notwithstanding the requirement in article xii that retired pilots render consulting services the association waived that requirement for x for tax years and the association distributed the amounts described in article xii to the corporation the association did not pay any amounts directly to x on form_1099 for the association reported in box as nonemployee compensation a distribution to the corporation of dollar_figure in a similar manner the association reported a distribution of dollar_figure for the association specified that dollar_figure in and dollar_figure in of the amounts distributed to the corporation were for retirement income for and respectively the corporation reported on schedule k shareholders’ shares of income credits deductions etc a distribution to x of dollar_figure and dollar_figure the corporation did not treat any amounts paid to x as wages subject_to fica and futa taxes the service conducted an employment_tax examination of the corporation for years and and proposed an adjustment of fica and futa_tax liability the adjustments were based upon the examiner’s determination that the corporation paid dollar_figure for and dollar_figure for to x in wages initially the corporation asserted that the amounts were not wages because wages are remuneration for services and x did not perform any services during the years at issue the corporation now contends however that the amounts distributed to x were not subject_to fica and futa taxes because the amounts were paid on account of retirement under a plan that was established prior to date and are subject_to a fica and futa retirement-pay exception extant at that time applicable law fica_taxes wta-n-110385-00 fica_taxes are composed of the old-age survivor and disability insurance oasdi tax and the medicare_tax code sec_3101 imposes a percent tax on an individual’s wages for oasdi and code sec_3111 imposes an excise_tax on an employer equal to percent of the wages paid_by the employer for oasdi code sec_3101 imposes a dollar_figure percent tax on an individual’s wages for medicare and code sec_3111 imposes an excise_tax on an employer equal to dollar_figure percent of the wages paid_by the employer for medicare the oasdi portion of fica_taxes applies only to a certain amount of wages in a tax_year after an employee’s wages exceed this annually-adjusted amount the oasdi portion of fica_taxes does not apply since the medicare_tax has applied to all of an employee’s wages code sec_3121 defines wages as all remuneration in whatever form for employment unless a specific exception applies code sec_3121 defines employment as any service of whatever nature performed by an employee for an employer unless a specific exception applies in general fica_taxes are imposed when the employee is paid for fica purposes wages are generally received by an employee at the time that they are paid_by the employer to the employee and wages are paid_by an employer at the time that they are actually or constructively paid regulation sec_31_3101-3 sec_31_3111-3 and sec_31_3121_a_-2 code sec_3121 was enacted by the social_security amendments of in those amendments congress repealed the general fica tax exclusions for retirement payments provided in code sec_3121 a and a a iii under code sec_3121 any amount deferred under a nonqualified_deferred_compensation_plan is taken into account as wages for fica tax purposes as of the later of i when the services are performed or ii when there is no substantial_risk_of_forfeiture of the rights to such amount code sec_3121 further provides that any amount taken into account as wages by reason of code sec_3121 and the income attributable thereto shall not thereafter be treated as wages for fica purposes regulation sec_31_3121_v_2_-1 defines the term nonqualified_deferred_compensation_plan as any plan or other arrangement other than a plan described in code sec_3121 which generally refers to qualified_retirement_plans and tax-favored annuities that is established by an employer for one or more of its employees and that provides for the deferral of compensation a nonqualified_deferred_compensation_plan may be adopted unilaterally by the employer or may be negotiated by the employer and employees a plan may constitute a nonqualified_deferred_compensation_plan for fica purposes without regard to whether the deferrals under the plan are made pursuant to an election by the employee or whether the amounts deferred are treated as deferred wta-n-110385-00 compensation_for income_tax purposes a plan is established on the latest of the date on which it is adopted the date on which it is effective and the date on which the material terms of the plan are set forth in writing regulation sec_31_3121_v_2_-1 regulation sec_31_3121_v_2_-1 specifies that a plan provides for the deferral of compensation with respect to an employee only if under the terms of the plan and the relevant facts and circumstances the employee has a legally binding right during a calendar_year to compensation that has not been actually or constructively received and that pursuant to the terms of the plan is payable in a later year code sec_3121 is generally effective for payments made after date regulations under code sec_3121 were published date applicable on or after date t d 1999_9_irb_4 regulation sec_31_3121_v_2_-1 provides transition_rules for amounts deferred and benefits paid before date and generally requires that the employer acted in accordance with a reasonable good_faith interpretation of code sec_3121 the retirement pay exclusions provided in code sec_3121 a and a a iii as in effect on date the day before the enactment of the social_security amendments of applied to retirement payments prior to date the transition_rules in regulation sec_31_3121_v_2_-2 are applicable on and after date these rules are used to determine whether amounts deferred and payments made are treated under code sec_3121 or are eligible for the favorable treatment afforded transition benefits the transition_rules provide that transition benefits paid pursuant to a date agreement are not subject_to fica_taxes provided that payments under the agreement would have met one of the retirement pay exclusions in effect on date regulation sec_31_3121_v_2_-2 defines a date agreement as an agreement in existence on date between an individual and a nonqualified_deferred_compensation_plan within the meaning of regulation sec_31_3121_v_2_-1 such an agreement does not fail to be a date agreement merely because the terms of the plan are changed after date for purposes of paragraph b any plan or agreement that provides for payments that qualify for one of the former retirement payment exclusions is treated as a nonqualified_deferred_compensation_plan transition sec_31_3121_v_2_-1 provides that paragraphs a through f of this section apply to amounts deferred on or after date to amounts deferred before date which cease to be subject_to a substantial_risk_of_forfeiture on or after date or for which a resolution date occurs on or after date and to benefits actually or constructively paid on or after date wta-n-110385-00 benefits are benefits paid after date attributable to services rendered before date for this purpose transition benefits are determined without regard to any changes made in the terms of the plan after date regulation sec_31_3121_v_2_-2 regulation sec_31_3121_v_2_-2 defines an individual party to a date agreement as an individual who was eligible to participate in a date agreement under the terms of the agreement on date an individual will be treated as an individual party to a date agreement even if the individual has not accrued any benefits under the plan by date and regardless of whether the individual has taken any specific action to become a party to the agreement in sum the transition_rules apply to certain payments made under a nonqualified_deferred_compensation_plan established before date which provides for retirement payments that qualify for one of the former retirement pay exception futa taxes code sec_3301 imposes the futa_tax on an employer equal to percent of the wages paid_by the employer this tax applies only to the first dollar_figure of an employee’s wages and is reduced further by any credits properly claimed by the employer code sec_3306 defines wages as all remuneration in whatever form for employment unless a specific exception applies code sec_3306 defines employment as any service of whatever nature performed by an employee for an employer unless a specific exception applies in general futa taxes are imposed when the employee is paid for this purpose wages are generally received by an employee at the time that they are paid_by the employer to the employee and wages are paid_by an employer at the time that they are actually or constructively paid regulation sec_31_3301-2 sec_31_3301-3 and sec_31_3301-4 code sec_3306 is the special timing rule for futa purposes it provides that any amount deferred under a nonqualified_deferred_compensation_plan is taken into account as wages for futa_tax purposes as of the later of i when the services are performed or ii when there is no substantial_risk_of_forfeiture of the rights to such amount code sec_3306 further provides that amount taken into account as wages by reason of code sec_3306 and the income attributable thereto shall not thereafter be treated as wages the text of code sec_3306 is identical to code sec_3121 however code sec_3306 has a later effective date it applies to payments wta-n-110385-00 made after date regulation sec_31_3306_r_2_-1 -2 cross- reference regulation sec_31_3121_v_2_-1 -2 accordingly the analysis and conclusions provided herein concerning fica tax_liability under code sec_3121 and the regulations thereunder also apply for futa purposes in this case no issue arises from the different effective dates analysis generally the articles describe the relationship between the association and its members article xii provides that a pilot who meets the age and service requirements and elects to retire will receive for the remainder of his life two percent of the association’s gross revenues limited to percent of an active pilot’s share based upon the terms of article xii and its execution of the articles of association on date the corporation asserts that a date agreement existed between x and a nonqualified_deferred_compensation_plan no evidence suggests that a date agreement existed between x and a nonqualified_deferred_compensation_plan a nonqualified_deferred_compensation_plan is any plan or other arrangement other than a plan described in code sec_3121 that is established by an employer for one or more of its employees and that provides for the deferral of compensation regulation sec_31_3121_v_2_-1 article xii does not meet this requirement the pilots were not employees of the association and article xii was not an arrangement established by an employer to benefit its employees x was neither a party to a date agreement nor an individual eligible to participate in a date agreement the association operates as a partnership its members are partners the articles require pilots to be employees of the members from the date the corporation was formed until x retired x performed services as a pilot for the corporation and not as an employee of the association no employer-employee relationship existed between the association and x x was an officer of the corporation and as such was an employee of the corporation notwithstanding the terms of article xii specifying that payments will be made to the pilot the association paid the amounts required by article xii to the corporation it reported these amounts paid to the corporation on form_1099 miscellaneous income thus the association did not treat article xii as a nonqualified_deferred_compensation_plan between the association and each pilot stood an intentionally created corporate entity for over years x performed piloting services as an employee of his corporation x now seeks to ignore the existence of the corporation to avoid the payment of fica_taxes for fica purposes x in effect asserts that he wta-n-110385-00 was an employee of the association in 417_us_134 the supreme court explained while a taxpayer is free to organize his affairs as he chooses nevertheless once having done so he must accept the tax consequences of his choice whether contemplated or not and may not enjoy the benefit of some other route he might have followed but did not neither the service nor the taxpayer is free to disregard the corporation’s existence accordingly it is our view that the amounts the corporation paid to x in and do not qualify for the transition rule exception for agreements in existence on date between an individual and nonqualified_deferred_compensation_plan primarily because article xii is not a nonqualified_deferred_compensation_plan for purposes of the transition_rules in addition even if article xii were a nonqualified_deferred_compensation_plan x was not an individual party to a date agreement further after lengthy consideration of the facts and issues in this case we believe it extremely unlikely that the arrangement described in article xii which in fact is an arrangement between the association and its corporate partners is the kind of arrangement that congress intended to treat as a nonqualified_deferred_compensation arrangement subject_to either the special timing rule in code sec_3121 or the transition_rules in regulation sec_31_3121_v_2_-2 instead the amounts the corporation paid to x in and arose out of the employer-employee relationship that existed between x and the corporation until date those amounts are wages subject_to fica tax when paid under the general timing rule see regulation sec_31_3101-3 sec_31_3111-3 and sec_31_3121_a_-2 code sec_3121 defines wages as all remuneration for employment unless a specific exception applies employment is defined in code sec_3121 as any service of whatever nature performed by an employee for the person employing him sta of baltimore - ila container royalty fund v united 621_fsupp_1567 d md aff’d 804_f2d_296 4th cir taken together subsections a and b of code sec_3121 define ‘wages’ as ‘all remuneration’ for ‘any service ’ id regulation sec_31_3121_a_-1 provides that remuneration for employment unless specifically excepted constitutes wages even though at the time paid the relationship of employer and employee no longer exists between the person in whose employ the services were performed and the individual who performed them in 327_us_358 the supreme court considered whether back pay for a time in which the employee was not on the job should nevertheless count as wages in determining the employee’s eligibility for social_security_benefits id pincite in concluding that the back pay was wages for wta-n-110385-00 social_security_benefit purposes the court noted the broad definition of wages as all remuneration for employment and employment as any service performed by an employee for his employer under the social_security act id pincite the court states as follows with respect to the definition of employment the very words any service performed for his employer with the purposes of the social_security act in mind import breadth of coverage the se words admonish us against holding that service can be only productive activity we think that service as used by congress in this definitive phrase means not only work actually done but the entire employer-employee relationship for which compensation is paid to the employee by the employer id pincite many recent cases have also recognized the breadth of the definition of wages under the fica in 42_fedclaims_867 aff’d 226_f3d_1322 fed cir the court held that certain termination_payments paid pursuant to a voluntary early out plan were wages subject_to fica the court stated the notion of an ‘employer-employee relationship’ continues to be the touchstone for determining if a particular payment is subject_to fica taxation id pincite the court further determined that s ervices performed need not be linked to a particular or productive activity to fall within fica tax_liability id pincite see also 151_f3d_855 8th cir 122_f3d_204 4th cir and lane processing trust v united_states f 3d 8th cir thus even though the corporation paid amounts to x when he was no longer performing services as a pilot or corporate officer the payments arose from the employer-employee relationship that existed between x and the corporation there is no doubt that the payments made were for past services x performed for the corporation as such they are remuneration for employment and no exception in code sec_3121 applies to exclude these payments from the definition of wages in reviewing the materials submitted we note the proposed adjustments use employment_tax rates provided by code sec_3509 because the facts do not raise a worker classification issue code sec_3509 is inapplicable and full rates should apply the appeals officer asked whether a notice_of_determination under code sec_7436 should be issued to the corporation code sec_7436 requires an actual controversy regarding the status of a worker as an employee this case does not raise the issue of whether x was an employee of the corporation wta-n-110385-00 case development hazards and other considerations regulation sec_31_3121_v_2_-1 provides that for periods before date including amounts deferred before date and any benefits actually or constructively paid before date that are attributable to those amounts deferred an employer may rely on a reasonable good_faith interpretation of code sec_3121 taking into account pre-existing guidance for purposes of the transition_rules of paragraphs g through and subject_to paragraphs g ii and iii whether an employer that has not complied with paragraphs a through f has determined fica tax_liability and satisfied fica withholding requirements in accordance with a reasonable good_faith interpretation of code sec_3121 will be determined based on the relevant facts and circumstances including consistency of treatment by the employer and the extent to which the employer has resolved unclear issues in its favor no evidence suggests that the corporation’s treatment of amounts paid to x as exempt from fica and futa was based on a reasonable good_faith interpretation of the statute and existing guidance in fact the evidence suggests the opposite - the corporation did not consider whether code sec_3121 applied to the distributions made to x in or the corporation did not withhold or pay fica tax on any portion of the distributions its position was not based on a reasonable good_faith interpretation of the statute and existing guidance because it did not take any position with respect to code sec_3121 apparently the corporation was unaware of code sec_3121 in the examination the corporation asserted that the amounts distributed to x were not wages because x did not perform any services for the corporation during the years at issue not until this case was in appeals did the corporation raise code sec_3121 under the facts and circumstance test articulated in the existing guidance notice_94_96 1994_2_cb_564 and regulation sec_31_3121_v_2_-1 of the transition_rules the corporation resolved all issues in it favor this treatment although the association labeled the distributions made pursuant to article xii as retirement income it did not withhold and pay any fica tax on the distributions the association was not legally obligated to pay fica_taxes on the distributions because it was not x’s employer the inaction of the corporation and the association is perhaps the most revealing evidence in this case wta-n-110385-00 indicates the corporation’s position was not consistent with a reasonable good- faith interpretation of the statute finally the assertion that article xii is a date agreement is inconsistent with the plain language of code sec_3121 which requires an employer-employee relationship to exist by its terms sec_3121 applies specifically to wages in general wages are defined in code sec_3121 as remuneration for employment and employment is defined in sec_3121 as service performed by an employee for the person employing him it is our view that a reasonable good_faith interpretation of code sec_3121 cannot include an interpretation that did not require an employment relationship to exist in order for a nonqualified_deferred_compensation_plan to exist because the code itself contains the employment relationship requirement the corporation cannot argue in good_faith that subsequent regulations and administrative guidance or a lack thereof changed the plain language of the statute if a suit_for_refund is filed in this case we recommend that area_counsel coordinate the defense letter with this office please call dan boeskin identification no of my staff at if you have any further questions marie cashman


t c memo united_states tax_court frank m settimo and sallyn m settimo petitioners v commissioner of internal revenue respondent docket no filed date joseph falcone for petitioners laurie b schmidt and john w stevens for respondent memorandum findings_of_fact and opinion laro judge petitioners petitioned the court to redetermine respondent’s determination of deficiencies of dollar_figure and dollar_figure in their and federal income taxes respectively and sec_6662 accuracy-related_penalties of dollar_figure and dollar_figure respectively following the parties’ concessions we are left to decide whether two s_corporations collectively s_corporations wholly owned by frank settimo petitioner may deduct child care expenses_incurred with respect to petitioners’ children we hold they may not section references are to the internal_revenue_code applicable to the subject years rule references are to the tax_court rules_of_practice and procedure findings_of_fact some facts are stipulated we incorporate herein by this reference the parties’ stipulations of fact and the exhibits submitted therewith we find the stipulated facts accordingly petitioners are husband and wife and they filed joint and federal_income_tax returns they resided in linden michigan at all relevant times petitioner started a window washing business business in date his wife began working in that busine sec_2 years later in date petitioner began hiring other individuals to work in the business in petitioner conducted the business through his wholly owned s_corporation professional window cleaning inc pwc petitioner terminated pwc as of the start of and began conducting the business through a second wholly owned s_corporation algimarso glass cleaners inc agc for federal_income_tax purposes petitioner reported the income and expenses of the s_corporations using the cash_receipts_and_disbursements_method during the respective subject years approximately and individuals worked in the business petitioner’s wife was employed by the s_corporations to wash windows one or two days a week and to provide clerical services to the s_corporations for approximately to hours per week the s_corporations did not formally pay her any wages during either year she actually received wages from the s_corporations of dollar_figure and dollar_figure during the respective years petitioner was employed by the s_corporations essentially as their general and operations manager as to the business petitioner solicited professional advice and new customers established a sales division recruited hired evaluated and dealt with each of the other workers in the business assigned specific jobs to the window washers and monitored customer satisfaction as to those jobs negotiated each window washer’s compensation and made daily business decisions handled the business’s finances and assisted in clerical work he also washed windows for the s_corporation sec_5 or days a week pwc formally paid petitioner no wages during and agc formally paid petitioner dollar_figure in wages during petitioners had four children the ages of whom in were and when petitioner wife was washing windows for the s_corporations petitioners left their children with either a daycare service or a neighbor petitioners paid their neighbor in cash to watch their children and petitioners paid the daycare service with a check drawn on the bank account of pwc or agc for the subject years pwc and agc claimed deductions of dollar_figure and dollar_figure respectively for the daycare expense of petitioners’ children opinion we decide the single issue mentioned above in that we find that the facts underlying our decision of that issue are not in dispute we decide that issue without regard to which party bears the burden_of_proof the parties dispute two other issues in addition to the one that we decide the first other issue concerns the_amount_of_wages that petitioner failed to report for and the second other issue concerns whether all of the s corporations’ workers are their employees we do not decide either of those two other issues in that our decision of those issues is unnecessary to our redetermination of petitioners’ federal_income_tax deficiencies for the subject years as to the first other issue petitioner is the sole shareholder of the s_corporations and any amount of wages that he failed to report on hi sec_2001 and sec_2002 federal_income_tax returns will be offset entirely by the corresponding increase in the deduction that passes through to him from the s_corporations see griffin v commissioner tcmemo_1995_246 as to the second other issue that issue also does not affect our redetermination of petitioners’ deficiencies as to the issue that we do decide petitioners assert that the s_corporations are entitled to deduct the daycare expenses of petitioners’ children petitioners’ entire argument in brief is as follows pursuant to revrul_73_348 1973_2_cb_31 the respondent permits a corporation’s payments to a day care center to provide care for the preschool children of its employees while they are at work to be deducted under sec_162 petitioner sallyn settimo could not have worked unless day care was provided to her preschool children the subchapter_s_corporations paid for that day care we are unpersuaded by this argument while sec_162 allows a corporate taxpayer to deduct the ordinary and necessary expenses of its business the mere fact that petitioner’s wife may have been unable to work for the s_corporations unless daycare was provided to her children does not necessarily mean that the payment of petitioners’ daycare expenses is an ordinary_and_necessary_expense of the s_corporations while respondent ruled in revrul_73_348 supra that a taxpayer was able to deduct the daycare expenses related to the children of its employees the ruling notes that the expenses were directly related to the taxpayer’s business on the basis of the record at hand we are unable to find that petitioners’ daycare expenses were directly related to the business of the s_corporations or in other words that those expenses are an ordinary_and_necessary_expense of the s_corporations indeed the only individuals whose children’s daycare expenses were paid_by the s_corporations were the sole owner of the s_corporations and his wife we hold for respondent we have considered all arguments in this case and consider those arguments not discussed above to be without merit to reflect issues settled by the parties decision will be entered under rule nor have petitioners shown that the primary beneficiary of the payments was either s_corporation see 115_tc_172


department of the treasury washington dc third party communication none date of communication n a person to contact -------------------- id no ------------ telephone number ------------------- refer reply to cc psi b02 plr-135152-08 date date internal_revenue_service number release date index number ---------------------------------------- -------------------- ---------------------------------- -------------------------------- -- x --------------------- ---------------------- state ------------------ date ---------------- dear ----- -------- this responds to a letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on date under the laws of state it was intended for x to be an s_corporation effective date however no form_2553 election by a small_business_corporation was timely filed for x sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective generally if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and the plr-135152-08 secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective date accordingly provided that x makes an election be an s_corporation by filing a completed form_2533 with the appropriate service_center effective date within days following the date of this letter then such election will be treated as timely made for x's taxable_year beginning date a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal_income_tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 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 sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court kelly j maselli petitioner v commissioner of internal revenue respondent docket no 27000-07l filed date mark harrington westlake for petitioner john r bampfield for respondent memorandum opinion cohen judge this case was commenced in response to a notice_of_determination concerning collection action s under sec_6320 and or with respect to petitioner’s federal_income_tax liabilities for and the issue for decision is whether it was an abuse_of_discretion for the internal revenue service’s irs appeals_office to reject petitioner’s proposed installment_agreement unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure background this case was submitted fully stipulated under rule and the stipulated facts are incorporated as our findings by this reference petitioner resided in montgomery county tennessee at the time she filed her petition at all material times petitioner was a real_estate broker petitioner and her former husband were divorced on date at that time she had not filed federal_income_tax returns for and on date the irs sent petitioner a letter final notice_of_intent_to_levy and notice of your right to a hearing for and the tax_liability in the letter was based on a substitute for return the irs prepared under sec_6020 after the irs sent the letter petitioner filed a corrected return showing no tax_liability and the irs updated her file accordingly petitioner also filed tax returns for and the outstanding tax_liabilities for and resulted from insufficient estimated_tax payments or withholding credits in response to the letter through her counsel petitioner submitted a form request for a collection_due_process or equivalent_hearing on date requesting that an installment_agreement be considered as a collection alternative petitioner noted her reason for the request in an attachment to the form that claimed the tax_liabilities arose because the taxpayer erroneously reported income of her ex- husband on her and tax returns after amendment and correction of the tax returns to eliminate that portion of the income properly taxable to her ex-husband the taxpayer’s net liability will be substantially reduced rental income from property co-owned by the taxpayer and her ex-husband was applied to improvements and non-deductible principal payments on loans as a result the taxpayer’s net taxable_income exceeded disposable cash_flow in sales of rental properties co-owned by the taxpayer and her ex-husband did not generate sufficient net cash proceeds to satisfy the secured mortgage indebtedness necessary to clear title for sale and also pay the applicable capital_gains from the sales although little or no net cash proceeds were available the total amount_realized significantly exceeded reported cost_basis the hearing on petitioner’s request was scheduled for date in a date letter petitioner’s counsel outlined petitioner’s contentions enclosed with the date letter was petitioner’s completed form 433-a collection information statement for wage earners and self- employed individuals with attached bank statements home loan statements and vehicle loan statements also enclosed with the letter was a completed form 433-b collection information statement for businesses for gateway realty investment group l l c along with supporting financial documents petitioner owns the business with her husband mike maselli whom she married after on the form 433-a petitioner reported monthly household_income of dollar_figure consisting of dollar_figure attributable to petitioner dollar_figure attributable to her husband’s business income and dollar_figure attributable to her husband’s pension petitioner claimed monthly expenses consisting of dollar_figure for food clothing and miscellaneous dollar_figure for housing and utilities dollar_figure for transportation dollar_figure for healthcare dollar_figure for taxes dollar_figure for court-ordered payments dollar_figure for life_insurance dollar_figure for secured or legally perfected debts and dollar_figure for other expenses totaling dollar_figure claimed amount rounded to nearest hundred petitioner proposed an installment_payment of dollar_figure per month until her income increased based on her calculation of an excess monthly income of dollar_figure at the time petitioner submitted her form she was in compliance with income_tax filing_requirements but was not in compliance with estimated_tax payments for petitioner’s counsel submitted petitioner’s payment for the outstanding estimated income_tax_liability when he attended the face-to-face hearing on date bringing petitioner into compliance for during the collection_due_process cdp hearing the settlement officer reviewed the completed forms 433-a and 433-b and prepared a list of additional information that she would need from petitioner requesting that the information be submitted by date petitioner through her counsel timely supplied the information the settlement officer determined that petitioner could pay dollar_figure per month her determination was based on petitioner’s earning percent of the household_income in her calculations the settlement officer used percent of the following expense amounts according to the irs national and local standards for montgomery county tennessee dollar_figure for food clothing and miscellaneous dollar_figure for housing and utilities dollar_figure for operation of an automobile and dollar_figure for the finance payment on an automobile the settlement officer noted that she used all information petitioner had supplied to date to determine petitioner’s ability to pay on date the settlement officer’s independent research of montgomery county tennessee property records verified petitioner’s ownership of her claimed personal_residence and identified a property on public square in clarksville tennessee as owned by petitioner with her former husband the public square property had not been included on petitioner’s form 433-a that same day a followup telephone call occurred between the settlement officer and petitioner’s counsel petitioner’s counsel agreed to provide information regarding petitioner’s real_property ownership among other items the following week for the settlement officer’s consideration during the phone call the settlement officer advised petitioner’s counsel that the irs national and local standard expense allowances became effective date and that petitioner’s life_insurance expense of dollar_figure claimed on her form 433-a would not be allowed because she had an excessive_amount on date the settlement officer reviewed petitioner’s credit report that revealed among other items not pursued by the settlement officer a marriott ownership florida vacation homes and a gmac loan that had not been reported on the submitted form 433-a the settlement officer left a voice message for petitioner’s counsel on date requesting information regarding these items on date the settlement officer left a voice message for petitioner’s counsel informing him that the case would be closing because the requested information had not been received the prior week on date petitioner’s counsel left a voice message for the settlement officer requesting an extension until date to supply the information that same day the settlement officer left a voice message for petitioner’s counsel after hearing his message and stated that she had closed the case and would be sustaining the irs’s proposed collection action in a letter dated date and hand-delivered to the appeals_office the following day petitioner’s counsel represented that under the divorce decree petitioner was to receive a west palm beach florida timeshare property and her former husband was to receive a daytona beach florida timeshare property petitioner’s counsel asserted that the transfers had not been made because petitioner had been sued by her former husband for reimbursement of his tax_liabilities further in the letter he asserted that there were outstanding assessments on the florida properties that neither petitioner nor her former husband could pay the following documents were enclosed with the letter for the settlement officer’s review complete recorded divorce decree an unsigned copy of the quitclaim_deed conveying public square property to petitioner’s former husband and a copy of the retail buyers’ order for a chevrolet car the final decree of divorce stated that petitioner’s former spouse shall receive the realty known a sec_128 public square and the dayton sic beach condominium time share and that petitioner would receive the west palm beach time share among other real properties listed additionally the decree stated that the court hereby orders the parties to execute quitclaim deeds herewith conveying their interest in said realty the submitted retail buyers’ order for a chevrolet malibu dated date noted the use of gmac financing and listed petitioner as purchaser with a copurchaser petitioner’s handwritten note accompanying the document stated that she cosigned for the vehicle but does not make the payments in the letter dated date from petitioner’s counsel he noted that the copurchaser was the daughter of petitioner’s former husband the settlement officer reviewed the documents accompanying petitioner’s counsel’s letter dated date and concluded that the quitclaim_deed for the public square property provided was unsigned so a question remained regarding petitioner’s ownership of this property no information on the value of or liens on the florida timeshare properties was provided and insufficient information was provided about the chevrolet malibu the settlement officer concluded that the financial information provided is still not complete therefore the determination to sustain the proposed levy action stands the appeals_office sent petitioner a notice_of_determination concerning collection action s under sec_6320 and or dated date sustaining the levy for the years at issue an attachment to the notice_of_determination explained additional information was received and reviewed on but was still incomplete insufficient information was provided to determine mrs maselli’s interest and or equity in the florida vacation properties the chevrolet car and the property on public square in clarksville tennessee since the financial information submitted is incomplete appeals cannot make an accurate collection determination no consideration can be given to taxpayer’s offer of an installment_agreement or to any other collection resolution i balanced the competing interests in finding the proposed levy appropriate you offered to resolve your debt via a monthly installment_agreement but failed to provide full financial information for consideration of this or any other collection alternative therefore the proposed levy balances the need for efficient collection with your concern that any collection action be no more intrusive than necessary discussion at a sec_6330 hearing a taxpayer may raise any relevant issue relating to the collection action including challenges to the appropriateness of the collection actions and possible collection alternatives sec_6330 sec_6159 gives the secretary discretionary authority to enter into installment agreements as a collection alternative to satisfy tax_liabilities when it is determined that this will facilitate full or partial collection eligibility for an installment_agreement is based on the taxpayer’s current financial condition see generally internal_revenue_manual irm pt date generally there is no abuse_of_discretion when an appeals_office employee relies on guidelines published in the irm to evaluate a proposed installment_agreement see eg 123_tc_1 affd 412_f3d_819 7th cir etkin v commissioner tcmemo_2005_245 following the hearing the appeals officer must determine whether the collection action should proceed the appeals officer must consider whether the requirements of applicable law and administrative procedure have been met any issues the taxpayer raised and whether the collection action balances the need for efficient collection_of_taxes with the taxpayer’s legitimate concern that any collection action be no more intrusive than necessary sec_6330 because petitioner does not dispute the underlying tax_liabilities we review the appeals office’s determination sustaining the collection action for abuse_of_discretion see 114_tc_604 an abuse_of_discretion occurs when the appeals officer’s determination was arbitrary capricious or without sound basis in fact or law 125_tc_301 affd 469_f3d_27 1st cir petitioner argues that the appeals office’s settlement officer abused her discretion by rejecting petitioner’s installment_agreement proposal and making a determination without considering all information that petitioner supplied respondent asserts that the settlement officer did not abuse her discretion because petitioner did not produce all of the required financial information the settlement officer determined that petitioner provided insufficient information regarding petitioner’s interest and or equity in the florida vacation properties the chevrolet car and the property on public square in clarksville tennessee accordingly the settlement officer rejected petitioner’s proposed collection alternative sec_6330 requires the appeals_conferee to consider information the taxpayer presented the administrative record shows that the settlement officer reviewed petitioner’s information regarding the proposed installment_agreement including the supplemental information enclosed with the letter dated date from petitioner’s counsel accordingly the settlement officer denied petitioner’s installment_agreement proposal because she could not make an accurate determination regarding petitioner’s equity in assets and corresponding ability to make a one-time payment to fully or partially satisfy balance due accounts see generally irm pt we conclude that because the settlement officer duly considered all the information that petitioner submitted she did not abuse her discretion in this regard petitioner further argues that the settlement officer abused her discretion by not providing petitioner with a reasonable opportunity to supply requested information as we stated in roman v commissioner tcmemo_2004_20 no statutory or regulatory provision requires that taxpayers be afforded an unlimited opportunity to supplement the administrative record the statute only requires that a taxpayer be given a reasonable chance to be heard prior to the issuance of a notice_of_determination further the appeals_office shall attempt to conduct a cdp hearing and issue a notice_of_determination as expeditiously as possible under the circumstances sec_301_6330-1 q a- e9 proced admin regs see murphy v commissioner supra pincite citing clawson v commissioner t c memo see also williams v commissioner tcmemo_2009_159 petitioner’s counsel asked for an extension of the original deadline to date to supply additional information that the settlement officer requested the settlement officer received and considered all information that petitioner supplied including the additional information submitted on date we conclude that the settlement officer did not abuse her discretion because she is not required to afford an unlimited opportunity to supplement the administrative record any such requirement would unduly prolong proceedings and would be a tool of those intending delay in sum nothing in the record justifies a conclusion that the settlement officer abused her discretion and petitioner has not shown that the appeals office’s determination to proceed with collection for petitioner’s unpaid tax_liabilities for and was arbitrary capricious or without sound basis in fact or law in reaching our decision we have considered all arguments made and to the extent not mentioned we conclude that they are moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number ---------------------------------- ----------------------- ------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-149264-05 date date - ---------------------------------------------- -------------------------- legend trust settlor daughter a b c d e f g h date year year court state law state law state law state law trust trust trust dear ---------------- ---------------------------------------- ------------------- ------------------------ ---------------------------- ----------------------- --------------------- ---------------------- ------------------------ ---------------------------- --------------------------- --------------------------- --------------------- ------- ------- ----------------------------------------------------------------------- ------------------------------------------------------ ------------------------------------------------------ ----------------------------------------------- ----------------------------------------------- ---------------------------------- -------------------------------- -------------------------------- this is in response to your letter dated date submitted by your authorized representative on your behalf and other correspondence concerning the plr-149264-05 generation-skipping_transfer gst tax gift_tax and income_tax consequences of the proposed partition of trust and the proposed modifications of the partitioned trusts the facts and representations submitted are summarized as follows settlor article v provides that upon the termination of trust all property then in the hands executed an irrevocable_trust agreement trust dated date with amendments dated prior to date trust was created for the primary benefit of settlor’s daughter daughter and her surviving_spouse and issue if any article iii of trust provides that all of the income of trust in the absolute and unqualified discretion of the trustees shall be either accumulated by the trustees for future distribution and may then be retained in the form received or invested and or re- invested by the trustees in such securities or properties as they may see fit without being limited as to any investment to securities or properties as may be permitted by law for the investment of trust funds or distributed to daughter during her lifetime from and after the death of daughter if she leaves surviving issue but no spouse all distributions made by the trustees shall be made to daughter’s issue per stirpes article iv provides that trust shall extend and continue until the death of the last survivor of thirteen named individuals settlor’s children and grandchildren there are currently five survivors remaining of the trustees shall immediately be distributed to daughter if living as her sole and separate_property if daughter shall not survive the termination of trust then upon the termination if daughter has lawful issue then surviving but no spouse two-thirds of all property then in the hands of the trustees shall be distributed to such issue per stirpes but if one or more are minors their shares shall go to the proper trustees or guardians article vii provides that in any case in which the trustees are required to divide the trust estate into parts or shares and to distribute the same or the proceeds thereof they are authorized and empowered in their sole discretion to make such division in_kind or in money or partly in_kind and partly in money died in year daughter left no surviving_spouse a has one child d b is survived by two children e and f c has two children g and h the current income beneficiaries of trust are a c e and f the current co-trustees of trust are d e and g and trust one trust each to benefit one of daughter’s children a b and c and his her family the sole trustee of trust will be d and the current income_beneficiary will be d’s mother a the sole trustee of trust will be e and the current income beneficiaries will be e and f the sole trustee of trust will be g and the current income_beneficiary will be g’s mother c trust will be partitioned on a pro_rata basis the co-trustees propose to petition court to partition trust into trust trust daughter died in year survived by two children a and c b the third child a c d e f g and h will provide written consent to the proposed partition of the co-trustees propose to obtain an order from court to modify trust sec_1 and state law provides that a trustee or beneficiary of a_trust may petition the court plr-149264-05 into trust sec_1 and and except for two modifications trust sec_1 and will have the same terms as trust trust sec_1 and will terminate under the original terms of trust as provided in article iv of trust to add testamentary limited powers of appointment in two specific circumstances first if a a child of a b or c child and all child’s issue issue fail to survive termination of the trust and if there existed at no time any issue entitled to receive income of that trust the share of the deceased child shall be distributed pursuant to child’s exercise of a testamentary limited_power_of_appointment in favor of child’s surviving_spouse or in default of such appointment as provided in trust second if child of a b or c and all issue fail to survive termination of a_trust and if issue was at any time entitled to receive income of that trust the share of issue shall be distributed pursuant to issue’s testamentary limited_power_of_appointment in favor of issue’s surviving_spouse or parent or in default of such appointment as provided in trust trust and proposed modifications of trust sec_1 and with the filing of the petition to modify a_trust state law provides that a trustee or beneficiary may petition the court to approve the division of a_trust state law provides that if all beneficiaries of an irrevocable_trust consent they may compel modification of a_trust upon petition to the court broader power is intended by express reference to state law a person who is a beneficiary of a_trust that permits the person as trustee or cotrustee to make discretionary distributions of income or principal to or for the benefit of himself or herself may exercise that power in his or her favor only for his or her health education support or maintenance within the meaning of sec_2041 or sec_2514 of the internal_revenue_code constructive have been made to trust after that date you have requested the following rulings the proposed partition of trust into trust sec_1 and will not cause trust or trust sec_1 and to lose their exempt status for gst tax purposes under a of the tax_reform_act_of_1986 act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations with a testamentary limited_power_of_appointment to benefit child’s surviving_spouse the proposed modifications of trust sec_1 and to provide child and issue state law provides that unless a settler or a testator clearly indicates that a_trust was irrevocable on date and no additions actual or the proposed partition of trust into trust sec_1 and and the proposed plr-149264-05 and issue’s surviving_spouse or parent respectively will not cause trust sec_1 and to lose their exempt status for gst tax purposes under a of the act and sec_26_2601-1 modifications of trust sec_1 and to provide child and issue with a testamentary limited_power_of_appointment to benefit child’s surviving_spouse and issue’s surviving_spouse or parent respectively will not result in a transfer subject_to gift_tax under sec_2501 by any of the beneficiaries modifications of trust sec_1 and to provide child and issue with a testamentary limited_power_of_appointment to benefit child’s surviving_spouse and issue’s surviving_spouse or parent respectively will not result in the realization of any income under ' and does not result in the realization of any gain_or_loss under ' ruling sec_1 and the proposed partition of trust into trust sec_1 and and the proposed sec_2601 imposes a tax on each generation-skipping_transfer which includes under sec_2611 a taxable_distribution a taxable_termination and a direct_skip under a of the act the gst tax is generally applicable to generation- skipping transfers made after date however under b a and sec_26_2601-1 the tax does not apply to a transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax will not cause the trust to lose its exempt status in general unless specifically provided otherwise these rules are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes thus unless specifically noted the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of gain for purposes of sec_1001 sec_26_2601-1 provides that a modification will not cause an exempt trust to be subject_to chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation plr-149264-05 beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer a modification that is administrative in nature that only indirectly increases the amount transferred will not be considered to shift a beneficial_interest in the trust sec_26_2601-1 example involves an irrevocable_trust that was established in the trustee has the discretion to distribute income and principal to a b and their issue in such amounts as the trustee deems appropriate on the death of the last to die of a and b the trust principal is to be distributed to the living issue of a and b per stirpes in the appropriate local court approved the division of the trust into two equal trusts one for the benefit of a and a's issue and one for the benefit of b and b's issue the trust terms are identical except for the beneficiaries the division of the trust into two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the division in addition the division does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the two partitioned trusts resulting from the division will not be subject_to the provisions of chapter in the present case trust was irrevocable on date it is represented that no additions actual or constructive were made to trust after that date the co-trustees propose to partition trust into trust trust and trust one trust each to benefit one of daughter’s children a b and c and his her family all income from each of trust sec_1 and will be distributed to the current income_beneficiary or beneficiaries under the original terms of trust trust sec_1 and must terminate no later than the time provided for under the original terms of trust the co-trustees also propose to modify trust sec_1 and to provide child and issue with a testamentary limited_power_of_appointment to benefit child’s surviving_spouse and issue’s surviving_spouse or parent respectively in the event the testamentary limited_power_of_appointment is not exercised the trust shall be distributed as provided in trust based on the facts submitted and representations made we conclude that the proposed partition of trust into trust sec_1 and and the proposed modifications of trust sec_1 and to provide child and issue with a testamentary limited_power_of_appointment to benefit child’s surviving_spouse and issue’s surviving_spouse or parent respectively will not result in a shift of any beneficial_interest in trust or trust sec_1 and to any beneficiary who occupies a generation lower than the persons holding the beneficial interests prior to the partition further the proposed partition of trust into trust sec_1 and and the proposed modifications of trust sec_1 and will not extend the time for vesting of any beneficial_interest in trust sec_1 and beyond the period provided for in the original trust accordingly we conclude that the proposed partition of trust and the proposed modifications of trust sec_1 and to provide child and issue with a testamentary_power_of_appointment to benefit child’s surviving_spouse and issue’s surviving_spouse or parent respectively will not cause trust or trust sec_1 and plr-149264-05 to lose their exempt status for gst tax purposes under a and sec_26 b i sec_2514 provides that the exercise or release of a general power of sec_2511 provides that subject_to the limitations contained in chapter ruling sec_2501 provides that a gift_tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident the gift_tax imposed by sec_2501 will apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that if a gift is made in property the value thereof at the date of the gift will be considered the amount_of_the_gift sec_2512 provides that where property is transferred for less than adequate_and_full_consideration in money_or_money's_worth the amount by which the value of the property exceeded the value of the consideration shall be deemed a gift appointment created after date shall be deemed a transfer of property by the individual possessing the power sec_2514 provides that for purposes of sec_2514 the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power possessor his estate his creditors or the creditors of his estate except that a power to consume invade or appropriate property for the benefit of the possessor which is limited by an ascertainable_standard relating to the health education support or maintenance of the possessor shall not be deemed a general_power_of_appointment modifications of trust sec_1 and to provide child and issue with a testamentary limited_power_of_appointment to benefit child’s surviving_spouse and issue’s surviving_spouse or parent respectively will not result in any change in the beneficial interests of any of beneficiaries of the trusts accordingly based on the facts submitted and representations made we conclude that the proposed partition of trust into trust sec_1 and and the proposed modifications of trust sec_1 and to provide child and issue with a testamentary limited_power_of_appointment to benefit child’s surviving_spouse and issue’s surviving_spouse or parent respectively will not result in a transfer subject_to gift_tax under sec_2501 by any of the beneficiaries provides that e as trustee of trust may exercise the power to make discretionary distributions of income or principal to or for the benefit of e only for e’s health e will be the sole trustee of trust and a beneficiary of that trust state law the proposed partition of trust into trust sec_1 and and the proposed plr-149264-05 education support and maintenance within the meaning of sec_2514 accordingly e’s exercise of the power to make distributions from trust to himself will not be deemed to be a transfer or property for purposes of sec_2501 and sec_2514 ruling sec_61 provides that gross_income includes gains derived from dealing in property under sec_1001 the gain from the sale_or_other_disposition of property is the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 and the loss is the excess of the adjusted_basis over the amount_realized sec_1_1001-1 of the income_tax regulations treats as income or as loss sustained the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent in 499_us_554 the supreme court of the united_states examined the issue of what constitutes a material difference in exchanged properties or a disposition of property for purposes of the realization requirement implicit in sec_1001 in cottage savings a savings and loan association sold 90-percent participation interests in mortgage loans to four other lenders simultaneously the association purchased 90-percent participation interests in mortgage loans held by these lenders the exchanged properties were derived from loans made to different obligors secured_by different homes and thus embodied legally distinct entitlements the association claimed a deduction under sec_165 for the adjusted difference between the face value of the participation interests the association had traded and the fair_market_value of the participation interests it had received the supreme court test for determining whether exchanged properties are materially different for purposes of sec_1001 is whether the respective possessors enjoy legal entitlements that are different in_kind or extent cottage savings pincite because the mortgages had different mortgagors and were secured_by different properties the loans were materially different the court therefore held that the taxpayer actually sustained a loss for purposes of sec_165 in revrul_69_486 1969_2_cb_159 a_trust instrument required the trustee to distribute the corpus of a_trust consisting of promissory notes and common_stock one- half to an individual and one-half to a tax exempt charitable_organization the beneficiaries however agreed that the individual should receive all of the notes and the charitable_organization should receive all of the stock although the trustee complied with their request neither the trust instrument nor local law allowed the trustee to make an allocation of specific property in_kind thus the beneficiaries were considered to have received a pro_rata distribution of the notes and stock followed by a deemed exchange between the beneficiaries of their respective shares of stock and notes revrul_69_486 therefore concluded that the individual recognized gain on the disposition of his shares of the common_stock in an amount determined under sec_1001 plr-149264-05 a pro_rata partition of jointly owned property is not a sale_or_other_disposition of property if the co-owners of the joint property sever their joint_interests but do not acquire a new or additional interest as a result thereof thus neither gain nor loss is realized on a partition revrul_56_437 1956_2_cb_507 under the proposed court order the beneficiaries will not acquire their interests in each of trust sec_1 and as a result of an exchange of their property interests in trust rather the trustees are exercising their right to partition trust as allowed by state law and by reason of their existing authority to distribute trust income or principal revrul_56_437 while trust sec_1 and will be modified pursuant to court order to allow child and issue a testamentary limited_power_of_appointment such modifications will not be a material_change under sec_1001 in contrast to the situation in revrul_69_486 the partition of trust into trust sec_1 and will be pro_rata and each of trust sec_1 and will receive an equal share of each asset of trust the interest that each of the beneficiaries will have in trust sec_1 and is substantially the same as each currently has in trust finally trust sec_1 and will be subject_to the original terms of trust accordingly based on the facts submitted and representations made we conclude that the proposed partition of trust into trust trust and trust and the proposed modifications of trust sec_1 and to provide child and issue with a testamentary limited_power_of_appointment to benefit child’s surviving_spouse or issue’s surviving_spouse or parent respectively pursuant to court order will not be considered to be a sale_or_other_disposition of trust property and thus will not cause any beneficiary trust or trust sec_1 or to recognize any gain_or_loss from a sale_or_other_disposition of the property under sec_61 or sec_1001 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 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 plr-149264-05 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely lorraine e gardner senior counsel branch passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter


department of the treasury internal_revenue_service washington d c apr number release date uilc cc tege eoeg et1 - cor-102947-01 memorandum for from subject office of division counsel associate chief_counsel tax exempt and government entities cc tege eoeg et1 - cor-102947-01 railroad retirement act tax status in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business became an employer under the railroad retirement act and the railroad unemployment insurance act effective date we have reviewed the opinion of the rrb and based upon the information submitted to the rrb we also conclude that became an employer under the railroad_retirement_tax_act effective date please take the appropriate action regarding this business will e mcleod cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc dom p si 1-plr-110831-00 date date legend x y subs date pursuant to a power_of_attorney on file in this office this responds to a letter submitted on behalf of x requesting an extension of time to elect to treat y and subs as a qualified subchapter_s subsidiaries qsubs under sec_1361 of the internal_revenue_code facts x filed an election to be treated as an s_corporation effective date the stock of the subs was contributed to x on date1 x contributed the stock of subs to y in exchange for y stock on the same date x intended to file elections to treat y and subs as qsubs effective date but the elections were not timely filed law and analysis sec_1361 provides that a qsub means any domestic_corporation which is not an ineligible_corporation if of the stock of such corporation is held by the s_corporation and the s_corporation elects to treat such corporation as a qsub notice_97_4 1997_2_irb_24 provides a temporary procedure for making a qsub election under notice_97_4 the s_corporation makes a qsub election with respect to a subsidiary by filing a form_966 subject_to certain modifications with the appropriate service_center the election may be effective up to days prior to the filing of the form under sec_301_9100-1 the commissioner may grant a reasonable extension of plr-110831-00 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 subtitles 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 internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides an automatic_extension 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_9100-3 conclusion in the present situation based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result an extension of time is granted until days following the date of this letter to elect that y and subs be treated as qsubs effective date the election should be made by following the procedure provided in notice_97_4 a copy of this letter should be attached to the election except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transactions described above under any other provision of the code this ruling is directed only to the taxpayer on whose behalf it was requested sec_6110 provides that it may not be used or cited as precedent s paul f kugler sincerely associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


id office uilc cca-941233-08 ---------- number release date from --------------------- sent thursday september pm to ------------------ cc --------------------------------------- subject re question on recurring_item_exception hi ---------- i am not aware of any guidance addressing what is material under sec_1_461-5 consideration of the amount of the liability in absolute terms and in relation to the amount of other items of income and expense attributable to the same activity however there is a separate materiality requirement in g ii which says a liability is material under the recurring_item_exception if it is material for financial statement purposes under gaap you may have already considered this the legislative_history of the recurring_item_exception provides if an item is considered material for financial statement purposes it will also be considered material for tax purposes for example assume that a calendar-year taxpayer enters into a one- year maintenance contract on date if the amount of the expense is prorated between and for financial statement purposes it should be prorated for tax purposes if however the full amount is deducted in for financial statement purposes because it is not material under generally_accepted_accounting_principles it may or may not be considered an immaterial item for purposes of the recurring_item_exception h_r conf_rep ------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------------------- -----------------------