t c memo united_states tax_court stanley cohen petitioner v commissioner of internal revenue respondent docket no 4629-12l filed date r moves for summary_judgment that he may proceed with collection of assessed tax and interest following a collection_due_process_hearing and a determination by r's appeals_office appeals that a notice_of_federal_tax_lien may stand p objects on the basis that there is a genuine dispute as to the material fact of whether appeals properly refused to settle his liability on the same terms allegedly offered to other similarly situated taxpayers he had raised the same issue during a previous hearing following his receipt of a notice_of_intent_to_levy held appeals did not abuse its discretion in concluding that p was making the same claim both during the levy hearing and in response to the lien notice held further whether in making his claim in response to the lien notice p intended to raise a challenge to his underlying liability for tax and interest or whether he intended to request a settlement of that liability he was precluded from raising the issue under the first alternative pursuant to sec_6330 and under the second alternative pursuant to sec_6330 held further it was harmless error for the settlement officer to rely on the former section rather than the latter alvan lee bobrow for petitioner marc l caine diana p hinton and monica e koch for respondent memorandum opinion halpern judge this case is before the court for review of a determination determination made by respondent's appeals_office appeals that a notice_of_federal_tax_lien filed against petitioner was an appropriate action and that collection of unpaid federal_income_tax and interest for petitioner's and taxable calendar years may proceed we review the determination pursuant to sec_6320 and sec_6330 respondent has moved for summary_judgment in his favor motion petitioner objects 1unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended and all rule references are to the tax_court rules_of_practice and procedure dollar amounts have been rounded to the nearest dollar background the following facts are gathered from the pleadings the motion and the declaration of settlement officer laurence velazquez in support thereof and petitioner's objection there appears to be no disagreement as to those facts following this court's order and decision in park leasing assocs p'ship v commissioner docket no respondent in assessed the following amounts with respect to petitioner year federal_income_tax dollar_figure big_number big_number interest dollar_figure big_number big_number because petitioner did not upon notice_and_demand pay the assessed amounts respondent took steps to collect issuing to petitioner in a notice informing him of respondent's intent to levy and of petitioner's right to request a sec_6330 collection_due_process cdp hearing before appeals levy notice petitioner requested a hearing setting forth in the request the following grounds for disagreeing with the intended levy the amount of the liability is excessive and incorrect the taxpayer was an investor in a partnership the liability settled for with the other partners was substantially less than the amount billed the taxpayer the taxpayer requests equal treatment because petitioner's hearing request was not timely made appeals treated it not as a request for a cdp hearing but as a request for a so-called equivalent_hearing see sec_301_6320-1 sec_301_6330-1 proced admin regs describing the nature of an equivalent_hearing during the equivalent_hearing levy hearing petitioner's representative attorney alvan l bobrow raised the issue of interest abatement under sec_6404 claiming that the other partners were offered a settlement that did not include tax-motivated transaction interest and that a similar settlement was not offered to petitioner mr bobrow also questioned whether respondent had timely assessed the tax and interest that he was trying to collect he provided documentation of the settlement terms allegedly accorded other partners appeals determined that the documentation that he presented failed to show that settlements had been offered to other partners in the partnership in issue appeals determined that petitioner had not formally proposed any alternative to the levy action and w ithout an alternative to consider levy action is appropriate appeals also determined not to abate any interest since petitioner had not established that a ministerial and or managerial error was made a requirement for interest abatement pursuant to sec_6404 in date appeals issued to petitioner a decision letter summarizing its decisions petitioner attempted to invoke our jurisdiction for among others the purpose of our reviewing the decision letter we dismissed the case for lack of jurisdiction cohen v commissioner docket no 10l subsequently in someone in respondent's collection function determined that to assist collection of the unpaid assessments respondent would issue to petitioner a notice_of_federal_tax_lien on date respondent mailed to petitioner a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 lien notice the lien notice was with respect to the same assessments of tax and interest that were the grounds for the levy notice in response to the lien notice petitioner by his attorney mr bobrow timely filed a form request for a collection_due_process or equivalent_hearing lien hearing request form on that form petitioner checked the box identifying the notice_of_federal_tax_lien as the basis for his hearing request in the section requiring him to check the most appropriate box describing his reason for disagreeing with the tax_lien he did not check one of the boxes asking for a collection alternative ie installment_agreement or offer-in-compromise he checked the box other and wrote in the following reason taxpayer was not treated the same as other partners who received settlement offers from the tax_appeals office settlement officer laurence velazquez conducted most of petitioner's cdp hearing lien hearing he had had no prior involvement with petitioner with respect to the unpaid tax at issue he verified that all relevant requirements of law or administrative procedure had been satisfied on date he entered in the case activity record that petitioner was previously granted an equivalent_hearing on these tax periods for proposed levy action the liabilities remain due and owing he noted that on the lien hearing request form petitioner raised the same issue that was raised during the equivalent_hearing levy case he added on a conference was held with your power_of_attorney alvan bobrow during the conference the poa raised the issue of interest abatement under sec_6404 claiming that the other partners were offered a settlement in that did not include the charging of tax motivated interest and that this settlement was not offered to you this issue is now precluded as it is a challenge to the underlying liability and the taxpayer was given the opportunity to challenge this issue during the prior hearing on date mr velazquez entered in the case activity record there is no evidence that the filing of the notice_of_federal_tax_lien was improper the taxpayer did not formally propose any collection alternatives the filing is upheld three days later the determination followed in the form of a notice_of_determination concerning collection action s under sec_6320 and or notice when he filed the petition petitioner resided in new york state in the petition he asks for a redetermination of the deficiency set forth in the notice he claims the determinations of tax and additions to tax set forth in the notice are based on the following error petitioner was not responsible for the full amount of interest assessed because he was not tendered a settlement offer before commencement of litigation petitioner avers the respondent discriminated against the petitioner by not offering him a settlement offer and closing_agreement of the type offered to other investments sic in the same or related partnerships in which petitioner invested petitioner prays that we determine that he has no obligation to pay any additional interest or that he has a right to a collection_due_process_hearing on the substantive issue 2the notice is signed by appeals team manager john o'dea under the heading summary of determination it says only there is no evidence that the filing of the notice_of_federal_tax_lien was improper you did not formally propose any collection alternatives the filing is upheld enclosed with the notice is an attachment that appears to be mr velazquez's memorandum supplying the detail behind the summary moreover mr velazquez made an entry in the case activity record stating that he prepared the case closing documents we will therefore sometimes speak in terms of mr velazquez's determination to sustain the lien notice and to proceed with collection discussion i introduction a the motion the gravamen of the motion is that following the lien hearing mr velazquez correctly determined to proceed with collection because petitioner had offered no collection alternative and had raised only a challenge to the amount of his underlying liability which he could not do because previously at the levy hearing he had had the opportunity to dispute his underlying liability see sec_6330 respondent considers petitioner's claim that he is not responsible for the full amount of interest assessed because he was not tendered a settlement offer before commencement of litigation as raising a challenge to his underlying liability petitioner objects to the motion on the ground that a material question of fact exists whether respondent properly considered petitioner's request for similar treatment to other partnerships sic as a settlement alternative and not as a challenge to his liability b summary_judgment summary_judgment is a procedure used to expedite litigation it is intended to avoid unnecessary and expensive trials it is not however a substitute for trial it should not be used to resolve genuine disputes over issues of material fact e g 88_tc_794 a motion for summary_judgment will be granted if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits or declarations if any show that there is no genuine dispute as to any material fact and that a decision may be rendered as a matter of law rule b the moving party bears the burden of proving that there is no genuine issue of material fact and the court will draw any factual inferences in the light most favorable to the nonmoving party 134_tc_13 c collection procedures the following provisions of the internal_revenue_code and the regulations concerning procedures for collection_of_taxes are pertinent sec_6321 imposes a lien in favor of the united_states upon all property and rights to property of a person liable for tax taxpayer when there exists a failure to pay the tax after demand for payment the lien generally arises at the time assessment is made sec_6322 sec_6323 provides that the lien shall not be valid against certain persons until the secretary files a notice of lien with the appropriate public officials sec_6320 sets forth procedures requiring the secretary to give the taxpayer notice that the lien has been filed and the opportunity for a hearing before appeals sec_6320 directs that in general the hearing is to be conducted in accordance with the procedures specified in sec_6330 d e and g sec_6330 provides in pertinent part that the taxpayer may raise at the hearing any relevant issue relating to the unpaid tax including offers of collection alternatives which may include an offer-in- compromise sec_6330 provides that the taxpayer may also raise at the hearing challenges to the existence or amount of the underlying tax_liability for any_tax period if the person did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability sec_6330 provides in pertinent part that a n issue may not be raised at the hearing if the issue was raised and considered in a previous administrative or judicial proceeding and the person seeking to raise the issue participated meaningfully in such hearing or proceeding sec_301_6320-1 proced admin regs is specific to a cdp hearing following the issuance of a notice_of_federal_tax_lien and it provides in pertinent part t he taxpayer may not raise an issue that was raised and considered at a previous cdp hearing under sec_6330 or in any other previous administrative or judicial proceeding if the taxpayer participated meaningfully in such hearing or proceeding sec_6330 requires that appeals' determination following a hearing take into account the issues raised at the hearing by the taxpayer d scope of review when a taxpayer's underlying liability is properly before us following a cdp hearing we review the underlying liability de novo 114_tc_604 otherwise generally we review appeals' determination of the matters raised at the hearing for abuse_of_discretion see 117_tc_183 appeals abuses its discretion if its determination was arbitrary capricious or without sound basis in fact or law see eg 125_tc_301 aff'd 469_f3d_27 1st cir e arguments of the parties respondent argues that the only issue petitioner raised in the lien hearing was his claim that he was not responsible for the full amount of interest assessed because he was not tendered a settlement offer before the commencement of litigation respondent continues this statement appears to be a challenge to the underlying tax_liabilities which the petitioner had the opportunity to raise at the the levy hearing therefore the petitioner is now precluded from challenging the underlying liabilities and assessment of interest sec_6330 petitioner counters the court must view the statements in petitioner's adminis- trative file and the petition in the light most favorable to petitioner thus it can be inferred from petitioner's statements in his cdp request and petition that he was not challenging his underlying liability but was instead offering to settle the case taking these inferences into account summary_judgment is inappropriate because respondent has not shown that the requirements of sec_6320 and sec_6330 have been met in other words petitioner argues that respondent misidentified the issue he raised in the lien hearing which was not his underlying liability for tax and interest for and but rather was his offer to settle his case he adds it is reasonable to infer from the statement on petitioner's cdp request that he was attempting to settle his case and not challenge the underlying liability this is not an unreasonable inference petitioner's statements provide a reasonable estimation of how much petitioner was willing to settle for namely the settlement offer given to other partnerships petitioner concludes in order to be entitled to summary_judgment respondent must show that there are no material facts at issue and that he is entitled to judgment as a matter of law respondent cannot meet this burden because a question of material fact exists whether statements contained in petitioner's cdp request and petition should be treated as a settlement offer accordingly respondent's motion must be denied ii discussion mr velazquez's conclusion that petitioner was attempting to raise a challenge to the amount of his underlying tax_liability is understandable since on the lien hearing request form petitioner did not identify an offer-in-compromise or other collection alternative as his reason for disagreeing with the lien notice he claimed only that he had not been treated the same as other partners who were offered settlements how mr velazquez pigeonholed the claim however is unimportant to the extent petitioner was raising a liability challenge mr velazquez was correct in concluding that sec_6330 precluded him from doing so since he had the opportunity to dispute his liability in response to the levy notice to the extent he was asking to settle his liability or to compromise the interest assessments those were the identical issues petitioner had raised during the levy hearing and the question is one of whether sec_6320 and sec_6330 precluded him from again raising them during the lien hearing as stated supra sec_301_6320-1 proced admin regs is specific to a cdp hearing following a notice_of_federal_tax_lien in pertinent part it states that a taxpayer may not raise at the hearing an issue that was raised and considered at a previous cdp hearing under sec_6330 or in any other administrative_proceeding and the person participated meaningfully in the previous hearing or proceeding because in response to the levy notice petitioner did not timely request a cdp hearing the levy hearing was an equivalent_hearing which technically may not be a cdp hearing under sec_6330 we have held however that an equivalent_hearing is indisputably an 'administrative proceeding' within the meaning of sec_6330 and by inference sec_301_6320-1 proced admin regs see west v commissioner tcmemo_2010_250 wl at thus the levy hearing was at least an administrative_proceeding within the meaning of sec_301_6320-1 proced admin regs and there is no doubt that petitioner claimed at the levy hearing that he had not been treated the same as other partners who were offered settlements indeed one of his grounds for requesting the levy hearing was the taxpayer was an investor in a partnership the liability settled for with the other partners was substantially less than the amount billed the taxpayer the taxpayer requests equal treatment also during the levy hearing petitioner's representative mr bobrow raised the issue of interest abatement and claimed that the other partners were offered a settlement with respect to interest that was not offered to petitioner appeals' decision letter following the levy hearing shows that appeals considered and rejected both petitioner's settlement claim and his interest abatement claim finally there is ample evidence that petitioner by way of his representative mr bobrow participated meaningfully in the levy hearing petitioner's reason set forth in the lien hearing request form for disagreeing with the lien notice was that he had not been treated the same as other partners who were offered settlements whether his claim was that he had not been offered an equivalent settlement or whether his claim was for an abatement of interest or both those claims were thoroughly aired at the levy hearing sec_301 3it is unclear whether in assigning error to the determination petitioner is claiming that appeals erred in disregarding his claim for sec_6404 interest abatement independent of his claim that appeals erred in disregarding his offer to continued e proced admin regs precluded petitioner from raising those issues at the lien hearing mr velazquez may have erred in concluding that petitioner was challenging his underlying liability but that was harmless error since preclusion was required by the regulations petitioner makes no claim that sec_301_6320-1 proced admin regs is invalid error is harmless when it causes no prejudice or does not affect the ultimate determination in the case see eg 129_tc_58 watchman v commissioner tcmemo_2012_113 harmless error does not give rise to an abuse_of_discretion see perkins v commissioner t c pincite no genuine dispute as to any material fact stands in the way of our summarily determining as a matter of law that the determination should stand and that respondent may proceed with collection petitioner's assignment of error to the determination is that respondent erred in determining to proceed with collection of the assessed amounts because he failed to extend to petitioner a settlement offer that allegedly he had extended to others we have determined that appeals was precluded from considering that issue during the lien hearing petitioner assigns no continued settle his case he neither mentions sec_6404 nor avers facts establishing his right to abatement in any event for the reasons set forth in the text petitioner was precluded by sec_6330 from making a claim for either during the lien hearing other error to the determination the determination must stand petitioner had the cdp hearing to which he was entitled iii conclusion to reflect the foregoing an appropriate order and 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-100695-12 date date x ---------------------------- ------ ---------------- legend legend trust trust trust trust ---------------------------------- ------ ---------------- ------------------------------ ----------------------- -------------------------------- ----------------------- ---------------------------------------------- ----------------------- state ------------- date ----------------------- date ------------------------ date date date date a -------------------- -------------------------- ------------------------ ------------------- ---------------- plr-100695-12 b n ----------------- ------------- dear ----- --------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was formed in state on date and made an election to be treated as an s_corporation effective date a transferred shares of x to trust and trust on date a transferred shares of x to trust on date a transferred shares of x to trust on date however b who was the trustee of trust and trust on date failed to make a timely and effective electing_small_business_trust esbt election with respect to trust and trust a also failed to make a timely and effective esbt election with respect to trust and trust therefore x's s_corporation_election terminated on date x represents that x and each of its shareholders have filed consistently with the treatment of x as an s_corporation since date x further represents that the failure to properly file the esbt election for trust was not motivated by tax_avoidance or retroactive tax planning x and its shareholders have agreed to make any adjustments that the commissioner may require consistent with the treatment of x as an s_corporation sec_1361 of the code provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 defines an esbt sec_1361 provides that except as provided in sec_1362 an esbt means any trust if i such trust does not have as a beneficiary any person other than i an individual ii an estate iii an organization described in sec_170 or or iv an organization described in sec_170 which holds a contingent_interest in such trust and is not a pcb ii no interest in such trust was acquired by purchase and iii an election under sec_1361 applies to such trust sec_1361 provides that an election under sec_1361 shall be made by the trustee plr-100695-12 sec_1_1361-1 provides that the trustee of an esbt must make the esbt election by signing and filing with the service_center where the s_corporation files its income_tax return a statement that meets the requirements of sec_1_1361-1 sec_1362 provides that a in general an election under sec_1362 shall be terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation and b any termination under sec_1362 shall be effective on and after the date of cessation sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation will be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and the representations made we conclude that x's election as an s_corporation terminated on date and that this termination was inadvertent within the meaning of sec_1362 we further conclude that pursuant to the provisions of sec_1362 x will be treated as being an s_corporation from date and thereafter provided that x is otherwise eligible to be an s_corporation and provided that the election was not otherwise terminated under sec_1362 trust and trust will be treated as esbts from date and thereafter trust will be treated as an esbt from date and thereafter trust will be treated as an esbt from date and thereafter this ruling is conditioned upon the shareholders of x including in income their pro_rata share of the separately_stated and nonseparately computed items of x as provided in sec_1366 making any adjustments to basis as provided in sec_1367 and taking into account any distributions made by x as provided in sec_1368 if x or its shareholders fail to treat themselves as described above this letter_ruling shall be null and void this ruling is further conditioned upon b filing with the appropriate service_center esbt elections effective date for trust and trust date for trust and plr-100695-12 date for trust the esbt elections must be filed within days following the date of this letter and a copy of this letter should be attached to the election as an adjustment under sec_1362 a payment of dollar_figuren and a copy of this letter must be sent to the following address internal_revenue_service cincinnati service_center west rivercenter blvd covington ky stop terri lackey manual deposit this payment must be sent no later than date except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code specifically we express no opinion regarding x’s eligibility to be an s_corporation or the validity of its s_corporation_election we express no opinion on whether trust trust trust or trust qualify as esbts within the meaning of sec_1361 this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely melissa liquerman branch chief branch office of the associate chief_counsel passthroughs special industries cc


internal_revenue_service number release date index number ------------------------------ ---------------------- ------------------------------------- ------------------------------ - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc corp b05 plr-147021-06 date date -------------------------------------------------------------------------------- ---------------------------------------------------------------------------------- legend distributing ---------------------- ----------------------------------------------------------- state x busine sec_1 ---------- -------------------------- --------------------- ---------------------- date1 date shareholder a1 ------------------------------------------------------------ shareholder a2 ------------------------------------------------------------ shareholder a3 ------------------------------------------------------------ shareholder a4 ------------------------------------------------------------ shareholder b1 ------------------------------------------------------------ -------------------- -------------------- ------------------ ---------------- -------------------- plr-147021-06 shareholder b2 ------------------------------------------------------------ shareholder b3 shareholder b4 ---------------------- ------------------------------------------------------------ dear ---------- ------------------- ------------------------ this letter responds to your date request for rulings regarding certain federal_income_tax consequences of a proposed transaction the information submitted in that request and in later correspondences dated date date date and date is summarized below facts distributing is a state x corporation that directly conducts busine sec_1 distributing was incorporated on date as a subchapter_c_corporation but converted to a subchapter_s_corporation effective date it is a cash_method taxpayer filing its returns on a calendar_year financial information has been received indicating that distributing has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years distributing has a single class of voting common_stock the family of shareholder a owns approximately one-half of taxpayer’s stock specifically shareholder a1 shareholder a2 shareholder a3 and shareholder a4 hold --------- ---------- ---- and ---- respectively of distributing’s stock the family of shareholder b owns the remaining one-half of taxpayer’s stock specifically shareholder b1 as trustee of the living_trust of shareholder b1 shareholder b2 as trustee of the living_trust of shareholder b2 shareholder b3 and shareholder b4 hold -------- -------- ------ and ------ respectively of distributing’s stock to resolve management systemic and other problems that have arisen because of irreconcilable differences between the two families the shareholders have proposed to separate distributing proportionally in accordance with the two families’ relative share interests to effectuate the proposed transaction the shareholders will cause distributing to form a new corporation controlled and contribute to controlled certain of its residential and commercial properties and cash solely in exchange for the assumption of related liabilities and ------ of the stock of controlled controlled will be a cash_method taxpayer formed under the laws of state x immediately_after_the_transfer of assets by distributing to controlled distributing will distribute all of the stock of plr-147021-06 controlled to the family of shareholder a in exchange for all of the stock of distributing owned by the family of shareholder a controlled will elect to be taxed as a subchapter_s_corporation on the first available date after the distribution representations the taxpayers have made the following representations in connection with the transaction described above distributing controlled and each of the shareholders will each pay his her or its own expenses_incurred in connection with the proposed transaction no part of the controlled stock to be distributed by the distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of the corporation the five years of financial information submitted on behalf of distributing is representative of distributing’s present operation and with regard to distributing there have been no substantial operational changes since the date of the last financial statements submitted following the transaction distributing and controlled will each continue independently and with its separate employees the active_conduct of its share of all the integrated activities of the business conducted by distributing prior to consummation of the transaction there is no planned or intended substantial reduction in business activity for any active business the distribution of the stock or stock and securities of controlled is carried out for the following corporate business purposes a to resolve shareholder disputes concerning the operation and management of the business b to resolve shareholder disputes concerning the strategic direction of the business and c to resolve shareholder disputes concerning the fundamental business matters the distribution of the stock or stock and securities of controlled is motivated in whole or substantial part by one or more of these corporate business purposes the transaction is not used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both a b c d e f plr-147021-06 g h i j k l there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after the transaction except in the ordinary course of business the total adjusted bases and the fair_market_value of the assets transferred to controlled by distributing each equals or exceeds the sum of the liabilities assumed within the meaning of sec_357 by controlled plus any liabilities to which the transferred assets are subject the liabilities assumed within the meaning of sec_357 in the transaction and the liabilities to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction no investment_credit has been or will be claimed with respect to the transferred property no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution of controlled stock m payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length n o p no two parties to the transaction are investment companies as defined in sec_368 and iv the distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a percent or greater interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the value of the total combined shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five- plr-147021-06 year period determined after applying sec_355 ending on the distribution date q r s t for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock or percent or more of the value of the total combined shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the distribution date or ii attributable to distributions on distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the distribution date the total fair_market_value of the assets transferred in the proposed transaction will equal or exceed the aggregate adjusted bases of those assets the fair_market_value of the controlled stock to be received by distributing shareholders will be approximately equal to the fair_market_value of the distributing stock surrendered by such shareholders in the exchange neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 rulings based solely on the information submitted and on the representations set forth above we rule as follows with respect to the proposed transaction the transfer by distributing to controlled of part of its assets in exchange for all of the controlled stock and assumption_of_liabilities followed by the distribution of all the controlled stock to controlled shareholders in exchange for all of controlled shareholders’ distributing stock will constitute a reorganization within the meaning of sec_368 distributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 distributing will recognize no gain_or_loss upon the transfer of assets to controlled in exchange for controlled stock and the assumption_of_liabilities sec_361 sec_357 controlled will recognize no gain_or_loss on the receipt of assets in exchange for controlled stock sec_1032 plr-147021-06 controlled’s basis in each asset received from distributing will equal the basis of such asset in the hands of distributing immediately prior to the transaction sec_362 controlled’s holding_period of each asset received from distributing will include the period during which distributing held such asset sec_1223 the controlled shareholders will recognize no gain_or_loss and no amount will otherwise be included in the income of the controlled shareholders upon receipt of the controlled stock in exchange for all of controlled shareholders’ distributing stock sec_355 distributing will recognize no gain_or_loss on the distribution of the controlled stock to controlled shareholders sec_361 the aggregate basis of the controlled stock in the hands of the controlled shareholders will equal the aggregate basis of the distributing stock surrendered in the exchange sec_358 controlled shareholders’ holding_period of the controlled stock received in the distribution will include the holding_period of the distributing stock surrendered in the exchange provided that the distributing stock is held as a capital_asset on the date of the exchange sec_1223 distributing’s earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 the accumulated_adjustments_account of distributing will be allocated between distributing and controlled in a manner similar to the manner in which the earnings_and_profits of distributing will be allocated under sec_3i2 h see sec_1_312-10 and sec_1_1368-2 distributing's momentary ownership of the stock of controlled as part of the reorganization under sec_368 will not cause controlled to have an ineligible shareholder for any portion of its first taxable_year under sec_1361 b b if controlled otherwise meets the requirements of a small_business_corporation under sec_1361 controlled will be eligible to elect to be a subchapter_s_corporation under sec_1362 a for its first taxable_year controlled will be subject_to sec_1374 with respect to any asset transferred from distributing to controlled to the same extent distributing would have been subject_to sec_1374 with respect to such asset had distributing made an election to be treated as a subchapter_s_corporation for purposes of plr-147021-06 sec_1374 controlled’s recognition_period will be reduced by the portion of d’s recognition_period that expires prior to distributing’s transfer of these assets to controlled sec_1374 d ann i r b except as expressly provided herein no opinion is expressed or implied caveats concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed regarding i whether the distribution satisfies the business_purpose requirement of sec_1_355-2 ii whether the transaction is used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both and iii whether the distribution and an acquisition or acquisitions are part of a plan or series of related transactions under sec_355 further no opinion is expressed concerning whether distributing’s s election is valid whether controlled is otherwise eligible to be taxed as an s_corporation and whether controlled’s election to be an s_corporation will be valid under sec_1362 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely _debra carlisle______________________ debra carlisle chief branch office of associate chief_counsel corporate


internal_revenue_service u i l number info release date the honorable ellen o tauscher u s house of representatives date attention emily zielske north california boulevard suite walnut creek ca dear ms tauscher this letter responds to your inquiry to mr floyd williams dated date on behalf of your constitutent his short-term_capital_gains from mutual funds as dividends or as short-term_capital_gains asks whether he should treat a distribution received from a mutual_fund may be an ordinary dividend a capital_gain dividend an exempt-interest dividend or a return_of_capital a mutual_fund is required to send its shareholder a form 1099-div or similar statement to tell its shareholder the kind of distribution he or she receives form 1099-div displays in box the total ordinary dividends received from a mutual_fund the related instructions for recipient accompanying form 1099-div explains that the amount shown in box ordinary dividends includes any net short-term_capital_gains from the mutual_fund the total amount shown in box is fully taxable as ordinary_income accordingly your constituent on the ordinary dividends line of form_1040 or 1040a he should also report it on schedule b form_1040 or schedule form 1040a if required enclosed for your convenience is a copy of a form 1099-div and accompanying instructions should report this amount the following general information on capital_gains dividends may also be useful to your constituent sec_852 of the internal_revenue_code limits the amount of a mutual fund’s capital_gain dividend to the mutual fund’s net_capital_gain sec_1222 defines the term net_capital_gain as the excess of the net_long-term_capital_gain for the taxable_year over the net_short-term_capital_loss for that year sec_1222 defines the term net_long-term_capital_gain as the excess of long-term_capital_gains for the taxable_year over the long-term_capital_losses for that year cid cid cid the hon ellen o tauscher sec_1222 defines the term net_short-term_capital_loss as the excess of short-term_capital_losses over the short-term_capital_gains for that year if the mutual fund’s short-term_capital_gains exceed the short-term_capital_losses this excess does not fall within the definition of net_capital_gain and cannot therefore be designated by the mutual_fund as a capital_gain dividend dividends not designated by the mutual_fund as capital_gain dividends or as exempt-interest dividends are ordinary dividends includable in income of the recipient as described in the preceding paragraph we hope this information will be helpful in responding to your constituent if we can be of any further assistance please call susan baker at sincerely yours assistant chief_counsel financial institutions products by _________ william e coppersmith chief branch enclosure form 1099-div and instructions cid


internal_revenue_service department of the treasury washington dc index number person to contact number release date telephone number refer reply to cc dom p si - plr-109837-99 date date x a d1 year dear this letter responds to a letter dated date and subsequent correspondence written on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 a the sole shareholder of x intended that x elect to be an s_corporation beginning in year its first taxable_year upon incorporation a contacted an accountant who recommended that x file an election to be an s_corporation x’s minutes from its informal organizational action of the board_of directors indicate that x intended to be an s_corporation beginning in year a x’s president informed x’s accountant that a intended for x to be an s_corporation and was relying on x’s lawyer to prepare and file a form_2553 election by a small_business_corporation on behalf of x however a form_2553 was not timely filed for x for year for year x filed form_1120s u s income_tax return for an s_corporation 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 ms cheri l felix 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 first 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 sent to x’s authorized representative sincerely yours branch h grace kim assistant to the chief office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes