internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc tege eb qp2-plr-125776-02 date date legend shareholder company esop law firm date d x dear this responds to your letter of date requesting a ruling on behalf of the above-named shareholder regarding his substantial compliance with the requirements of sec_1042 of the internal_revenue_code_of_1986 code and the applicable regulations in connection with the sale of qualified_securities of the company to the employee_stock_ownership_plan esop maintained by the company according to your representations the shareholder owned shares of class b common_stock of the company a domestic c_corporation that has never had any stock outstanding that was readily_tradable on an established_securities_market the company maintains an esop which qualifies under sec_401 and meets the requirements of sec_4975 of the code plr-125776-02 on date d the shareholders sold x shares of class b common_stock of the company to the esop as a result of the sale the shareholder realized a capital_gain the shareholder had held the common_stock for more than years prior to the esop sale and had not received the stock in a distribution from a plan described in sec_401 or in a transfer pursuant to an option or other right to acquire stock to which sec_83 sec_422 or sec_423 applied after this transaction and related contemporaneous transactions involving other shareholders of the company the esop held more than percent of the total value of all outstanding_stock of the company other than stock described in sec_1504 the shareholder invested the proceeds from the sale in securities issued by domestic operating companies during the authorized period for purchasing qualified_replacement_property qrp the shareholder made a number of purchases of securities that he intended to constitute qrp as defined in sec_1042 in connection with the esop transaction the law firm informed the shareholder regarding the procedural requirements of q a-3 of sec_1_1042-1t of the temporary income_tax regulations regarding the required statements of purchase however after receiving the statement of purchase forms from his broker the shareholder executed several of the statements of purchase but inadvertently neglected to have them notarized within days of purchase as required under sec_1_1042-1t after the firm received the statements of purchase in question it notified the shareholder of the requirement to have them notarized shortly afterward the shareholder completed the required notarized statements of purchase for the qrp purchases in question before the expiration of the replacement_period in addition the shareholder had the other statements of purchase properly notarized in accordance with the procedural requirements of sec_1_1042-1t q a-3 after filing this request for a private_letter_ruling the shareholder filed an extension of time to file his u s individual_income_tax_return for the taxable_year and will file timely by the extended due_date on his return the shareholder intends to elect under sec_1042 to defer recognition of gain from the sale of qualified_securities to the esop with his income_tax return the shareholder plans to submit the following documents a statement of election as described in q a-3 of sec_1 1t notarized statements of purchase with respect to the qualified_replacement_property as described in q a-3 of sec_1_1042-1t and sec_3 a verified written_statement of the company consenting to the application of sec_4978 and sec_4979a as required in sec_1042 you have requested a ruling that based on the specific facts of this case the shareholder has substantially complied with the requirements for an election to defer recognition of gain under sec_1042 of the code and that the election will be treated as satisfying the requirements of sec_1042 and sec_1_1042-1t q a-3 plr-125776-02 sec_1042 of the code provides that a taxpayer or executor may elect in certain cases not to recognize long-term_capital_gain on the sale of qualified_securities to an esop as defined in sec_4975 or eligible worker owned cooperative if the taxpayer purchases qualified_replacement_property as defined in sec_1042 within the replacement_period of sec_1042 and the requirements of sec_1042 and sec_1_1042-1t are satisfied a sale of qualified_securities meets the requirements of sec_1042 if the qualified_securities are sold to an esop as defined in sec_4975 or an eligible worker owned cooperative the plan or cooperative owns after application of a immediately after the sale at least percent of - a each class of outstanding_stock of the corporation other than stock described in sec_1504 which issued the securities or b the total value of all outstanding_stock of the corporation other than stock described in sec_1504 the taxpayer files with the secretary a verified written_statement of the employer whose employees are covered by the esop or an authorized officer of the cooperative consenting to the application of sec_4978 and sec_4979a with respect to such employer or cooperative and the taxpayer's holding_period with respect to the qualified_securities is at least years determined as of the time of the sale for taxable years beginning after date sec_1042 provides that the term qualified_securities means employer_securities as defined in sec_409 which are issued by a domestic c_corporation that has no stock outstanding that is readily_tradable on an established_securities_market and were not received by the taxpayer in a distribution from a plan described in sec_401 or in a transfer pursuant to an option or other right to acquire stock to which sec_83 sec_422 or sec_423 applied the taxpayer must purchase qualified_replacement_property within the replacement_period which is defined in sec_1042 as the period which begin sec_3 months before the date on which the sale of qualified_securities occurs and end sec_12 months after the date of such sale sec_1042 defines qualified_replacement_property qrp as any security issued by a domestic operating_corporation which did not for the taxable_year preceding the taxable_year in which such security was purchased have passive_investment_income as defined in sec_1362 in excess of percent of the gross_receipts of such corporation for such preceding_taxable_year and is not the corporation which issued the qualified_securities which such security is replacing or a member of the same controlled_group_of_corporations within the meaning of sec_1563 as such corporation sec_1_1042-1t q a-3 of the temporary income_tax regulations states that the election shall be made in a statement of election attached to the taxpayer's plr-125776-02 income_tax return filed on or before the due_date including extensions of time for the taxable_year in which the sale occurs sec_1_1042-1t q a-3 also states that the statement of election shall provide that the taxpayer elects to treat the sale of securities as a sale of qualified_securities under sec_1042 and shall contain the following information a description of the qualified_securities sold including the type and number of shares the date of the sale of the qualified_securities the adjusted_basis of the qualified_securities the amount_realized upon the sale of the qualified_securities the identity of the esop or worker-owned cooperative to which the qualified_securities were sold if the sale was part of a single interrelated transaction under a prearranged agreement between taxpayers involving other sales of qualified_securities the names and taxpayer identification numbers of the other taxpayers under the agreement and the number of shares sold by the other taxpayers sec_1_1042-1t q a-3 further provides that if the taxpayer has purchased qualified_replacement_property at the time of the election the taxpayer must attach as part of the statement of election a statement of purchase describing the qualified_replacement_property the date of the purchase and the cost of the property and declaring such property to be qualified_replacement_property with respect to the sale of qualified_securities the statement of purchase must be notarized no later than days after the purchase literal compliance with procedural directions in treasury regulations on making elections is not always required see 67_tc_736 acq in result 1979_1_cb_1 regulatory requirements that relate to the substance or the essence of the statute on the other hand must be complied with strictly the shareholder received the advice of a tax professional concerning the requirements necessary to complete the sec_1042 election in a timely and correct manner promptly upon being informed that certain statements of purchase had not been notarized as required the shareholder completed notarized statements of purchase for the relevant qualified_replacement_property before the expiration of the replacement_period plr-125776-02 therefore based on the specific facts of this case and representations made in your correspondence we conclude that the shareholder has substantially complied with the requirements for an election to defer recognition of gain under sec_1042 of the code and that the election will be treated as satisfying the requirements of sec_1042 and sec_1_1042-1t q a-3 of the temporary income_tax regulations 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 no opinion is expressed regarding whether the securities purchased by the shareholder constitute qualified_replacement_property as defined in sec_1042 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer the ruling contained in this letter is based upon information 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 rulings and it is subject_to verification on examination sincerely yours robert d patchell chief qualified_plans branch division counsel associate chief_counsel tax exempt and government entities enclosure copy for purposes


internal_revenue_service index no number release date cc dom p si plr-117171-98 date legend company a b d1 d2 dear this responds to a letter dated date submitted by your authorized representative on behalf of company requesting a ruling under sec_1362 of the internal_revenue_code that company’s s_corporation status will be effective as of the taxable_year beginning d1 facts according to the facts submitted company was incorporated on d2 with the intention that company would be an s_corporation effective as of the taxable_year beginning d1 company has two shareholders a and b company’s form_2553 election by a small_business_corporation however was not timely filed law 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 if an s election is made within the first two and one-half months of a corporation's taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made if an s election is made after the plr-117171-98 first two and one-half months of a corporation’s taxable_year then that 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 no election is made under sec_1362 for any taxable_year and the 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 and effective as of the first day of its tax_year conclusions after applying the relevant law to the facts submitted and representations made we conclude that company has established reasonable_cause for not making a timely election and is eligible for relief under sec_1362 accordingly if company makes an election to be an s_corporation by filing a completed form_2553 containing an effective date of d1 for the election within days following the date of this letter then such election will be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether company is an s_corporation for federal tax purposes under a power_of_attorney on file in this office a copy of this letter will be sent to your authorized representative plr-117171-98 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours jeff erickson assistant to the branch chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


id office uilc cca_2010121016053543 --------- number release date from -------------------- sent friday date pm to --------------------- cc subject re counsel opinion requested of ------------------ -------- sorry for the delay this follow up question had fallen off my radar with the counsel smes and their view is that a taxpayer who completes construction and occupies a new home on land with a previous home that the taxpayer owned and used for the required time can qualify for the dollar_figure credit as a long-time resident in this case the taxpayer would not include any basis in the land as part of the purchase_price of the new home because the purchase of the land was not sufficiently proximate in time to the construction of the new home i double checked please let me know if you have additional questions ------------------------ ------------------------


t c summary opinion united_states tax_court precious delores jones petitioner v commissioner of internal revenue respondent docket no 25882-10s filed date precious delores jones pro_se gideon i alper for respondent summary opinion wells judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant 1unless otherwise indicated section references are to the internal_revenue_code_of_1986 as amended and rule references are to the tax_court rules_of_practice and procedure to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case respondent determined a deficiency with respect to petitioner’s tax_year of dollar_figure the issues we must decide are whether petitioner received income of dollar_figure from her hair-braiding business during whether petitioner is entitled to dependency_exemption deductions for her three minor children whether petitioner is entitled to the additional_child_tax_credit whether petitioner is entitled to head_of_household filing_status and whether petitioner is entitled to the earned_income_tax_credit background some of the facts and certain exhibits have been stipulated the parties’ stipulations of facts are incorporated in this opinion by reference and are found accordingly at the time she filed her petition petitioner was a resident of georgia petitioner is the mother of three minor children during petitioner was not married and she and her three children resided in an apartment owned and managed by the housing authority of columbus georgia housing authority petitioner’s primary source_of_income during was a hair-braiding business that she operated out of her apartment on average petitioner saw to customers each week and she performed services for about different individuals during the price she charged each customer depended on the type of hair braid and her prices ranged from dollar_figure for simple braids for a child up to dollar_figure for micros which she explained are hair braids so small that they resemble loose hair performing micros for a customer typically took her four to five hours most of the materials petitioner used were supplied by her customers on her form_1040 u s individual_income_tax_return petitioner reported dollar_figure in income from her hair-braiding business she did not report any expenses on the schedule c-ez net profit from business attached to the return because her customers supplied most of the materials she needed to braid their hair on her return petitioner also claimed dependency_exemption deductions for her three children head_of_household filing_status the earned_income_tax_credit with respect to two of her children and the additional_child_tax_credit petitioner used a notebook to keep track of her business income she provided that notebook to her tax_return_preparer when she filed her tax_return during early date however a sewage leak in petitioner’s apartment during late date forced her to move to another housing authority apartment and her tax records were ruined respondent issued petitioner a notice_of_deficiency with respect to her tax_return petitioner timely filed her petition in this court discussion as a general_rule the commissioner’s determinations set forth in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of proving otherwise rule a 290_us_111 if the taxpayer satisfies certain substantiation and recordkeeping requirements the burden_of_proof regarding factual matters may shift to the commissioner see sec_7491 petitioner has not contended and we do not conclude that the burden_of_proof should shift to respondent see sec_7491 and b respondent contends that petitioner had zero income during and was not engaged in the hair-braiding business instead respondent contends petitioner reported income on her tax_return for the purpose of generating tax benefits through the refundable earned_income_tax_credit because of the sewer leak in her apartment all of petitioner’s records relating to her hair-braiding business during were destroyed to corroborate her testimony regarding the destruction of her records petitioner supplied a transfer itemized statement from the housing authority that stated that she was being moved to another apartment because of renovation pipe busted under concrete the housing authority document also states that petitioner was moved from unit 306-c to unit 303-d the first address is the one listed on petitioner’s tax_return corroborating her testimony that she was living in the old apartment when she filed her tax_return during early date besides that document the only evidence petitioner offered was her own testimony we found petitioner to be a credible witness her testimony was consistent and reasonably detailed and the numbers of customers and prices for services to which she testified were generally consistent with the amount of income reported on her return accordingly we credit her testimony that she earned dollar_figure in income during from her work braiding hair a taxpayer may claim a dependency_exemption deduction with respect to an individual who is either a qualifying_child or a qualifying_relative sec_151 sec_152 to be a taxpayer’s qualifying_child an individual must a bear a qualifying relationship to the taxpayer b have the same principal_place_of_abode as the taxpayer for more than one-half of the taxable_year c meet certain age requirements and d not have provided more than half of his or her own support for the year sec_152 at trial respondent conceded that the three children listed on petitioner’s return are her children and thus the first requirement is satisfied and respondent also concedes that the children met the age requirement during however respondent contends that petitioner has not proved that the children resided with her during and that she provided more than half of their support at trial petitioner testified that her children lived with her throughout and that she was their primary caregiver we find that petitioner’s children lived with her during and that she was their primary source of support accordingly each of petitioner’s children was a qualifying_child during and she therefore was entitled to the dependency_exemption deductions claimed on her return sec_24 authorizes a tax_credit with respect to each qualifying_child of the taxpayer the child_tax_credit provided by sec_24 may not exceed the taxpayer’s regular_tax_liability sec_24 where a taxpayer is eligible for the child_tax_credit but the taxpayer’s regular_tax_liability is less than the amount of the child_tax_credit potentially available under sec_24 sec_24 makes a portion of the credit known as the additional_child_tax_credit refundable the term qualifying_child means a qualifying_child of the taxpayer as defined in sec_152 who has not attained age sec_24 because each of petitioners’ children was a qualifying_child we conclude that she was entitled to the additional_child_tax_credit sec_1 provides a special tax_rate for an individual who qualifies as a head_of_household as pertinent here sec_2 provides that an unmarried individual shall be considered a head_of_household if that individual maintains as his home a household which constitutes for more than one-half of such taxable_year the principal_place_of_abode of i a qualifying_child of the individual as defined in sec_152 we conclude that because petitioner was unmarried and her children lived with her throughout and because each is a qualifying_child she qualifies as a head_of_household sec_32 permits an eligible_individual to receive an earned_income_credit against the individual’s tax_liability as pertinent here the term eligible_individual includes any individual who has a qualifying_child for the taxable_year sec_32 in general the term qualifying_child means a qualifying_child of the taxpayer as defined in sec_152 determined without regard to sec_152 regarding the amount of support and sec_152 regarding special rules for divorced parents sec_32 because each of petitioner’s children was a qualifying_child during she is entitled to the earned_income_credit in reaching these holdings we have considered all the parties’ arguments and to the extent not addressed herein we conclude that they are moot irrelevant or without merit to reflect the foregoing decision will be entered for petitioner


internal_revenue_service number release date index number ----------------------------------------- ------------------------------------------ ------------------- ------------------------------------------------ in re ------------------------------- 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 b04 plr-108929-18 date date legend decedent date spouse trust date date date mother date trust child cpa date x y a z year attorney ------------------------------------------------------- ------------------------ --------------------------------------------------- ---------------------------------------------------------------------- -------------------------- ------------------------ ---------------------- ------------------------------- -------------------------- -------------------------------- -------------------------- -------------------------- ---------------------------- -------------- -------------- ------------ -------------- ------- ------------------------ dear --------------------------------------------- this letter responds to the letter dated date submitted by your authorized representative requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make a qualified plr-108929-18 terminable_interest property qtip_election under sec_2056 of the internal_revenue_code code and rulings regarding the applicability of sec_2632 to certain trusts facts the facts submitted and the representations made are as follows decedent died testate on date a date after date survived by spouse and children on date decedent established a revocable_trust trust which was amended on date and date trust became irrevocable upon decedent’s death pursuant to the terms of trust as amended upon decedent’s death the trust estate is to be held in further trust for the benefit of mother mother’s trust during mother’s lifetime the trustee is to pay to or apply for the benefit of mother so much of the net_income and or principal of mother’s trust as the trustee deems advisable for mother’s health education support and maintenance any income not distributed is to be added to principal upon the death of mother the trust estate is to be held in further trust for the benefit of spouse and decedent’s issue pursuant to article vi of trust if any of decedent’s exemption is allocated to property of a_trust created under trust and the trust results in a generation-skipping inclusion_ratio of other than zero then the trustee must immediately create two separate trusts and each separate trust will have a generation-skipping inclusion_ratio of either zero exempt portion or one non-exempt portion the trustee may combine trusts having the same inclusion_ratio with the same beneficiaries or may separate trusts with different terms for different beneficiaries mother survived decedent and then subsequently died on date also on date decedent and spouse established a revocable_trust trust which was amended on date trust became irrevocable upon decedent’s death article vi paragraph d of trust provides that at the death of the first to die of decedent and spouse the residue of trust is to be divided into two separate trusts trust a credit_shelter_trust and trust b qtip_trust under article vi credit_shelter_trust shall consist of the maximum pecuniary amount of decedent’s estate which will not cause any more than the minimum possible federal estate_tax at the death of decedent article vi paragraph d b provides that only assets eligible for the estate_tax_marital_deduction shall be allocated to the qtip_trust moreover it is the settlors’ intention for qtip_trust to qualify for the marital_deduction under sec_2056 during plr-108929-18 spouse’s lifetime trustee shall pay to or apply for the benefit of spouse the net_income of qtip_trust in quarter-annual or more frequent installments spouse has the power to require the trustee to make all or part of the principal of qtip_trust productive or to convert promptly any unproductive part of the trust fund into productive property the trustee shall also pay to or apply for the benefit of spouse such sums of principal of qtip_trust as trustee in trustee’s discretion considers necessary for spouse’s proper health support and maintenance on the death of spouse the remaining principal of qtip_trust is to be distributed in exempt and non-exempt shares as applicable under the terms of credit_shelter_trust spouse and child are the co-trustees of trust and trust and the co- executors of decedent’s estate under sec_2203 the co-executors engaged cpa to prepare the form_706 united_states estate and generation-skipping_transfer_tax return for decedent’s estate a supplemental form_706 was filed on date on the schedule m of both the original form_706 and supplemental form_706 cpa failed to make an election to treat the property passing to qtip_trust as qualified_terminable_interest_property thus no qtip_election under sec_2056 was made with respect to property passing to qtip_trust on schedule r of the original form_706 and supplemental form_706 cpa reported no lifetime allocations of decedent’s gst_exemption on part i line of the schedule r cpa allocated decedent’s gst_exemption between credit_shelter_trust and mother’s trust however cpa incorrectly reported the amount of decedent’s gst_exemption applied to credit_shelter_trust as dollar_figurex and to mother’s trust as dollar_figurea upon subsequent review it was discovered that credit_shelter_trust was funded with dollar_figurey instead of dollar_figurex accordingly credit_shelter_trust was overfunded by dollar_figurez in year the co-executors consulted with attorney for assistance in completing the administration of the estate the errors made on decedent’s form_706 and supplemental form_706 were discovered upon attorney’s review of the estate you request the following rulings an extension of time under sec_301_9100-1 and sec_301_9100-3 to make a qtip election under sec_2056 to treat qtip_trust as qtip property the gst tax inclusion_ratio with respect to mother’s trust is zero and the gst tax inclusion_ratio with respect to credit_shelter_trust is zero plr-108929-18 law and analysis ruling sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate shall be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse but only to the extent that such interest is included in determining the value of the gross_estate sec_2056 provides that in the case of qualified_terminable_interest_property for purposes of sec_2056 such property shall be treated as passing to the surviving_spouse and for purposes of sec_2056 no part of such property shall be treated as passing to any person other than the surviving_spouse under sec_2056 a marital_deduction is allowed for qualified_terminable_interest_property qtip which is defined as property i which passes from the decedent ii in which the surviving_spouse has a qualifying_income_interest_for_life and iii to which an election under sec_2056 applies sec_2056 provides that an election with respect to any property shall be made by the executor on the return of tax imposed by sec_2001 such an election once made shall be irrevocable sec_20_2056_b_-7 of the estate_tax regulations provides that the qtip_election may relate to all or any part of property that meets the requirements of sec_2056 provided that any partial election must be made with respect to a fractional or percentage share of the property the fraction or percentage may be defined by a formula sec_20_2056_b_-7 provides that in general a_trust may be divided into separate trusts to reflect a partial election that has been made or is to be made if authorized under the governing instrument or otherwise permissible under local law any such division must be accomplished no later than the end of the period of estate administration if at the time of the filing of the estate_tax_return the trust has not yet been divided the intent to divide the trust must be unequivocally signified on the estate_tax_return sec_20_2056_b_-7 provides that in general the election referred to in sec_2056 and v is made on the return of tax imposed by sec_2001 or sec_2101 for purposes of this paragraph the term return of tax imposed by sec_2001 means the last estate_tax_return filed by the executor on or before the due_date of the plr-108929-18 return including extensions or if a timely return is not filed the first estate_tax_return filed by the executor after the due_date under sec_301_9100-1 of the procedure and administration regulations the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence 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 sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly the executors are granted an extension of time of days from the date of this letter to make a qtip_election with respect to qtip_trust the qtip_election should be made on a supplemental form_706 filed with the cincinnati service_center at the following address internal_revenue_service center cincinnati oh a copy of this letter should be attached to the supplemental form_706 a copy is enclosed for this purpose ruling sec_2 and sec_2601 imposes a tax on every gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax imposed by sec_2601 is the taxable_amount multiplied by the applicable_rate plr-108929-18 sec_2641 defines the applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a gst is the excess if any of one over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of the gst_exemption under sec_2631 allocated to the trust and the denominator of which is the value of the property transferred to the trust sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption amount which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides in part that an allocation of gst_exemption to a_trust is void to the extent the amount allocated exceeds the amount necessary to obtain an inclusion_ratio of zero with respect to the trust sec_26_2632-1 provides in part that an allocation of a decedent’s unused gst_exemption by the executor of the decedent’s estate is made on the appropriate united_states estate and generation-skipping_transfer_tax return form_706 filed on or before the date prescribed for filing the return by sec_6075 including any extensions actually granted an allocation of gst_exemption to a_trust whether or not funded at the time the form_706 is filed is effective if the notice of allocation clearly identifies the trust and the amount of the decedent’s gst_exemption allocated to the trust sec_2632 provides that any portion of such individual’s gst_exemption which has not been allocated within the time prescribed by sec_2632 shall be deemed to be allocated as follows first to property that is the subject of a direct_skip occurring at such individual’s death and second to trusts with respect to which such individual is the transferor and from which a taxable_distribution or taxable_termination might occur at or after such individual’s death in this case under the terms of trust as amended dollar_figurey passed to credit_shelter_trust accordingly based upon the facts submitted and the representations made the plr-108929-18 allocation of gst_exemption made on schedule r with respect to credit_shelter_trust in excess of dollar_figurey was void as provided in sec_26_2632-1 because an allocation of dollar_figurey was the amount necessary to obtain an inclusion_ratio of zero with respect to the trust consequently pursuant to sec_2632 the amount of decedent’s available gst_exemption remaining after the allocation of dollar_figurey to credit_shelter_trust was automatically allocated to mother’s trust effective as of decedent’s date of death mother’s trust has an inclusion_ratio of zero provided the amount of gst_exemption allocated to this trust is equal to the amount transferred to this trust for federal estate_tax purposes in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives 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 sincerely associate chief_counsel passthroughs special industries leslie h finlow by ______________________________ leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter


t c memo united_states tax_court robert perez morales petitioner v commissioner of internal revenue respondent ronda kay morales petitioner v commissioner of internal revenue respondent docket nos filed date carlton m smith for petitioners mark h howard and charles b burnett for respondent supplemental memorandum opinion kroupa judge these consolidated cases are before the court on robert morales and ronda morales’ joint motion to reconsider the opinion pursuant to this opinion supplements our prior memorandum opinion morales v commissioner tcmemo_2012_341 rule and their motions to vacate the decisions under rule in morales v commissioner tcmemo_2012_341 morales i in morales i we held that petitioners were not entitled to a first-time_homebuyer credit under sec_36 credit we further held petitioners liable for an accuracy-related_penalty penalty see sec_6662 petitioners ask that we vacate our decisions and reconsider our opinion as it relates to the penalty for the reasons that follow we will deny these motions background we adopt the findings_of_fact we made in morales i for convenience and clarity we repeat only the facts necessary to resolve these motions petitioners argued they were not liable for the penalty only because they acted in good_faith and with reasonable_cause in preparing their returns we held in morales i that because they failed to act with reasonable_cause in preparing the returns they were liable for the penalty rule references are to the tax_court rules_of_practice and procedure and section references are to the internal_revenue_code code in effect at relevant times unless otherwise indicated petitioners now concede they are not entitled to the credit petitioners now concede they were not entitled to the credit petitioners now argue however that they are not liable for the penalty because respondent failed to show an underpayment for see sec_7491 discussion we are asked to reconsider whether petitioners who claimed a credit causing negative taxable_income are liable for the penalty when the credit is later denied petitioners put forth this new inquiry of whether the claimed credit created an underpayment to which the penalty could apply this issue is before us on petitioners’ motions we turn now to the motions i standard of review we focus on whether to grant petitioners’ motions this court has discretion to grant a motion for reconsideration 110_tc_440 martin v commissioner tcmemo_2004_14 see also goettee v commissioner tcmemo_2004_9 we generally do not exercise our discretion absent a showing of unusual circumstances or substantial error of law or fact estate of quick v commissioner t c pincite reconsideration is intended to correct substantial errors of law or fact and allow introduction of newly discovered evidence that the moving party could not have introduced by the exercise of due diligence in the prior proceeding id pincite the purpose of reconsideration is not to rehash previous contentions or present new alternative arguments or legal theories id this court also has discretion to vacate a decision 87_tc_164 we refer to the federal rules of civil procedure because rule does not provide a standard for evaluation rule b the court may grant a motion to vacate upon a showing of newly discovered evidence mistake or extraordinary circumstances see fed r civ p b langille v commissioner tcmemo_2010_49 aff’d 447_fedappx_130 11th cir ii motion for reconsideration we first address the reconsideration motion petitioners ask us to reconsider our opinion that petitioners are liable for the penalty rather than argue as they did at trial they now argue with the assistance of counsel that respondent did not meet his burden of production to establish that petitioners were liable for the penalty petitioners argue that respondent must show proof of an underpayment an underpayment is defined as the amount of tax exceeding the amount shown as the tax by the taxpayer on the return plus amounts not so shown carlton m smith petitioners’ counsel entered an appearance after we entered the decisions in morales i previously assessed sec_6664 petitioners raise this newly minted argument for the first time in the reconsideration motion we turn now to petitioners’ argument at trial that the penalty does not apply an accuracy-related_penalty applies to any portion of an underpayment attributable to negligence or disregard of rules or regulations sec_6662 and b the accuracy-related_penalty does not apply however to portions of an underpayment as to which the taxpayer acted in good_faith and with reasonable_cause see sec_6664 sec_1_6664-4 income_tax regs the commissioner bears the burden of production regarding penalties and must show sufficient evidence to support imposing a penalty see sec_7491 116_tc_438 in morales i we held that respondent satisfied the burden of production by showing petitioners were negligent in claiming the credit petitioners failed to show that they acted with reasonable_cause in preparing the returns and they raised no other arguments id thus we stand by our finding in morales i that respondent met his burden of production by establishing that petitioners were negligence includes any failure to make a reasonable attempt to comply with provisions of the code exercise reasonable care in return preparation and keep adequate_records to substantiate deductions and credits claimed see sec_6662 sec_1_6662-3 income_tax regs negligent in claiming the credit see eg 139_tc_1 we now turn to petitioners’ new legal theory that although petitioners were negligent there was no underpayment to which the penalty could attach petitioners put forth this theory that respondent should have shown that the credit created an underpayment essentially petitioners argue for the first time that the repercussions of erroneously claiming the credit did not create an underpayment under sec_6664 respondent argues that unless petitioners assign error to the penalty it is not necessary to produce evidence to support the penalty because the penalty is considered conceded we agree petitioners conceded the penalty by failing to assign clear and concise error to respondent’s determination of the penalty see rule b 123_tc_213 118_tc_358 stern v commissioner tcmemo_2012_204 respondent is not required to establish the validity of a conceded issue swain v commissioner t c pincite petitioners argued only that they acted with reasonable_cause in preparing the returns no other assignments of error were directed toward the penalty before or during trial petitioners had ample opportunity to raise this newly minted argument before the disposition of morales i by amending the pleadings or presenting it at trial but failed to do so see rule petitioners are deemed to have conceded the penalty because they did not timely assign clear and concise error to the penalty see id a motion for reconsideration is not a forum to test new arguments when an opportunity to do so has been previously given estate of quick v commissioner t c pincite petitioners advance a new legal theory we decline their invitation to entertain this untimely argument further because we will deny the motion to reconsider there remains no basis to vacate our decisions in morales i iii conclusion accordingly we find it inappropriate to reconsider our opinion or vacate our decisions in morales i petitioners have not demonstrated unusual circumstances or substantial errors of fact or law instead petitioners raise for the first time a new legal theory as to why the penalty should not apply petitioners did not raise before or during trial the amount to which a penalty would apply therefore we decline to address petitioners’ argument now asserted for the first time see 67_tc_643 accordingly we will deny petitioners’ motion for reconsideration and motions to vacate we have considered all remaining arguments the parties made and to the extent not addressed we find them to be irrelevant moot or meritless to reflect the foregoing appropriate orders will be issued


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-102779-14 date date legend x ------------------------------------------- --------------------------------------------------- y ------------------------------------------- -------------------------------------------------- z ---------- state date n1 n2 n3 --------------------------------- -------------- --------------------------- ---------- ---------- -------------- dear ---- ----------- this responds to your letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_7704 of the internal_revenue_code plr-102779-14 facts according to the information submitted x is a limited_partnership organized under the laws of state y is a publicly traded corporation formed in state y is engaged in the exploration development and acquisition of natural_gas natural_gas liquids and oil properties y entered into an agreement with x pursuant to which it would contribute its --------------- businesses to x on date y executed an initial_public_offering ipo of x prior to the ipo y’s exploration and development activities were supported by its ------- -------------- businesses which included ----------------------------------------------------------------- ------------------------------------------------------------------------------- services including the ------- ---------------------------------------------------------- of ------------------------------ necessary for y’s exploration and production activities --------- services business as part of the ipo y contributed the ------- business to x and transferred the --------- services business to z a wholly-owned disregarded subsidiary of y y also granted x an option to acquire the --------- services business x intends to exercise this option z provides a full suite of ------ handling treatment processing and ------------ services to y pursuant to a long-term services contract to the extent y does not require the use of z’s entire capacity z has the right to use excess -------------------- system capacity to provide -------- to other oil_and_gas producers these services are rendered in all three phases of the exploration and production of oil_and_gas upstream of the well site at the well site and downstream of the well site as part of its upstream services z delivers --------------- through its system of --------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------ for use in hydraulic fracturing fracking z also treats --------------------- with ----------------------------------------- that can damage oil_and_gas wells and have an adverse impact on ---------------------------- ------------------------------------------------------------------------------------------------------------------- fracking stimulates production of natural_gas and oil from dense subsurface rock formations fracking involves the injection of fluids primarily water sand and chemicals under pressure through a cased and cemented wellbore into targeted subsurface formations to fracture the surrounding rock and stimulate production --------- -------------------------------------------------- at the well site z typically installs --------------------------------------------- to connect the applicable -------------------------------------- after the infrastructure is in place z supplies -- -------- to the well site and stores it in --------------------------------------- with a capacity of n1 to n2 --------------------- employees and subcontractors of z must be present at the well site during all active fracking operations to ensure equipment is functioning properly and maintain proper -------------- maintaining proper ------------ is essential to the success of the drilling operation because -------- being removed from ---------------------------------------- ------------------------------------------------------------------------------------------------------------------ plr-102779-14 may exceed the rate at which -------- is entering the -------- personnel must monitor ----- ------------------------- and make adjustments as necessary to ensure that ------------- do not ------------ while transferring -------- at a rate that most efficiently compensates for ---------- -------------------------------- at which the -------------------------------------- the provision of ---- ------------------------------------ is a specialized and requires skilled employees or contractors to coordinate closely with the fracking contractor and other onsite personnel z also -------------------------------------------------------------------- of ----------------- associated with the exploration and production of oil_and_gas through hydraulic fracturing ------------ ------------- and ---------------------- are picked up -------------------- and transported to a ------- ------- -------------------------------------- ------------------ are then processed to allow the resulting -------- to be discharged ------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------- x and y make the following representations the services provided by z require substantial assets and equipment that are dedicated exclusively to use in the exploration and production of oil_and_gas the production of oil_and_gas using the hydraulic fracturing process would not be commercially viable without ------------------- services z employs directly and through independent contractors n3 of persons with a specialized knowledge base training and experience who design permit install and operate every aspect of z’s business and oversee day-to-day field operations law analysis sec_7704 provides that except as provided in sec_7704 a publicly_traded_partnership will be treated as a corporation sec_7704 provides that the term publicly_traded_partnership means any partnership if interests in that partnership are traded on an established_securities_market or interests in that partnership are readily_tradable on a secondary market or the substantial equivalent thereof sec_7704 provides that sec_7704 does not apply to a publicly_traded_partnership for any taxable_year if such partnership meets the gross_income requirements of sec_7704 for the taxable_year and each preceding_taxable_year beginning after date during which the partnership or any predecessor was in existence plr-102779-14 sec_7704 provides in relevant part that a partnership meets the gross_income requirements of sec_7704 for any taxable_year if percent or more of the gross_income of the partnership for the taxable_year consists of qualifying_income sec_7704 provides that the term qualifying_income includes income and gains derived from the exploration development mining or production processing refining transportation including pipelines transporting gas oil or products thereof or the marketing of any mineral_or_natural_resource including fertilizer geothermal_energy and timber conclusion based solely on the facts submitted and the representations made we conclude that gross_income derived by x from the ----------- of -------- and the collection treatment and transport of ---------------------------------------------------- and residual ----- will constitute qualifying_income for purposes of sec_7704 this ruling is not applicable to any income derived by x from the ----------- of -------- to affiliates or third parties where x does not also ---------------------------------- or otherwise ----------- of the --------------------- after use except as expressly provided herein no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed as to whether x meets the percent gross_income requirement of sec_7704 in any taxable_year for which this ruling may apply 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 this ruling is directed only to the taxpayer requesting it however in the event of a technical_termination of x under sec_708 the resulting_partnership may continue to rely on this ruling in determining its qualifying_income under sec_7704 sec_6110 of the code provides that this letter may not be used or cited as precedent plr-102779-14 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 laura c fields laura c fields senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------- ----------------------------------------------------- ------------------------------------------------------ ---------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ----------------- telephone number --------------------- refer reply to cc fip b03 plr-129508-10 date date legend trust ----------------------------------------------------- trust ------------------------------- fund ------------------------------------------------------------------- fund ----------------------------------------------------------------- fund ------------------------------------------------------------- fund ------------------------------------------------------------------ fund --------------------------------------------------------- fund ------------------------------------------------------- date ------------------- date --------------------- year a ------- year b ------- year c ------- plr-129508-10 year d ------- state x ------------- dear ------------- this ruling responds to a letter dated date submitted on behalf of fund to fund collectively the funds the funds request consent to revoke for tax_year a and subsequent calendar years previous elections made by the funds under sec_4982 of the internal_revenue_code additionally the funds request that the calculation of its required distributions under sec_4982 and sec_4982 for the calendar_year ending december year a be determined on the basis of capital_gains_and_losses foreign_currency gains and losses and gains and losses recognized under sec_1296 if any realized and recognized during the ten-month period from january year a through october year a facts trust organized as a state x statutory trust on date is registered with the securities_and_exchange_commission under the investment_company act of u s c 80a-1 et seq trust consists of two open-ended management investment companies fund and fund trust an open-ended management investment_company was organized as a state x statutory trust on date trust consists of four series funds fund fund fund and fund each fund has elected to be treated as a regulated_investment_company a ric for federal_income_tax purposes under part i of subchapter_m of the code each fund uses an accrual_method of accounting for tax and financial_accounting purposes and its taxable_year ends on december for calendar years beginning with year d pursuant to sec_4982 funds elected to use its tax_year ending on december in lieu of the 1-year period ending on october for purposes of calculating the required_distribution under sec_4982 sec_4982 and sec_4982 at the time the funds originally made their election they believed that the election under sec_4982 would relieve the administrative burdens associated with dual calculations of capital_gains_and_losses and sec_988 gains and losses under the excise_tax and subchapter_m provisions of the code however the funds’ experience has been that the sec_4982 election has created additional administrative complexities primarily due to time constraints in declaring required excise_tax distributions plr-129508-10 accordingly each fund seeks consent to revoke its election to use the taxable_year for purposes of sec_4982 and sec_4982 each fund makes the following representations its desire to revoke its sec_4982 election is due to administrative and non-tax related financial burdens caused by the election it is not seeking to revoke its election for the purpose of preserving or securing a tax_benefit it will neither benefit through hindsight nor prejudice the interests of the government as a result of being permitted to revoke its election it will not make any subsequent election under sec_4982 for five calendar years following the year of the grant of revocation law and analysis sec_4982 which was enacted as part of the tax_reform_act_of_1986 and is effective for tax years beginning after date imposes an excise_tax on every ric for each calendar_year equal to percent of the excess if any of the required_distribution over the distributed_amount for the calendar_year sec_4982 defines the term required_distribution to mean with respect to any calendar_year the sum of percent of the ric’s ordinary_income for such calendar_year plus percent of its capital_gain_net_income for the year period ending on october of such calendar_year sec_4982 provides that if the tax_year of a ric ends with the month of november or december the ric may elect to have its capital_gain_net_income for its tax_year applied in lieu of the 1-year period ending on october of the calendar_year for purposes of satisfying the required_distribution defined in sec_4982 sec_4982 provides that once made such election may be revoked only with the consent of the secretary sec_4982 provides that any foreign_currency_gain_or_loss attributable to a sec_988 transaction and which is properly taken into account for the portion of the calendar_year after october shall not be taken into account in determining the ordinary_income of the ric for the calendar_year but shall be taken into account in determining the ric’s ordinary_income in the following calendar_year however if a ric has made an election under sec_4982 the preceding sentence shall be applied by substituting the last day of the ric’s taxable_year for october plr-129508-10 sec_4982 provides that for purposes of determining a ric’s ordinary_income as defined in sec_4982 sec_1296 shall be applied as if the ric’s taxable_year ended on october and any ordinary gain_or_loss from an actual disposition of stock in a passive_foreign_investment_company during the portion of the calendar_year after october shall be taken into account in determining the ric’s ordinary_income for the following calendar_year however if a ric has made an election under sec_4982 the preceding sentence shall be applied by substituting the last day of the ric’s taxable_year for october based upon the information submitted and the representations made we conclude that the funds’ desire to revoke their elections under sec_4982 of the code is because of administrative burdens and not because of any federal tax-related financial burden caused by the election the funds do not seek to revoke their elections for the purpose of preserving or securing a federal tax_benefit additionally the funds will neither benefit through hindsight nor prejudice the interest of the government as a result of being permitted to revoke their elections conclusion accordingly based upon the representations made and pursuant to sec_4982 the secretary consents to the revocation of the elections made by the funds under sec_4982 effective for calendar_year a and subsequent years in addition in calculating the required_distribution for calendar_year a for purposes of sec_4982 and e the capital_gain_net_income foreign_currency gains and losses and gains and losses of the funds recognized under sec_1296 will be determined on the basis of the capital_gains_and_losses foreign_currency gains and losses and gains and losses recognized under sec_1296 if any recognized and realized during the month period from january year a through october year a as a condition to the secretary’s consent to the revocation pursuant to sec_4982 the funds may not make subsequent elections under sec_4982 for a period of five calendar years following the year to which the grant of revocation applies ie year b through year c except as specifically ruled upon above no opinion is expressed or implied as to any other federal excise or income_tax consequences this ruling is directed only to the taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent plr-129508-10 it is important that a copy of this letter be attached to the federal income and excise_tax returns filed by the funds for the year to which this ruling applies sincerely yours _alice m bennett_____________ alice m bennett chief branch office of associate chief_counsel financial institutions and products


t c no united_states tax_court rainbow tax service inc petitioner v commissioner of internal revenue respondent docket no filed date petitioner employed individuals to provide tax_return preparation and bookkeeping services petitioner calculated its tax_liability for petitioner’s tax years ending date and using the graduated corporate_income_tax rates set forth in sec_11 i r c held petitioner’s tax_return preparation and bookkeeping services constitute accounting services for purposes of sec_448 i r c and petitioner is therefore subject_to the sec_11 i r c flat 35-percent tax_rate applicable to qualified personal_service_corporations donna joyner-rodgers an officer for petitioner derek w kaczmarek for respondent swift judge respondent determined deficiencies of dollar_figure and dollar_figure respectively in petitioner’s federal income taxes for petitioner’s tax years ending date and unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue the issue for decision is whether petitioner’s tax_return preparation and bookkeeping services are to be treated as accounting services if so petitioner will be treated as a qualified_personal_service_corporation under sec_448 and will be subject_to the flat 35-percent tax_rate set forth in sec_11 findings_of_fact most of the facts have been stipulated and are so found at the time the petition was filed petitioner’s principal_place_of_business was located in las vegas nevada in steve rodgers rodgers incorporated petitioner as a nevada corporation and until his death in rodgers owned all of petitioner’s stock petitioner’s business consisted of providing tax_return preparation and bookkeeping services which services rodgers and other individuals provided as petitioner’s employees over the years rodgers on petitioner’s behalf increased the number of petitioner’s clients and the number of employees to perform for petitioner’s clients tax_return preparation and bookkeeping services and eventually petitioner opened two additional offices in the las vegas area after rodgers’ death in rodgers’ wife donna joyner- rodgers joyner-rodgers succeeded rodgers as petitioner’s president and assumed management of petitioner and of petitioner’s three offices also after rodgers’ death petitioner’s stock was owned by rodgers’ estate and then in petitioner’s stock was transferred from rodgers’ estate to joyner-rodgers in addition to her administrative and managerial responsibilities relating to petitioner joyner-rodgers as an employee of petitioner also provides to petitioner’s clients tax_return preparation services during the years in issue petitioner’s tax_return preparation services generally consisted of the preparation of clients’ federal and state individual corporate partnership gift and estate_tax returns petitioner’s bookkeeping services generally consisted of the preparation from client records of profit and loss statements and various other reports and forms relating to client federal payroll_taxes state unemployment taxes and sales_taxes petitioner is not a public accounting firm and petitioner’s employees do not perform services that require petitioner’s employees to obtain certified_public_accountant c p a licenses neither rodgers nor joyner-rodgers ever held c p a licenses for the years in issue petitioner’s employees including rodgers and joyner-rodgers spent all of their work-related time performing for petitioner’s clients tax_return preparation and bookkeeping services and related administrative and support services on each of petitioner’s timely filed corporate federal_income_tax returns petitioner’s income_tax_liability was calculated using the sec_11 graduated income_tax rates applicable to corporations on date respondent issued to petitioner a notice_of_deficiency in which respondent determined that petitioner’s tax_return preparation and bookkeeping services constituted accounting services and therefore that petitioner for the years in issue should be treated as a qualified_personal_service_corporation subject_to the flat 35-percent tax_rate set forth in sec_11 the amounts of the deficiencies herein represent the increase in petitioner’s federal income taxes as a result of applying the flat 35-percent tax_rate for the years in issue the flat 35-percent tax_rate set forth in sec_11 equals the highest marginal corporate tax_rate set forth in sec_11 - - opinion in general for federal_income_tax purposes corporations are taxed at graduated income_tax rates sec_11 so-called qualified personal_service_corporations as defined in sec_448 however are taxed at a flat 35-percent income_tax rate sec_11 a corporation is to be treated as a qualified_personal_service_corporation if substantially_all of the corporation’s activities involve the performance of services in the fields of health law engineering architecture accounting actuarial science performing arts or consulting hereafter covered services sec_448 sec_1_448-1t temporary income_tax regs fed reg date the function test and if percent of the corporation’s stock is owned by among others individual employees performing covered services for the corporation or by the estate of a prior employee of the corporation who performed covered services for the corporation sec_448 sec_1_448-1t temporary income_tax regs fed reg date the ownership test substantially_all of a corporation’s activities will be treated as covered services only if in the aggregate the corporation’s employees spend percent or more of their time in performing covered services sec_1_448-1t temporary income_tax regs supra in calculating the amount of employee time spent performing covered services administrative and support services incident to covered services are treated as covered services id sec_448 the regulations thereunder and court opinions generally do not define accounting services however in sec_1_448-1t example i temporary income_tax regs fed reg date the preparation of tax returns and audit and financial statements are treated as accounting services x a corporation is engaged in the business of providing accounting services to its clients these services consist of the preparation of audit and financial statements and the preparation of tax returns for purposes of sec_448 such services consist of the performance of services in the field of accounting petitioner concedes that if tax_return preparation and bookkeeping services constitute accounting services by virtue of rodgers’ and rodgers’ estate’s ownership of petitioner’s stock the above ownership test has been satisfied in ron lykins inc v commissioner tcmemo_2006_35 the parties did not dispute that tax_return preparation services constituted accounting services petitioner however argues that for purposes of sec_448 tax_return preparation and bookkeeping services do not constitute accounting services that petitioner therefore does not meet the above function test and that petitioner should not be treated as a qualified_personal_service_corporation petitioner argues that under nevada law accounting services can be performed only by c p a s and that because petitioner is not a c p a firm does not employ c p a s and does not perform services which are restricted under nevada law to c p a s petitioner should not be treated as performing accounting services in essence petitioner would treat only those services which require a c p a license as accounting services and would treat other tax_return preparation and bookkeeping services as nonaccounting services we disagree with petitioner’s overly restrictive definition of accounting services petitioner fails to appreciate the distinction between public accounting and accounting public accounting which generally consists of the preparation and or audit of financial statements and generally requires a c p a license represents a branch of accounting not the entire realm of accounting see weygandt et al accounting principles 3d ed further sec_448 requires only that the services be in the field of accounting and is not limited to public accounting historically tax_return preparation and bookkeeping services are regarded as within the field of accounting accounting has been defined as the process of recording transactions in the financial records of a business and periodically extracting sorting and summarizing the recorded transactions to produce a set of financial records blacks’s law dictionary 8th ed tax_return preparation which requires extracting information relating to financial transactions analyzing that information and then summarizing and reporting that information on a tax_return fits within the above general definition of accounting also as discussed above sec_1_448-1t example i temporary income_tax regs supra indicates that for purposes of sec_448 tax_return preparation services are to be treated as accounting services we note that under nevada statutory law public accounting includes the preparation of tax returns nev rev stat ann sec lexis nexis we note further that a defining characteristic of our federal_income_tax system is the reporting of financial transactions within annual accounting periods sec_441 tax professionals and the internal_revenue_code itself generally regard the process of determining in which annual_accounting_period revenues and expenditures are to be recognized as tax_accounting see generally sec_441 through a significant aspect of petitioner’s tax_return preparation services consists of assisting clients in properly recognizing and reporting revenue and expenditures in the appropriate tax_year or in other words performing tax_accounting services we conclude that petitioner’s tax_return preparation services for purposes of sec_448 constitute services within the field of accounting bookkeeping which sec_448 and the regulations thereunder do not address has been defined elsewhere as a branch of accounting that deals with the systematic classification recording and summarizing of business and financial transactions in books of account webster’s third new international dictionary not only does bookkeeping constitute a branch of accounting but our system of double entry bookkeeping undergirds modern financial_accounting historians generally consider luca pacioli or to be the father of accounting for first documenting in his work summa de arithmetica geometria proportioni et proportionalita venice the process of double entry bookkeeping we sustain respondent’s determination that tax_return preparation and bookkeeping services constitute and are to be treated as services in the field of accounting substantially_all of petitioner’s employees’ activities involve the performance of services in the field of accounting accordingly for the years in issue petitioner is to be treated as a qualified_personal_service_corporation taxed at the flat 35-percent rate set forth in sec_11 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 b02 plr-112048-08 date date legend legend taxpayers -------------------------------------- --------------------------------------------------------------------- year ------ dear -------------------------- this responds to a letter dated date submitted on behalf of taxpayers by their authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for taxpayers to file an election under sec_469 of the internal_revenue_code and sec_1_469-9 of the income_tax regulations to treat all interests in rental real_estate as a single rental real_estate activity according to the information submitted taxpayers are married individuals who filed their tax returns jointly taxpayers represent that in year they were in a real_property business as defined by sec_469 and were qualified under sec_469 to make an election to treat all interests in rental real_estate as a single rental real_estate activity however taxpayers filed their joint_return for year without the statement required under sec_1_469-9 under sec_469 the term passive_activity generally includes any rental_activity sec_469 provides a limited exception to this rule for taxpayers in a real_property_trade_or_business specifically sec_469 indicates that if a taxpayer meets the requirements of sec_469 the taxpayer’s rental real_estate activity will no longer be presumptively passive by its terms the exception under sec_469 is to be applied as if each interest of the taxpayer in rental real_estate plr-112048-08 were a separate activity however a taxpayer may elect to treat all interests in rental real_estate as a single activity sec_1_469-9 provides that a qualifying taxpayer makes the election to treat all interests in rental real_estate as a single rental real_estate activity by filing a statement with the taxpayer’s original income_tax return for the taxable_year sec_1_469-9 describes the information that must be contained in the statement under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date 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 the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government based solely on the information 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 taxpayers are granted an extension of time of days from the date of this letter to make an election under sec_469 to treat all their interests in rental real_estate as a single rental real_estate activity effective year the election must be in the form of the statement required by sec_1_469-9 and attached to an amended_return for year a copy of this letter should be attached to the election a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether taxpayers satisfy the requirements under sec_469 or whether taxpayers materially participate in any activity plr-112048-08 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives sincerely william p o’shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc