ifiternal revenue service number release date department of the treasury washington dc third party communication none date of communication not applicable index number person to contact id no telephone number refer reply to cc tege eb hw plr-t-103511-15 date date legend taxpayer trust a_trust b_trust c trust d plan plr-t-103511-15 this responds to your letter dated date and subsequent correspondence requesting a ruling as to the federal tax consequences under sec_4976 and sec_61 of the internal_revenue_code code with respect to the merger of trust a and trust b into trust c and the transfer of assets from trust d to trust c facts taxpayer is a corporation that was formed through multiple business combinations taxpayer represents that trust a_trust b_trust c and trust d are each maintained as a voluntary employees’ beneficiary association under sec_501 taxpayer maintains trust a which currently provides medical benefits under plan to eligible employees eligible retirees and their eligible dependents taxpayer represents that the contributions and related deductions for trust a were calculated in accordance with the requirements of the code including sec_419a and sec_419a taxpayer maintains trust b which currently provides life_insurance benefits under plan to eligible employees eligible retirees and their eligible dependents taxpayer represents that it has taken deductions for all employer contributions made to trust b in accordance with the requirements of the code including sec_419a taxpayer maintains trust c which currently provides medical and long term disability benefits under plan to eligible employees taxpayer represents that the contributions and related deductions for trust c were calculated in accordance with the requirements of the code including sec_419a taxpayer maintains trust d which currently provides medical benefits under plan to certain eligible retirees and their eligible dependents taxpayer represents that trust d has at all times qualified as a_trust maintained pursuant to a collective bargaining agreement under sec_1_419a-2t of the income_tax regulations merger of trust a and trust b into trust c trust a and trust b will be merged into trust c by no later than date trust c will be amended to provide that trust c may be permitted to fund benefits for certain non-union retirees trust c will be renamed and new trust c will contain three separate subtrusts including a subtrust consisting of current trust a a subtrust consisting of current trust b and a subtrust consisting of current trust c taxpayer represents that the assets of each subtrust will be used to provide medical and welfare benefits to eligible employees and retirees of taxpayer and certain of its affiliates in the same manner as prior to the merger of the trusts taxpayer represents that each plr-t-103511-15 subtrust will continue to maintain separate books_and_records taxpayer represents that trust c will provide that none of the assets in a subtrust in trust c can be used as assets for any other subtrust and none of the assets in a subtrust in trust c are available to pay any of the other subtrusts’ benefits trust c might provide other_benefits under plan which are permissible under sec_501 taxpayer represents that any such benefits will be provided through a separate substrust and assets of the three subtrusts described above will not be used to pay for those benefits transfer of assets from trust d to trust c trust d will be amended to allow for a one-time transfer of i the trust d balance on the date of the transfer less ii dollar_figurey dollar_figurey is approximately i v of the projected amount required to fund the dollar_figurez of annual benefits and claims of the trust d and ii times the projected retiree transferred amount to be transferred no earlier than january by december completed in one taxable_year of taxpayer so that the transfer of the entire transferred amount will be contributions to trust d the amendment will require the and be completed the transferred amount will be held in the general account of trust c until able to fund each of the subtrusts at such point the funds held in the general account of trust c will be transferred and allocated to each subtrust to be used during a year for the payment of health and welfare claims and expenses none of the transferred amount will be used to fund benefits directly any portion of the transferred amount in excess of the amount needed to pay claims for that year will remain in the general account of trust c and be used in subsequent years to provide benefits payable through the subtrusts the total amount of contributions to trust d that had been deducted was dollar_figurew taxpayer represents that the contributions and related deductions for trust d were calculated in accordance with the requirements of the code including sec_419a from the effective date of trust d through the tax_year ending december trust d had a balance of dollar_figurex in assets as of december taxpayer made no nondeductible_contributions to trust d and there will be no amounts deducted after december and before the one-time transfer the amount of the one-time transfer exceeds the total amount of previously deducted contributions to trust d the projected balance of trust d after the transfer of assets from trust d to trust c will be dollar_figurey retiree contributions are less than the annual benefits payable by trust d and are used to pay benefits in the year in which they are placed into trust d taxpayer represents that trust d has become overfunded due to declining headcount increased cost shifting to participants the inability of taxpayer to pay certain plr-t-103511-15 prescription drug expenses from trust d and limits on benefits that may be paid from trust d taxpayer represents that trust a_trust b_trust c and trust d each individually have specific provisions that prohibit the trust from distributing any portion of the trust to taxpayer each trust has a specific provision to provide that i the assets of the trust allocable to any plan shall be held for the exclusive purposes of providing benefits to participants of the plan and their beneficiaries and defraying the reasonable expenses of administering the plan and the trust ii that trust assets may only be returned to taxpayer if a contribution less losses was made by taxpayer due to a mistake of fact and iii upon the termination of the plan the assets of the trust shall be used to provide benefits described in sec_501 to plan participants and their beneficiaries or used as provided in sec_1_501_c_9_-4 of the income_tax regulations except as otherwise provided in regulations of the department of labor promulgated under sec_403 of the employee_retirement_income_security_act_of_1974 erisa taxpayer represents that in the context of this merger taxpayer will not divert or direct any trust a_trust b_trust c or trust d assets to taxpayer taxpayer represents that it does not have any current or future legal obligations to provide benefits through trust c including without limitation specifically i the benefits to be provided to certain non-union retirees under trust c or ii any other_benefits under plan which are permissible under sec_501 of the code taxpayer represents that it will take the total amount of previously deducted contributions to trust d dollar_figurew into gross_income under the tax_benefit_rule in the year of the one-time transfer and no portion of that amount is excludable under sec_111 rulings requested taxpayer requests rulings that the proposed merger of trust a and trust b into trust c and the transfer from trust d to trust c will not result in a reversion of assets to taxpayer and therefore will not result in an excise_tax under sec_4976 due to a reversion of assets to taxpayer the proposed merger of trust a and trust b into trust c will not cause taxpayer to include any amount in gross_income under sec_61 including the inclusionary part of the tax_benefit_rule the proposed one-time transfer from trust d to trust c will not cause taxpayer to include any amount in gross_income under sec_61 in excess of the amount included pursuant to the tax_benefit_rule plr-t-103511-15 law sec_61 of the code provides that unless otherwise excepted gross_income includes all income from whatever source derived sec_111 provides that gross_income does not include income attributable to the recovery during the taxable_year of any amount deducted in any prior taxable_year to the extent the amount did not reduce the amount of tax_imposed_by_chapter_1 of the code generally the tax_benefit_rule requires a taxpayer who received a tax_benefit from a deduction in an earlier year to recognize income in a later year if an event occurs that is fundamentally inconsistent with the premise on which the deduction was initially based 460_us_370 see also 70_f3d_16 5th cir cert_denied 517_us_1208 the term tax_benefit_rule encompasses two concepts an inclusionary part and an exclusionary part 101_tc_35 the inclusionary part has been developed in the courts and requires a taxpayer to include a previously deducted amount in the current year's income when a fundamentally_inconsistent_event has occurred the exclusionary part is partially codified at sec_111 and permits a taxpayer to exclude an amount that did not previously provide a tax_benefit when it was deducted the exclusionary part cannot apply unless the inclusionary part applies the tax_benefit_rule allays some of the inflexibilities of the annual accounting system under specific circumstances hillsboro national bank u s pincite the general purpose of the tax_benefit_rule is to approximate the results produced by a tax system based on transactional rather than annual accounting id pincite the tax_benefit_rule will cancel out an earlier deduction when a later event is fundamentally inconsistent with the premise on which the deduction was initially based even in situations where there is no actual recovery_of funds id pincite one must consider the facts and circumstances of each case in light of the purpose and function of the provisions granting the deductions id pincite although it is usually helpful to determine whether the later event would have foreclosed the deduction if it had occurred within the same tax_year that inquiry is not an exclusive test see 267_f3d_1344 fed cir sec_419 provides that contributions paid_or_accrued by an employer to a welfare_benefit_fund are not deductible under chapter but if they would otherwise be deductible are subject_to the limitation of sec_419 deductible under sec_419 for the taxable_year in which paid plr-t-103511-15 sec_419 limits the employer's deduction under sec_419 to a welfare_benefit fund's qualified_cost for the taxable_year the qualified_cost of a welfare_benefit_fund for a taxable_year is defined in sec_419 as the sum of the qualified_direct_cost for the taxable_year and subject_to the limitation of sec_419a any addition to a qualified_asset_account for the taxable_year under sec_419 the qualified_cost for any taxable_year is reduced by the welfare_benefit fund's after-tax_income for the taxable_year sec_419 provides that the term qualified_direct_cost means with respect to any taxable_year the aggregate amount including administrative expenses that would have been allowable as a deduction to the employer with respect to the benefits provided during the taxable_year if those benefits were provided directly by the employer and the employer used the cash_receipts_and_disbursements_method of accounting sec_419 provides that for purposes of sec_419 a benefit is treated as provided when that benefit would be includible in the gross_income of the employee if provided directly by the employer or would be so includible but for any provision of chapter of the code excluding that benefit from gross_income sec_419 defines the term welfare_benefit_fund to include any fund through which the employer provides welfare benefits to employees or their beneficiaries the term fund is defined in sec_419 to include an organization described in sec_501 sec_1_419-1t q a-2 a of the income_tax regulations provides that sec_419 of the code generally applies to contributions paid_or_accrued with respect to a welfare_benefit_fund after date in taxable years of employers ending after that date sec_419a provides that the term qualified_asset_account means any account consisting of assets set_aside to provide for the payment of disability benefits medical benefits sub or severance_pay benefits or life_insurance benefits sec_419a provides that no addition to any qualified_asset_account may be taken into account under sec_419 to the extent the addition results in the amount of the account exceeding the account limit sec_419a provides that except as otherwise provided in this subsection the account limit for any qualified_asset_account for any taxable_year is the amount reasonably and actuarially necessary to fund a claims incurred but unpaid as of the close of the taxable_year for benefits referred to in subsection a and b administrative costs with respect to the claims plr-t-103511-15 sec_419a provides that the term qualified_asset_account means any account consisting of assets set_aside to provide for the payment of disability benefits medical benefits sub or severance_pay benefits or life_insurance benefits sec_419a provides that no addition to any qualified_asset_account may be taken into account under sec_419 to the extent the addition results in the amount of the account exceeding the account limit sec_419a provides that except as otherwise provided in this subsection the account limit for any qualified_asset_account for any taxable_year is the amount reasonably and actuarially necessary to fund a claims incurred but unpaid as of the close of the taxable_year for benefits referred to in subsection a and b administrative costs with respect to the claims sec_419a provides that the account limit for any taxable_year may include a reserve funded over the working lives of the covered employees and actuarially determined on a level basis using assumptions that are reasonable in the aggregate as necessary for a post-retirement medical benefits to be provided to covered employees determined on the basis of current medical costs or b post-retirement life_insurance benefits to be provided to covered employees sec_419a provides that no account limits apply in the case of any qualified_asset_account under a separate welfare_benefit_fund under a collective bargaining agreement sec_4976 imposes a percent excise_tax if an employer maintains a welfare_benefit_fund and there is a disqualified_benefit provided during any taxable_year sec_4976 defines disqualified_benefit to include any portion of a welfare_benefit_fund reverting to the benefit of the employer in revrul_73_599 1973_2_cb_40 modified by revrul_77_92 1977_1_cb_41 the issue was whether the balance in a retired_lives_reserve had to be included in the gross_income of the employer in the taxable_year in which the employer terminated the insurance_contract at the time it terminated the insurance_contract the employer directed that the insurance carrier should transfer the balance in the retired_lives_reserve to a_trust qualified as a veba under sec_501 the employer had deducted the premiums_paid into a retired_lives_reserve during the years when it was maintaining the insurance_contract for the benefit of its employees the insurance_contract provided that upon cancellation or other termination of the contract any balance in the retired_lives_reserve could be distributed to the employer as a dividend or at the employer's option transferred to a_trust qualified under sec_501 for the purpose of providing insurance coverage for retired employees under these facts the ruling holds that the balance in the retired_lives_reserve was includable in the employer's gross_income under sec_61 in the year of the transfer the ruling states that because plr-t-103511-15 the insurance_contract gave the employer a fixed_right to receive the balance in the retired_lives_reserve in the year in which it terminated its coverage under the policy that balance was includable in the employer's gross_income for the year of the termination notwithstanding the fact that the employer directed the insurance_company to transfer the money to a sec_501 trust the ruling also holds that in those cases in which the tax_benefit_rule under sec_111 applies the rule applies only to that part of the balance that was accumulated out of premiums it does not apply to that part of the accumulated balance that is the interest increments similarly in revrul_77_92 a corporate employer with a group term_insurance program that included a retired_lives_reserve had the option to discontinue the insurance coverage and to direct the insurance carrier to use the amount in the retired_lives_reserve either to pay premiums for insurance on the lives of retired employees or to pay a dividend to the employer the employer terminated the insurance_contract and directed the insurance carrier to transfer the balance in the retired_lives_reserve to another insurance_company to purchase insurance for retired employees the ruling states that the facts presented are in substance the same as those contained in revrul_73_599 except that the right reserved to the employer in revrul_77_92 to transfer the funds remaining in the retired_lives_reserve consisted of the right to direct payment to those funds to another insurance_company rather than to a_trust that qualified for exemption under sec_501 of the code however this difference was not considered material because the taxpayer's right of control_over the retired_lives_reserve was substantially the same in both cases accordingly the ruling concludes that the same basic federal_income_tax rules apply to the transfers in the two cases the ruling also states that the portion of the transferred reserve accumulated out of premiums_paid or incurred in taxable years ending after date is not includible in the employer's income because such premiums were not deducted since the employer retained the right of recapture analysis and conclusions merger of trust a and trust b into trust c taxpayer represents that following the merger of trust a and trust b into trust c the assets of each subtrust will be used to provide medical and welfare benefits to eligible employees and retirees of taxpayer and certain of its affiliates in the same manner as prior to merger each subtrust will continue to maintain separate books_and_records and trust c will provide that none of the assets in a subtrust in trust c can be used as assets for any other subtrust and none of the assets in a subtrust are available to pay any of the other subtrusts’ benefits as explained above the tax_benefit_rule is implicated when a taxpayer has taken a deduction in a prior year and in a subsequent year an event occurs that is fundamentally inconsistent with the premise of the deduction the facts and plr-t-103511-15 circumstances of each case must be considered in light of the purpose and function of the provisions granting the deductions hillsboro national bank u s pincite we conclude that the merger of trust a and trust b into trust c is not fundamentally inconsistent with the premise on which the deductions for contributions to trust a and trust b were based and therefore the tax_benefit_rule does not require taxpayer to include any amount in income as a result of that merger in this case with regard to the merger of furthermore based on the information provided by taxpayer the merger of trust a and trust b into trust c will not be an accession to wealth for taxpayer and therefore does not result in gross_income under sec_61 trust a and trust b into trust c there are provisions requiring the assets of trust a and trust b to be used for providing benefits and prohibiting those trusts from distributing any portion to taxpayer the provisions precluding taxpayer from receiving a reversion distinguishes this case from the situations considered in rev ruls and moreover taxpayer has no right to any sort of reversion of trust c's assets and has no current or future obligations to provide benefits through trust c therefore taxpayer will not realize any income under sec_61 due to the merger of trust a and trust b into trust c as explained above sec_4976 imposes a percent excise_tax if an employer maintains a welfare_benefit_fund and there is a disqualified_benefit provided during any taxable_year a disqualified_benefit is defined in sec_4976 to include any portion of a welfare_benefit_fund reverting to the benefit of the employer based on the information provided by taxpayer it does not appear that the merger of trust a and trust b into trust c will result in any portion of trust a_trust b or trust c reverting to the benefit of taxpayer thus the merger will not result in a disqualified_benefit within the meaning of sec_4976 and the merger will not in and of itself cause taxpayer to be liable for the excise_tax imposed by sec_4976 transfer of assets from trust d to trust c the amendment of trust d a separate welfare_benefit_fund under a collective bargaining agreement within the meaning of sec_419a will allow amounts that were originally set_aside to provide retiree health benefits for union retirees to be transferred to trust c and used to provide health and other welfare benefits to taxpayer's active employees and other retirees therefore the amendment of trust d will implicate the tax_benefit_rule because taxpayer deducted its contributions to trust d in accordance with sec_419a in prior years but after the amendment the amount of the one-time transfer will be available to provide benefits under trust c which is not a separate welfare_benefit_fund under a collective bargaining agreement as described in sec_419a thus the amendment is fundamentally inconsistent with the premise of the prior deductions taxpayer has therefore represented that it will take the total amount of previously deducted contributions to trust d dollar_figurew into gross plr-t-103511-15 income under the tax_benefit_rule in the year of the amendment and one-time transfer and no portion of that amount is excludable under sec_111 because the amount of the one-time transfer exceeds the total amount of previously deducted contributions to trust d it is necessary to consider whether taxpayer will in this case with regard to the transfer have an accession to wealth under sec_61 of assets from trust d to trust c there are provisions requiring the assets of trust d to be used for providing benefits and prohibiting trust d from distributing any portion of trust d to taxpayer although trust d is being amended to allow the transfer of assets to trust c trust d provisions prohibit trust d assets from reverting to taxpayer the provisions precluding taxpayer from receiving a reversion distinguishes this case from the situations considered in rev ruls and moreover taxpayer has no right to any sort of reversion of trust c’s assets furthermore taxpayer has represented that it does not have any current or future legal obligations to provide benefits through trust c therefore because taxpayer does not have any right to a relief from a liability it will not realize any income under reversion of trust d assets or a sec_61 of the code on the amount transferred from trust d to trust c that exceeds the dollar_figurew to be included in taxpayer’s income under the tax_benefit_rule based on the information submitted by taxpayer it does not appear that the transfer of trust d assets to trust c will result in any portion of trust d reverting to the benefit of taxpayer thus the transfer from trust d to trust c will not result in a disqualified_benefit within the meaning of sec_4976 and the transaction will not in and of itself cause taxpayer to be liable for the excise_tax imposed by sec_4976 we assume without expressing an opinion for purposes of this ruling that taxpayer has the authority to complete the transactions described and that these transactions can otherwise be effectuated and do not fail to meet the requirements of other applicable federal and state law 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 specifically no opinion is expressed regarding the amount of any deductions under sec_419 and sec_419a we note however that taxpayer will not be considered to have contributed to trust c any amount transferred from trust d to trust c that exceeds the amount that taxpayer is taking into income under the tax_benefit_rule as described above accordingly the total amount deductible by taxpayer under sec_419 and sec_419a with respect to any amounts transferred from trust d to trust c cannot exceed dollar_figurew this ruling is directed only to the taxpayer requesting it specifically no opinion is expressed regarding the tax consequences of the described transactions to trust a_trust b_trust c or trust d nor is any opinion expressed regarding the status under plr-t-103511-15 sec_501 of any trust including any subtrust sec_6110 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 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 janet laufer senior technician reviewer health welfare branch office of associate chief_counsel tax exempt government entities


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc intl plr-160957-01 date date legend taxpayer fb entity individual a dear this replies to your letter dated date in which taxpayer requests an extension of time under sec_301_9100-3 to file the annual certification described in sec_1_1503-2 with respect to the dual consolidated losses of fb and entity for the respective tax years as we have listed them on schedule a which we have attached to and made part of this ruling letter the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process individual a is the director of international taxes for taxpayer and is responsible for all international tax planning and compliance for taxpayer and its subsidiaries including fb and entity the affidavit of individual a and the facts submitted describe in detail the circumstances surrounding the reasons that annual certifications were not filed the affidavit and facts also indicate that taxpayer reasonably relied on individual a as a qualified_tax professional sec_301 -1 b provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 provides that the commissioner has discretion to grant a in re plr-160957-01 taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides 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 in the present situation sec_1_1503-2 fixes the time to file an annual certification therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the standards set forth in sec_301_9100-3 based on the facts and circumstances of this case we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time until days from the date of this ruling letter to file the annual certification described in sec_1_1503-2 with respect to the dual consolidated losses of fb and entity for the respective tax years as we have listed them on schedule a which as previously stated we have attached to and made part of this ruling letter as provided in sec_301_9100-1 the granting of an extension of time is not a determination that taxpayer is otherwise eligible to file the annual certifications this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent a copy of this ruling letter should be associated with the annual certifications no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented sincerely allen goldstein reviewer office of the associate chief_counsel international attachment schedule a in re plr-160957-01 schedule a g vi b annual certification with respect to for the tax years ended loss years loss years loss years loss years loss years loss_year g vi b annual certification with respect to for the tax_year ended loss_year


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi - plr-105378-01 date date x a d1 year dear this letter responds to a letter dated date and subsequent correspondence submitted by x’s authorized representative on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year a the president and sole shareholder of x represents that x was intended to be an s_corporation from its inception this intent is evidenced by x’s form_2553 election by a small_business_corporation which was timely completed and signed by a however the form_2553 was not timely filed for x’s year taxable_year sec_1362 of the code provides that if -- a 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 b the secretary determines that there was reasonable_cause for the failure to timely make such election 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 for x’s year taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year 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 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 who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being forwarded to x’s authorized representative sincerely yours jeanne m sullivan assistant to the chief 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 norman spector and marcia spector petitioners v commissioner of internal revenue respondent lionel ehrenworth and beth ehrenworth petitioners v commissioner of internal revenue respondent docket nos filed date robert j alter and richard j sapinski for petitioners norman spector and marcia spector stephen h skoller and stephen e lampf for petitioners lionel ehrenworth and beth ehrenworth craig connell for respondent these cases were consolidated for trial briefing and opinion memorandum findings_of_fact and opinion colvin judge respondent determined deficiencies in petitioners' federal income taxes and additions to tax as follows norman and marcia spector additions to tax sec sec sec year deficiency a a a b a dollar_figure dollar_figure dollar_figure big_number big_number big_number -- big_number lionel ehrenworth additions to tax sec sec sec year deficiency a a a b a big_number big_number big_number big_number big_number big_number lionel and beth ehrenworth additions to tax_year deficiency sec_6653 sec_6661 big_number big_number sec_6653 applied in fifty percent of the interest due on the portion of the underpayment attributable to negligence petitioners marcia spector and lionel ehrenworth were divorced in petitioners filed cross-motions for partial summary_judgment relating to whether payments made by dr ehrenworth to mrs spector after their divorce were alimony or a property settlement we denied both motions spector v commissioner tcmemo_1994_147 we held that whether a payment is alimony under sec_71 is determined by considering all the facts and circumstances and not solely by reference to how it is characterized by the separation agreement or by reference to state law after concessions the issues for decision are whether payments dr ehrenworth made to mrs spector in and were alimony or a property settlement we hold that they were in part alimony and in part a property settlement whether dr ehrenworth is liable for additions to tax for and for negligence under sec_6653 with respect to claimed dependency_exemption deductions we hold that he is whether the spectors are liable for an addition_to_tax for for negligence under sec_6653 with respect to a claimed dependency_exemption deduction we hold that they are not references to petitioners are to the spectors and the ehrenworths references to mrs spector are to marcia spector references to dr ehrenworth are to lionel ehrenworth unless otherwise indicated section references are to the internal respondent concedes that petitioners are not liable for additions to tax for negligence or substantial_understatement for and for any deficiencies related to the characterization of the payments from dr ehrenworth to mrs spector revenue code in effect for the years at issue rule references are to the tax_court rules_of_practice and procedure a background findings_of_fact mrs spector formerly mrs ehrenworth and dr ehrenworth were married in date they had four children richard andrew robert and douglas they filed cross-motions for divorce around mrs spector and dr ehrenworth settled the property distribution and alimony issues at a conference before the superior court of new jersey chancery division essex county on date dr ehrenworth earned a large amount of income while he was married to mrs spector she earned little or no income during those years the ehrenworths lived in new jersey and the spectors lived in california when they filed their petitions b the property settlement on date mrs spector and dr ehrenworth signed a property settlement and support agreement the support agreement in it among other things mrs spector waived all rights she had to any interest in dr ehrenworth's pension fund and medical practice she also conveyed by deed any interest she had in a medical building and any rights she had to shares in the phoenix corp the phoenix corp is an inactive company that has never had any assets dr ehrenworth agreed to pay mrs spector dollar_figure on date and dollar_figure by date for certain objects of art dr ehrenworth agreed to pay dollar_figure per year to support richard and andrew until they began their post- high-school education or were emancipated at the time of the settlement richard wa sec_11 and andrew wa sec_15 dr ehrenworth agreed to pay mrs spector dollar_figure per week for years regardless of mrs spector's financial circumstances income or health and regardless of whether dr ehrenworth's or mrs spector's financial circumstances changed they agreed that the payments would cease if mrs spector died but not if she remarried their support agreement stated that these payments were alimony mrs spector agreed to maintain a life_insurance_policy on the life of dr ehrenworth which had a face value of dollar_figure if dr ehrenworth died before making all the weekly payments to mrs spector he agreed that his estate would pay the balance less the insurance proceeds mrs spector received the weekly payments provision was the only provision for support in the support agreement dr ehrenworth and mrs spector negotiated the division of their marital assets they then used the weekly payments both to achieve an acceptable division of their marital assets and to provide support for mrs spector mrs spector and dr ehrenworth were divorced on date the judgment of divorce provided that the property settlement and support agreement dated date a copy of which is attached hereto which property settlement and support agreement was voluntarily entered into by the parties and reduced to writing to memorialize the parties' prior oral property settlement and support agreement dated date be and the same is incorporated but not merged in the within judgment c payments to mrs spector dr ehrenworth made the payments on fridays at mrs spector’s request so that she could plan her week mrs spector married norman spector on date after that time dr ehrenworth stopped paying mrs spector the dollar_figure per week on date mrs spector filed a motion in new jersey superior court to compel dr ehrenworth to continue paying dollar_figure per week to her dr ehrenworth filed a cross-motion to terminate these payments and to vacate arrearages he argued that the payments were alimony and that mrs spector could not continue to recover alimony under n j stat ann sec_2a because she had remarried n j stat ann sec_2a provides if after the judgment of divorce the wife shall remarry the court shall not make any order as to the alimony of such wife except that upon application of the former husband on notice and on proof of the marriage of the former wife after the judgment of divorce the court shall modify any order or judgment as to the alimony of the former wife by vacating and annulling any and all provisions in any such order or judgment or both directing the payment of money for the support of the former wife in new jersey revised the statute to be gender neutral among other things on date mrs spector filed a certification in support of her motion to compel dr ehrenworth to make the weekly payments in which she referred to the payments as alimony on date mrs spector filed a second certification in which she referred to the weekly payments as alimony on date mrs spector filed a third certification in which she referred to the weekly payments as support the judge who had handled the divorce case and conducted the settlement negotiations decided the motions he granted mrs spector's motion dr ehrenworth appealed on date the appellate division of the superior court affirmed the lower court's ruling ehrenworth v ehrenworth n j super a 2d app div the appellate division stated the new jersey statute is intended to provide that if the court has awarded alimony then upon the wife's remarriage the alimony must cease we see no reason in public policy why the agreement should not be enforced the parties voluntarily agreed upon its terms in proceedings of the greatest formality if the payments were to be treated by the parties as installments on a fixed obligation as opposed to alimony it cannot be doubted that dr ehrenworth would be denied relief since the new jersey statute deals only with alimony we do not see why the fact that for perceived tax advantages the parties preferred to call the payments alimony should have a bearing on the outcome of this litigation enforcement of the new jersey statute in the circumstances of this case would work an unconscionable result relieving dr ehrenworth of his freely bargained-for obligation and depriving plaintiff of the benefit for which she negotiated in negotiating this agreement mrs spector thereby forewent the possibility of obtaining other consideration from dr ehrenworth id pincite a 2d pincite fn ref omitted dr ehrenworth paid mrs spector dollar_figure in and dollar_figure in in accordance with the support agreement in dr ehrenworth paid dollar_figure dollar_figure per week for weeks dr ehrenworth deducted the payments from his gross_income for the years in issue mrs spector did not include the payments in her gross_income d exemptions the spectors claimed exemptions for robert andrew and richard in and for richard in dr ehrenworth claimed exemptions for robert andrew and richard in and the ehrenworths claimed an exemption for richard in mrs spector had custody of robert andrew and richard after her divorce from dr ehrenworth the support agreement states that dr ehrenworth may claim douglas and richard as exemptions and mrs spector may claim andrew and robert as exemptions the parties agree that petitioners the spectors and the ehrenworths may not claim an exemption for robert for the years in dispute that the spectors may claim an exemption for andrew for and that dr ehrenworth may not claim an exemption for andrew for or dr ehrenworth did not establish that he provided more than dollar_figure to support richard in or the parties also agree that the spectors and not dr ehrenworth or the ehrenworths may claim an exemption for richard for and because dr ehrenworth did not establish that he provided the requisite amount of support for richard in those years dr ehrenworth's attorney irving tobin explained the support agreement to dr ehrenworth dr ehrenworth understood that he agreed not to claim andrew and robert as exemptions the spectors supported andrew in and richard in and the spectors provided dollar_figure to support robert in dollar_figure in and dollar_figure in opinion a whether payments from dr ehrenworth to mrs spector were alimony introduction the first issue for decision is whether payments from dr ehrenworth to mrs spector in and were alimony or a property settlement a former spouse must include in gross_income periodic_payments received as alimony or separate_maintenance sec_71 50_tc_865 sec_71 provides decree of divorce or separate_maintenance -- if a wife is divorced or legally_separated from her husband under a decree of divorce or of separate_maintenance the wife's gross_income includes periodic_payments whether or not made at regular intervals received after such decree in discharge of or attributable to property transferred in trust or otherwise in discharge of a legal_obligation which because of the marital or family relationship is imposed on or incurred by the husband under the decree continued affd 415_f2d_310 4th cir payments which are a property settlement are not taxable to the recipient under sec_71 estate of 208_f2d_349 3d cir affg in part and revg in part a memorandum opinion of this court dated date 82_tc_128 50_tc_522 a taxpayer may deduct amounts paid to a former spouse if those payments are includable in the former spouse's gross_income under sec_71 sec_215 yoakum v commissioner supra if the payments in these cases are alimony then dr ehrenworth may deduct the payments under sec_215 and mrs spector must include the amounts in income under sec_61 however if the payments are a property settlement dr ehrenworth may not deduct them and mrs spector need not include them in income continued or under a written instrument incident to such divorce or separation sec_71 and sec_215 were amended by the deficit_reduction_act_of_1984 publaw_98_369 and b 98_stat_795 the amendments apply to divorce or separation instruments executed after date and instruments modified on or after date if the modification provides that the amendments govern mrs spector and dr ehrenworth were divorced in the record does not indicate that they amended the separation agreement or the divorce decree to provide that the amendments govern thus the amendments to sec_71 and sec_215 do not apply here contentions of the parties dr ehrenworth argues that the payments are alimony because the agreement said the payments were alimony and the new jersey courts enforced the agreement he points out that the agreement does not say that the payments ceased being alimony when mrs spector remarried mrs spector argues that the postremarriage weekly payments are not alimony for tax purposes because under new jersey law courts may not order alimony to be paid after the remarriage of the recipient of the payments n j stat ann sec_2a respondent argues that we should allocate the payments between alimony and a property settlement dr ehrenworth testified that the marital estate was worth about dollar_figure million and that he received about percent of the estate without considering the weekly payments respondent contends that dr ehrenworth received about dollar_figure the difference between dollar_figure million percent of the marital assets and dollar_figure percent more than mrs spector respondent points out that to equally divide the assets dr ehrenworth would have had to pay mrs spector half of the excess he received ie dollar_figure under the agreement the weekly payments totaled dollar_figure dollar_figure week time sec_52 weeks time sec_12 years respondent argues that we should allocate about percent dollar_figure dollar_figure of the weekly payments to property settlement and percent to alimony the nature of the payments in deciding the character of an award in a divorce or separation decree great weight is given to the language and structure of the decree 749_f2d_11 6th cir affg tcmemo_1983_278 the decision whether payments are in the nature of support or a property settlement however is not controlled by the labels assigned to the payments by the court in the divorce decree or by the parties in their agreement but instead depends on all of the facts and circumstances yoakum v commissioner supra pincite 77_tc_1275 73_tc_921 affd 710_f2d_607 10th cir 60_tc_685 affd without published opinion 511_f2d_1393 3d cir in deciding whether payments are a property settlement or alimony we have considered whether a the recipient surrendered valuable property rights in exchange for the payments b the parties intended the payments to effect a division of their assets c the amount of the payments plus the sec_71 which applies to divorce instruments executed before designates certain payments which are made over a period of more than years as periodic and thus taxable to the recipient to the extent of percent of the principal sum dr ehrenworth made payments to mrs spector for years under the terms of the agreement respondent did not argue and we do not address the applicability of that section other_property awarded to the recipient equals approximately one- half of the property accumulated by the parties during marriage d the payments are fixed in amount and not subject_to contingencies such as the death or remarriage of the recipient e the payments are secured f the needs of the recipient were taken into consideration in determining the amount of the payments g the payments are related to the obligor's income h there is a separate provision for support elsewhere in the agreements and i the state court characterized the payments as alimony or a property settlement 649_f2d_768 10th cir affg tcmemo_1979_237 77_tc_1275 75_tc_405 a whether mrs spector surrendered valuable property rights mrs spector argues that she surrendered valuable property rights in dr ehrenworth's pension dr ehrenworth's medical practice the couple's art collection the medical building the phoenix corp and the home dr ehrenworth built in watchung new jersey in exchange for the weekly payments we disagree that she surrendered those rights in exchange for the weekly payments both spouses surrendered rights to marital assets when they settled the property issues they used the weekly payments both to achieve an acceptable division of their marital assets and to provide support for mrs spector however the record does not show that mrs spector surrendered property rights in exchange for the payments mrs spector claims that various assets were improperly included or excluded from the division of their marital assets we think her argument misses the mark we do not decide here whether the assets were equally divided we only consider what dr ehrenworth and mrs spector intended when they negotiated the property settlement and weekly payments mrs spector contends that dr ehrenworth conceded that she surrendered property rights in the marital estate in exchange for the weekly payments we disagree dr ehrenworth merely acknowledged that she surrendered rights to property in exchange for his agreement that the payments would continue even if she remarried we conclude that mrs spector did not surrender valuable property rights in exchange for the weekly payments this factor favors treating the payments as alimony b whether mrs spector and dr ehrenworth intended the payments to effect a division of their assets mrs spector argues that she and dr ehrenworth intended that the weekly payments would result in an equal division of the marital property she argues that without the weekly payments she would have received less than one-half of the marital property she contends that she agreed to receive the payments for years to complete the equitable distribution of the marital estate and because of dr ehrenworth's liquidity problems dr ehrenworth maintains that he and mrs spector split the marital assets almost equally without considering the weekly payments the record contains little evidence of the total value of the marital estate except for the artwork which was appraised by sotheby parke bernet in date and the cash payments to mrs spector the values of marital assets stated at trial are unsupported by documentary_evidence for example mrs spector received the marital home but there is no credible_evidence of its value at the time she and dr ehrenworth divorced also in estimating the value of the home dr ehrenworth did not consider the mortgage on the home which mrs spector assumed similarly under the agreement dr ehrenworth and mrs spector each kept jewelry but there is no evidence of its value dr ehrenworth and mrs spector's testimony concerning the division of the marital assets was contradictory tobin testified that they split their assets equally but he stated that the division of assets did not include dr ehrenworth's medical practice dr ehrenworth testified that he got about percent of the marital estate we treat this as his concession that he received percent of the marital assets however mrs spector has not proven that she got less than percent of the marital estate this factor is neutral c whether the weekly payments and other_property awarded to mrs spector equaled one-half of the marital estate as discussed in paragraph a-3-a dr ehrenworth and mrs spector used the weekly payments to achieve an acceptable division of their marital assets and to provide support for mrs spector the record shows that mrs spector received somewhat more than one-half of the marital estate in the form of the weekly payments and other marital property awarded to her this factor is neutral d whether the weekly payments were fixed in amount and subject_to contingencies the payments were fixed in amount and duration under new jersey law alimony is generally subject_to review and modification on a showing of changed circumstances n j stat ann sec_2a lepis v lepis n j a 2d the agreement required dr ehrenworth to pay mrs spector dollar_figure per week for years whether or not dr ehrenworth's or mrs spector's financial circumstances changed the payments were not contingent on mrs spector's not remarrying although they would cease if mrs spector died see n j stat ann sec_2a alimony stops on remarriage mrs spector points out that the payments were contingent only on her staying alive during the payment period she argues that her death is not a significant contingency and that she agreed that the payments would end when she died because her estate and dr ehrenworth's estate would go to their sons we disagree mrs spector had no guarantee that if she died while the weekly payments were being made dr ehrenworth would leave anything to their sons we think her death is a significant contingency the fact that the payments continued after mrs spector remarried favors treating them as a property settlement in contrast the fact that the payments were to stop if she died favors treating them as alimony this factor is neutral e whether the payments were secured the payments were secured_by a dollar_figure life_insurance_policy on the life of dr ehrenworth mrs spector paid the premiums on the policy if dr ehrenworth died before making all of the weekly payments the insurance proceeds would be credited against the remaining payments and his estate would pay the balance if any thus dr ehrenworth provided no security for the majority of the payments this factor is neutral f whether mrs spector’s needs were considered in fixing the amount of the payments mrs spector argues that the payments were unrelated to her financial needs and points out that the payments were not adjustable based on any change in the cost of living or change in her financial circumstances we disagree during the divorce proceedings mrs spector's lawyer told the court that the settlement was based in part on mrs spector's needs dr ehrenworth points out that he made the payments on fridays at mrs spector's request so that she could plan her week mrs spector stated in the certification she filed to compel dr ehrenworth to make the payments after her remarriage that she needed the money to pay her bills we think dr ehrenworth and mrs spector considered mrs spector's needs in fixing the payments this factor favors treating the payments as alimony g whether payments were related to dr ehrenworth’s income the record does not establish whether the payments were related to dr ehrenworth's income tobin said dr ehrenworth and mrs spector considered dr ehrenworth's income but he did not say that his income related to the amount of the payments the payments were not adjustable based on changes in dr ehrenworth's financial circumstances this factor is neutral h whether there was a separate provision for support mrs spector points out that the agreement contains a separate provision for child_support she admits however that the weekly payments provision is the only provision in the agreement for her support mrs spector argues that dr ehrenworth's obligation under state law to support her terminated when she remarried she argues that she and dr ehrenworth agreed that her right to receive postremarriage payments was part of their property settlement and not alimony for tax purposes the fact that the agreement contains no provision for the support of mrs spector other than the weekly payments favors treating the payments as alimony if a former spouse agrees to pay alimony after his or her spouse remarries and the agreement is enforced under state law then the fact that courts in that state may not order postremarriage alimony absent such an agreement does not in itself determine whether the payments are treated as alimony for federal_income_tax purposes 335_f2d_841 5th cir 81_tc_112 44_tc_709 13_tc_361 7_tc_700 spector v commissioner tcmemo_1994_147 i how the state court characterized the payments the superior court of new jersey characterized the payments as alimony because mrs spector and dr ehrenworth agreed that the payments were alimony this favors treating them as alimony mrs spector points out that in ehrenworth v ehrenworth n j super a 2d app div the appellate division of the superior court analogized the payments to installments on a fixed obligation and stated that the fact that the parties called the payments alimony should not affect whether the obligation to pay survives mrs spector's remarriage the court noted that to deny enforcement of the postremarriage payments would deprive mrs spector of benefits for which she negotiated and for which she forwent other possible consideration id pincite a 2d pincite mrs spector argues that the forgone consideration to which the appellate court was referring was the property rights she surrendered as part of the divorce agreement we disagree the appellate court enforced dr ehrenworth’s obligation to make the alimony payments and held that n j stat ann sec_2a does not preclude a husband and wife from agreeing that the obligation to pay alimony may survive the wife's remarriage id pincite a 2d pincite further the appellate court expressly declined to characterize the payments for tax purposes id pincite a 2d pincite mrs spector argues that the fact that n j stat ann sec_2a prohibits courts from ordering alimony after the remarriage of the recipient suggests that she and dr ehrenworth viewed the payments as a property settlement she also contends that because she received a significant amount of assets in the division of the marital property she would not have received as large an award of alimony as the weekly payments to which she and dr ehrenworth agreed lavene v lavene n j super a 2d ch div turner v turner n j super a 2d ch div esposito v esposito n j super a 2d app div mrs spector argues that if she and dr ehrenworth had not reached an agreement the new jersey court would have awarded a substantial amount of assets to her and would have required her to use the income from those assets for her support before considering any award of alimony she contends that the court would have significantly reduced any award of alimony because of the large amount of assets awarded her we disagree although we do not speculate about how much alimony the new jersey court would have awarded we think the new jersey court would have considered that mrs spector earned little income and dr ehrenworth earned significant income during the marriage that she did not work outside the home during the marriage and that they were married for nearly years this suggests that mrs spector was entitled to receive alimony see lavene v lavene supra turner v turner supra esposito v esposito supra mrs spector argues that dr ehrenworth agreed that he would not claim the deduction for alimony after she remarried she points out that judge freedman of the superior court told dr ehrenworth that he would lose the alimony deduction if mrs spector remarried and that dr ehrenworth understood this notwithstanding that conversation dr ehrenworth did not agree in writing that the payments ceased to be alimony for tax purposes if mrs spector remarried we think the fact that the divorce agreement does not say that the payments are alimony only until mrs spector remarries and instead refers to the entire payment term as the year alimony period shows that dr ehrenworth and mrs spector did not agree that payments would cease to be alimony when mrs spector remarried this factor favors treating the payments as alimony conclusion judge freedman believed that dr ehrenworth and mrs spector intended for the payments to be in part for alimony and in part a property settlement we agree as discussed in paragraph a-2 respondent argues that the payments should be allocated percent to alimony and percent to a property settlement we agree see 55_tc_720 court found a factual basis for allocating part of payment to alimony and part to property settlement upon consideration of the divorce judgment the intent of dr ehrenworth and mrs spector when the judgment was entered mrs spector's many references to the payments as alimony dr ehrenworth's concessions that he received percent of the marital estate and that the marital estate was worth dollar_figure million and the factors listed above we conclude that the weekly payments were percent alimony and percent property settlement b additions to tax negligence negligence is a lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the circumstances 731_f2d_1417 9th cir affg 79_tc_714 marcello v commissioner 380_f2d_499 5th cir affg in part and remanding in part 43_tc_168 and tcmemo_1964_299 85_tc_934 petitioners must show that they acted reasonably and exercised due care in claiming exemptions for the ehrenworth children neely v commissioner supra dr ehrenworth did not establish that he provided more than dollar_figure to support richard for the years in issue generally a parent may claim an exemption for a child for whom he or she has provided more than half of the support sec_151 and sec_152 the exemption for a child whose parents are divorced is allocated between the parents under sec_152 the noncustodial_parent of a child who has the right to claim the child as a dependent under a divorce decree or written_agreement executed before and who provides at least dollar_figure in annual support for the child is treated as providing more than half of the child's support for purposes of claiming the child as a dependent sec_152 respondent determined that dr ehrenworth negligently claimed exemptions for andrew and robert for and we agree we believe that it was not reasonable for dr ehrenworth to believe that he could claim exemptions for robert and andrew for and because he did not have custody of them and the agreement did not allow him to claim these exemptions dr ehrenworth does not argue that he had reasonable_cause for claiming exemptions for robert and andrew we treat this as his concession of this issue we find that dr ehrenworth was negligent with respect to the issue of whether he was entitled to claim exemptions on his and tax returns respondent also determined that mrs spector negligently claimed an exemption for robert for because she did not show that she provided more than dollar_figure of support for him in we disagree although she did not establish that she provided more than dollar_figure to support robert in she showed that she provided more than dollar_figure to support him in and she claimed the exemption in good_faith we find that mrs spector was not negligent in claiming an exemption for robert for substantial_understatement_of_income_tax respondent determined that petitioners were liable for additions to tax for substantial_understatement_of_income_tax under sec_6661 for and respondent conceded that petitioners are not liable for the additions to tax for substantial_understatement for and for any deficiencies related to the characterization of the payments from dr ehrenworth to mrs spector respondent did not waive the sec_6661 additions to tax relating to the exemption issue the tax related to the exemption issue will not exceed dollar_figure so the sec_6661 additions will not apply to reflect concessions and the foregoing decisions will be entered under rule


t c memo united_states tax_court kathy l riggs petitioner v commissioner of internal revenue respondent docket no 16522-13l filed date p failed to collect and remit employment_taxes on behalf of a corporation that she controlled this corporation’s successor-in- interest a second corporation eventually entered ch bankruptcy and made several adequate protection payments to r these payments were made by checks which indicated they were to be applied against p’s personal liability for the trust fund recovery penalty r however applied these checks against the corporation’s tax debt and initiated this collection action against p at p’s collection_due_process_hearing the appeals officer denied p currently not collectible cnc status p appeals this determination under sec_6330 held this court has jurisdiction under sec_6330 because the bankruptcy stay applicable to p’s corporation does not apply to her as an individual held further p is not entitled to cnc status because of the equity in her assets held further r correctly applied the payments against the corporate tax_liability kathy l riggs pro_se mark j tober for respondent memorandum findings_of_fact and opinion goeke judge petitioner kathy riggs lived in jacksonville florida at the time she filed a petition with this court despite her legal_obligation she failed to collect and remit payroll_taxes on behalf of amber construction co amber construction a corporation that she controlled consequently respondent assessed a penalty against her under sec_6672 in the amount of amber construction’s unpaid payroll_taxes petitioner timely filed a request for a collection_due_process_hearing before an irs appeals officer the appeals officer sustained the determination petitioner now appeals this determination under sec_6330 all section references are to the internal_revenue_code in effect at all relevant times unless otherwise indicated findings_of_fact petitioner incorporated amber construction in under the state law of florida at all times petitioner was the owner and president of amber construction during its period of operation the company provided services to general contractors in and around jacksonville florida it also accrued substantial unpaid federal employment_taxes related to certain periods from date to date in date respondent issued petitioner a proposed assessment regarding her personal liability for the trust fund recovery penalty based upon her status as a responsible_officer of amber construction in an attempt to collect the unpaid employment_tax of amber construction after it was assessed respondent also filed a lien against petitioner as the corporation’s nominee in date this corporate nominee lien attached only to an office building on columbia park drive columbia park property throughout this period petitioner continued to operate the contracting business however at some point she ceased using the entity amber construction and instead began using a new wholly owned corporation amber rebar inc amber rebar this second corporation filed a petition for chapter bankruptcy on date on its bankruptcy schedules amber rebar listed numerous articles of personal_property but no interests_in_real_property in these proceedings the bankruptcy court permitted amber rebar to pay petitioner a salary of dollar_figure per week the court eventually adjusted this amount to dollar_figure per week in a separate proceeding before a district_court respondent established that amber rebar was the successor-in-interest to amber construction’s tax_liabilities thus in amber rebar’s bankruptcy proceeding respondent filed a proof_of_claim against the corporation for unpaid federal employment_taxes amber rebar and respondent then entered into an adequate protection agreement that on date was converted into an order by the bankruptcy court beginning on date the agreement required rebar to make monthly payments to respondent of dollar_figure amber rebar complied with the order for seven months each check mailed by petitioner on behalf of amber rebar indicated that it was to be applied to petitioner’s liability for the trust fund recovery penalty eventually respondent also initiated collection efforts against petitioner as an individual on date respondent issued a final notice_of_intent_to_levy on petitioner’s personal assets subsequently respondent filed a notice_of_federal_tax_lien against petitioner petitioner then requested a collection due all amounts are rounded to the nearest dollar process hearing seeking review of respondent’s efforts to collect the trust fund recovery penalty by levy petitioner argued at the hearing that she was entitled to noncollectible or currently not collectible cnc status because she had no disposable income petitioner claimed the bankruptcy court determined the amount amber rebar could pay the irs as adequate protection after determining the officer salary petitioner needed to pay her monthly expenses thus she asserted her salary as set and adjusted by the bankruptcy court left no disposable income to pay the trust fund penalty the appeals officer however noted there was equity in several of petitioner’s assets first petitioner is the sole owner of the columbia park property with dollar_figure of equity second petitioner owns a boat jointly with her husband with dollar_figure of equity third before date petitioner had an interest as a joint tenant with a right_of_survivorship with her parents in a residence on oliver creek drive oliver creek property with dollar_figure of equity on date petitioner transferred this property solely to her parents by quitclaim_deed at no point did petitioner pay taxes on the oliver creek property or claim it as an asset on a loan application because of the equity in these assets that could be liquidated or borrowed against to pay the trust fund penalty the appeals officer concluded petitioner was not entitled to cnc status no other collection alternatives were considered by the appeals officer because none were requested by petitioner petitioner has filed a petition with this court seeking review of the appeals officer’s determination and respondent’s allocation of the adequate protection payments throughout the administrative review process and at the time petitioner filed her petition with this court amber rebar had a pending bankruptcy case the original bankruptcy case filed on date was dismissed on date however two days before on date petitioner filed a new bankruptcy petition the second case did not close until date well after petitioner’s trust fund penalty case came before this court in date i jurisdiction opinion this court must first decide whether it has jurisdiction to review the appeals officer’s determination if a bankruptcy stay was in place when the petition was filed the petition would be invalid and we would lack jurisdiction there are two relevant bankruptcy code provisions under which a stay may arise title u s c sec_362 provides eight specific instances when civil actions are automatically stayed by a pending bankruptcy title u s c sec_105 on the other hand authorizes a court to issue a stay in instances not provided for under u s c sec_362 502_f3d_1086 9th cir 126_tc_359 the court in amber rebar’s bankruptcy did not issue a stay under u s c sec_105 thus this court will consider only whether the automatic_stay under u s c sec_362 included petitioner in its scope title u s c sec_362 provides a stay for a proceeding against the debtor that was or could have been commenced before the commencement of the case under this title or to recover a claim against the debtor that arose before the commencement of the case under this title as an officer of amber rebar petitioner claims respondent’s action is stayed by this provision and the notice_of_determination was issued to her in violation of u s c sec_362 and was therefore invalid petitioner cites 788_f2d_994 4th cir as support for this proposition the company in a h robins manufactured a contraceptive device called the dalkon shield id pincite this device was eventually found to be defective and the company filed for chapter bankruptcy as a result of the growing number of civil claims pending against it id though their claims against the company were stayed plaintiffs attempted to proceed against several corporate officers and other codefendants id in its analysis the court noted that s ubsection a is generally said to be available only to the debtor though it may apply to third parties where there is such identity between the debtor and the third-party defendant that the debtor may be said to be the real party defendant id pincite the court recognized however that a stay would not extend to third parties that were independently liable id quoting in re metal ctr inc 31_br_458 bankr d conn ultimately because the codefendants other than the insurer had rights to indemnity and status as additional insureds under the debtor’s insurance_policy the court concluded the company was the real party defendant and that a judgment against the codefendants would in effect be a judgment against the debtor thus actions against the nondebtor corporate officers were stayed in the present case amber rebar is not the real party defendant the parties have presented no evidence or argument to show that petitioner will be indemnified by the corporation if she is forced to pay the trust fund recovery penalty furthermore the court_of_appeals for the eleventh circuit has held that an individual’s liability for the trust fund recovery penalty is separate and distinct from the payroll tax obligations imposed on employers united_states v huckabee auto co f 2d 11th cir therefore because petitioner is independently liable for this trust fund recovery penalty and lacks identity with the corporate debtor a h robins would not include petitioner within the scope of amber rebar’s bankruptcy stay petitioner has also failed to consider our holding in 126_tc_359 in people place the taxpayer was an llc and its members were involved in bankruptcy proceedings id pincite when the irs attempted to collect unpaid employment_taxes from the llc the company sought protection under u s c sec_362 by claiming the irs action was automatically stayed by virtue of its members’ pending bankruptcy case id pincite this court rejected the taxpayer’s claims in people place in doing so we acknowledged that under robins a bankruptcy stay may be extended to stay actions against a nondebtor where the debtor is the ‘real party defendant ’ id pincite we concluded however that a stay applicable to nondebtors would not arise pursuant to the automatic_stay provisions of u s c sec_362 but rather pursuant to the bankruptcy court’s equitable power to issue an order as ‘necessary or appropriate to carry out the provisions’ of the bankruptcy code as provided by u s c sec_105 id because the bankruptcy court did not issue an order under u s c sec_105 we held that the irs action against the llc was not stayed as a result of its member’s bankruptcy id likewise in amber rebar’s bankruptcy the court did not issue a stay under u s c sec_105 instead the only stay applicable to the corporate debtor was the automatic_stay provided for under u s c sec_362 therefore because u s c sec_362 does not apply to petitioner respondent’s collection action was not subject_to a bankruptcy stay as respondent issued a valid notice_of_determination and petitioner timely filed a petition for review we have jurisdiction to consider the merits of the case ii sustaining the collection action a cnc status petitioner claims the irs appeals officer erred by failing to designate her liability for the trust fund recovery penalty currently not collectible since this issue does not relate to petitioner’s underlying liability we will review the appeals officer’s denial of cnc status for abuse_of_discretion see 114_tc_176 an abuse_of_discretion occurs if the appeals_office exercises its discretion ‘arbitrarily capriciously or without sound basis in fact or law’ 133_tc_392 quoting 112_tc_19 cnc status which suspends irs collection efforts is a ‘collection alternative’ that the taxpayer may propose and that the office of appeals must take into consideration wright v commissioner tcmemo_2012_24 slip op pincite cnc status may be available if ‘based on the taxpayer’s assets equity income and expenses ’ he has no apparent ability to make payments on the outstanding tax_liability fangonilo v commissioner tcmemo_2008_75 slip op pincite quoting foley v commissioner t c memo petitioner claims that she was unable to sell or use any of her assets as collateral for a loan because of respondent’s liens therefore because she was unable to use the equity in these assets to pay her penalty liability petitioner argues that the appeals officer’s denial of cnc status constituted an abuse_of_discretion relying on the internal_revenue_manual irm respondent claims that an irs lien does not reduce a taxpayer’s collection potential respondent asserts that collection potential and eligibility for collection alternatives should be based on the net realizable equity nre in petitioner’s assets nre is measured by the extent to which an asset’s quick sale value exceeds all liens with priority over a federal_tax_lien irm pt date thus only certain nontax liens reduce the valuation of an asset’s equity under internal irs policies our decision in foley v commissioner tcmemo_2007_242 supports respondent’s position in september of the taxpayers in foley purchased a home financed through a mortgage with a balloon payment due in date id slip op pincite in the irs initiated a levy action against the taxpayers and the appeals officer denied the taxpayers’ request for cnc status id in sustaining this determination we held that the appeals officer did not abuse his discretion in rejecting petitioners’ request to postpone the levy until after date to allow petitioners to refinance or sell their residence id pincite in the present case petitioner also has substantial equity in a number of assets petitioner has dollar_figure of equity in the columbia park property petitioner also has a joint_ownership interest in a boat with dollar_figure of equity petitioner disputes that the oliver creek property should be considered in determining whether she is eligible for cnc status though she was listed on the deed as holding a joint interest in the property with her parents petitioner claims this was for estate_planning purposes and that she never truly owned the property because of petitioner’s equity in the columbia park property and the boat we do not reach the question of whether it was proper to also consider petitioner’s share of the equity in the oliver creek property equity in the columbia park property and the boat is a sufficient reason to deny petitioner cnc status despite this substantial equity in several assets however petitioner argues that her account should be designated currently not collectible because she lacks sufficient income to pay the trust fund recovery penalty in amber rebar’s initial bankruptcy case petitioner’s salary was set at dollar_figure per week the court eventually adjusted this amount to dollar_figure per week which petitioner claims was less than half of her typical yearly salary we addressed a similar claim in fangonilo v commissioner tcmemo_2008_75 in fangonilo the taxpayer owed the irs dollar_figure though the taxpayer lacked sufficient income to meet his living_expenses we upheld the appeals officer’s denial of cnc status because the taxpayer had an interest in an insurance_policy worth at least dollar_figure id slip op pincite though we noted in fangonilo that the value of the taxpayer’s asset exceeded his tax_liability this was not dispositive of the issue in willis v commissioner tcmemo_2003_302 slip op pincite we held that the taxpayers were not entitled to cnc status where they had the ability to make payments in partial satisfaction of the tax debt as a result petitioner’s lack of income is not determinative we hold the appeals officer’s denial of cnc status was not an abuse_of_discretion because of petitioner’s equity in the boat and the columbia park property b collection alternatives even if not entitled to cnc status petitioner claims she is still entitled to a different collection alternative sec_6330 lists the issues a taxpayer may raise at a collection_due_process_hearing before an appeals officer this list of enumerated issues specifically includes offers of collection alternatives which may include the posting of a bond the substitution of other assets an installment_agreement or an offer-in-compromise sec_6330 however this court has held that we do not have authority to consider sec_6330 issues that were not raised before the appeals_office 129_tc_107 at her collection_due_process_hearing petitioner sought only to have her account placed in cnc status because petitioner did not raise the issue of other collection alternatives we will not consider them on appeal see 118_tc_488 refusing to consider a collection alternative based on hardship where the taxpayer failed to raise the issue before the appeals officer petitioner’s collection_due_process request stated we are requesting that ms riggs’ personal account be designated as currently not collectible ‘cnc’ ‘53’d’ or otherwise cross-referenced to reflect the monthly payments made via amber rebar inc ’s chapter bankruptcy case iii application of amber rebar’s adequate protection payments the last issue for the court to address is the impact of amber rebar’s adequate protection payments respondent applied these payments to reduce amber rebar’s tax debt yet petitioner claims these payments should have been applied to reduce her personal liability for the trust fund recovery penalty if we determined that respondent’s settlement officer made a legal error we would not sustain the collection action regardless of the standard of review see 136_tc_178 121_tc_111 see also 141_tc_173 in 495_us_545 the supreme court held that a bankruptcy court may order the irs to apply tax_payments to offset trust fund obligations rather than the non-trust-fund tax_liabilities where it concludes that this action is necessary for a reorganization’s success respondent rightfully distinguishes energy resources by noting that the bankruptcy court never ordered that amber rebar’s adequate protection payments be applied towards petitioner’s penalty liability therefore respondent argues the payments made by amber rebar were properly applied against the company’s tax_liability however each check petitioner mailed on behalf of amber rebar indicated it was for the trust fund recovery penalty by the irs’ own policy if a taxpayer voluntarily tenders a partial payment that is accepted by the service and the taxpayer provides specific written directions as to the application of the payment the service will apply the payment in accordance with those directions revproc_2002_26 sec_1 2002_1_cb_746 it is clear that petitioner provided instructions on how the adequate protection payments were to be applied however petitioner’s instructions are not controlling if the payment was involuntary 104_tc_518 47_tc_65 the adequate protection payments were directed by the bankruptcy court and those payments were made with respect to amber rebar’s liabilities not petitioner’s therefore neither petitioner nor amber rebar without permission from the bankruptcy court would have the right to allocate the payments between amber rebar’s tax_liability and any residual liability she had individually for the trust fund recovery penalty consequently we hold that respondent had authority see 141_tc_173 just as there is no code provision explicitly mandating that an employer’s late payment of employment_tax must be credited toward a responsible person’s liability for the sec_6672 penalty so too there is no code provision explicitly mandating that continued to apply the seven months of adequate protection payments as respondent saw fit accordingly decision will be entered for respondent continued an employer’s designated late payment of employment_tax be credited toward the designated employee’s liability for income_tax but in both cases the payment of the one necessarily satisfies the other the irs must allow a credit in both situations