internal_revenue_service number release date index number ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-106515-07 date date legend --------------- ---------------- -------------------------- ------------------------------------------- company -------------------------------------------------- company -------------------------------------------------- state date date date date date dear ------------ this letter responds to your letter dated date and subsequent communication requesting a ruling under sec_1362 of the internal_revenue_code ----------------------- ---------------------- ---------------------- ------------------ company was organized in state as a limited_liability_company on date and elected to be treated as a partnership for federal tax purposes effective that same date on facts plr-106515-07 date company incorporated under state law company timely filed form_2553 election by a small_business_corporation electing to be classified as a subchapter_s_corporation effective date on date company an ineligible shareholder acquired the stock of company company 2’s s_corporation status terminated on date company filed form_8832 entity classification election and form_2553 on date electing to be classified as a subchapter_s_corporation effective date company requests consent to file form_8869 qualified_subchapter_s_subsidiary election on behalf of company effective date date is prior to the five-year waiting_period after company 2’s s_corporation status terminated on date as imposed by sec_1362 law and analysis sec_1361 provides that an s_corporation is a small_business_corporation for which an election under sec_1362 is in effect sec_1361 provides that the terms small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b 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 c have a nonresident_alien as a shareholder and d have more than class of stock sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that if a small_business_corporation has made an election under sec_1362 and if such election has been terminated under sec_1362 such corporation and any successor_corporation shall not be eligible to make an election under subsection a for any taxable_year before it sec_5th taxable_year which begins after the 1st taxable_year for which such termination is effective unless the secretary consents to such election sec_1_1362-5 of the income_tax regulations provides that the corporation has the burden of establishing that under the relevant facts and circumstances the plr-106515-07 commissioner should consent to a new election the fact that more than percent of the stock in the corporation is owned by persons who did not own any stock in the corporation will tend to establish that consent should be granted in the absence of this fact consent ordinarily is denied unless the corporation shows that the event causing termination was not reasonably within the control of the corporation or the shareholders having a substantial interest in the corporation and was not part of a plan of the corporation or of such shareholders to terminate the election conclusion based solely on the facts submitted and representations made we conclude that company has met its burden under sec_1_1362-5 we grant permission to company to elect to be a qualified_subchapter_s_subsidiary effective date and for all subsequent years unless otherwise terminated this consent is dependent upon company successfully electing to be treated as a qualified_subchapter_s_subsidiary and dependent upon company successfully electing to be treated as an s_corporation both elections effective date except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the code specifically we express or imply no opinion as to whether company is a small_business_corporation under sec_1361 and we express or imply no opinion as to whether company is a small_business_corporation under sec_1361 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 sincerely s leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


ull 03-0f o - b-00 internal_revenue_service date date department of the treasury person to contact badge number contact telephone number contact address last date for filing petition ein certified mail and return reciept dear this is a final revocation letter as to your exempt status under sec_501 of the internal_revenue_code recognition of your exemption under internal_revenue_code sec_501 is retroactively revoked to for the following reason s you have not been operated exclusively for an exempt_purpose as required by internal_revenue_code sec_501 you have not demonstrated that you primarily engage in activities which accomplish one or more of such exempt purposes specified in sec_501 as required by sec_1_501_c_3_-1 contributions to your organization are no longer deductible effective if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia before the ninety-first 91st day after the date that this determination was mailed to you contact the clerk of the appropriate court for rules for initiating suits for declaratory_judgment by referring to the enclosed publication you may write to the united_states tax_court at the following address united_states tax_court ciggeesyp ee you also have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access you tax information and can help you get answers you can call and ask for the taxpayer_advocate assistance or you can contact the advocate from the site where this issue was determined by writing to taxpayer_advocate assistance cannot be used as substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determination nor extend the time fixed by law that you have to file a petition in court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling we will notify the appropriate state officials of this action as required ‘by sec_6104 of the internal_revenue_code as a result of this revocation of tax-exempt status your organization is required to file form_1120 annually with the appropriate campus identified in the instructions this letter is a final revocation letter and should be kept within your permanent records if you have any questions please contact the person whose name and telephone number are shown above sincerely r c jon on director eo examinations enclosures publication


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date number release date conex-113179-11 uil ------------------------------------- --------------------------- ------------------------------- dear ------------------------ i am responding to your inquiry dated date on the federal_income_tax treatment of social_security_benefits you receive from the netherlands you wrote that you receive social_security_benefits from the netherlands in addition to the social_security_benefits you receive from the united_states a percentage of a taxpayer’s social_security_benefits are taxable if the taxpayer meets certain conditions sec_86 of the internal_revenue_code you asked if you should add the dutch benefits and the u s benefits together in order to calculate the amount of taxable social_security_benefits for u s income_tax purposes under paragraph of article of the income_tax convention between the united_states and the netherlands the contracting states payments made by one of the states under the provisions of its social_security system to a resident of the other state or to a u s citizen will be taxable only in the paying state under this provision only the netherlands can tax the dutch social_security_benefits thus a u s taxpayer should not add the dutch social_security_benefits to the u s benefits for purposes of calculating the percentage of taxable social_security_benefits under sec_86 of the code conex-113179-11 i hope this information is helpful if you need further assistance please call -------- -------- -------------------------at -------------------- sincerely paul carlino branch chief employment_tax branch division counsel associate chief_counsel tax exempt government entities


number release date internal_revenue_service 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 b07 plr-100634-05 date date ------------------------------------------------ ----------------------- --------------------------------- ------- -- ---- -- ----- ----- ------- ------- ------- ----- ---- ---- ----- ------------- -------------------------------------- --------------- legend corporation location year n o p q r s t u v w x y state event z dear ---------------- this letter is in response to the letter from your authorized representative dated date and subsequent correspondence requesting rulings under sec_216 of the internal_revenue_code the facts are represented to be as follows corporation is a cooperative_housing_corporation located in location corporation was formed in year by the developer of plr-100634-05 the property corporation owns n disconnected towers of o floors which sit on approximately p acres of land there are a total of q units in the buildings which range in size from r to s square feet with an average size of t to u square feet approximately v of the units have been held as the principal_residence of a tenant-stockholder for at least years approximately w of the units have been held as the principal_residence of a tenant-stockholder for less than years between x and y of the units are rented to third parties by tenant-stockholders a few units are held as a second residence by a tenant-stockholder the initial proprietary leases for the units had a year term which is the longest allowable under state law corporation further represents that it complies with all of the requirements of sec_216 as a result of event corporation’s buildings sustained substantial damage the extensive repair and renovation of the buildings took many years and was in excess of the corporation’s insurance corporation incurred nearly dollar_figurez of debt to pay for the repair and renovation including the refinancing of some of corporation’s pre-existing debt corporation has proposed to subdivide the buildings into condominium units and distribute some of the condominium units to tenant-stockholders in exchange for the redemption of their stock and the cancellation of the related proprietary leases tenant- stockholders who do not participate in the redemption will continue to own stock in corporation which will continue to operate as a cooperative_housing_corporation however tenant-stockholders who do not initially participate in the redemption will have the opportunity to participate in the future after the plan is approved by the tenant- stockholders corporation will obtain the required approvals of the relevant state and local authorities each tenant-stockholder will be responsible for paying their portion of the debt on the property their portion of the cost of the conversion and their portion of any corporate level tax arising from the conversion corporation’s board will review requests from any tenant-stockholder that wish to have their stock redeemed in exchange for their unit in deciding whether to approve the conversion the board will consider all relevant factors including whether the unit was used as the tenant- stockholder’s principal_residence the number of requests received the ability of the tenant-stockholder to pay the costs of conversion and the cost to corporation of the conversion each tenant-stockholder who uses their unit as their principal_residence will be entitled to the conversion subject_to providing such documentation indemnification or security as the board requires corporation shall complete the conversion within days of the approval of the tenant-stockholder’s request corporation requests the following rulings corporation will recognize no gain_or_loss upon the subdivision of the buildings into condominiums corporation will recognize no gain_or_loss on the distribution of the condominiums to tenant-stockholders who utilize their units as their principal residences plr-100634-05 for purposes of sec_216 a tenant-stockholder’s unit shall be considered the tenant-stockholder’s principal_residence so long as the residence satisfies the definition provided in sec_1_121-1 without the necessity of also satisfying the two-year home and use requirement provided in sec_121 corporation will recognize gain in an amount equal to the amount the fair_market_value of the distributed units exceed the adjusted_basis of the units in the hands of corporation on the distribution of units to tenant- stockholders who do not utilize their units as their principal_residence corporation will not be disqualified as a cooperative_housing_corporation within the meaning of sec_216 with respect to any distribution of a unit to a tenant-stockholder in exchange for all of the tenant-stockholder’s stock in corporation and the cancellation of the related proprietary lease corporation will continue to qualify as a cooperative_housing_corporation within the meaning of sec_216 even though in accordance with the plan of conversion corporation will own a number of condominiums rather than the undivided buildings no gain_or_loss shall be recognized by each tenant-stockholder who exchanges their stock in corporation and cancels the related proprietary lease in exchange for a unit that is used as the tenant-stockholder’s principal_residence each tenant-stockholder who exchanges their stock in corporation and cancels the related proprietary lease for a unit that is used as the tenant- stockholder’s principal_residence shall have the same basis in the unit as the tenant-stockholder had in their stock in corporation each tenant-stockholder who exchanges their stock in corporation and cancels the related proprietary lease for a unit that is used as the tenant- stockholder’s principal_residence shall have the same holding_period in the unit as the tenant-stockholder had in their stock in corporation for purposes of valuing each unit to be distributed to a tenant-stockholder by corporation the proprietary lease encumbering the unit and held by the tenant-stockholder shall be taken into account by corporation and the tenant-stockholder amounts considered to be contributions of capital excluded from income pursuant to sec_118 shall not be considered gross_income for purposes of the percent gross_income_test set forth in sec_216 ruling_request sec_61 of the internal_revenue_code provides that gross_income means all income from whatever source derived sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized over the adjusted_basis provided in ' for plr-100634-05 determining gain and the loss is the excess of the adjusted_basis provided in ' for determining loss over the amount_realized under ' c the entire amount of gain_or_loss must be recognized except as otherwise provided a partition of jointly owned property or a change in the form of ownership from joint_tenancy to tenancy_in_common is not a sale_or_other_disposition of property revrul_56_437 1956_2_cb_507 likewise subdividing a tract of land into sub-lots is not a taxable disposition of property under ' see revrul_70_7 1970_1_cb_175 therefore we hold that the conversion of corporation’s cooperative housing apartments into condominium units will not be considered a sale exchange or other_disposition of property thus the taxpayer will recognize no gain_or_loss on the conversion ruling_request and sec_216 provides that except as provided in regulations no gain_or_loss shall be recognized on the distribution by a cooperative_housing_corporation of a dwelling_unit to a stockholder in such corporation if such distribution is in exchange for the stockholder's stock in such corporation and such dwelling_unit is used as his principal_residence within the meaning of sec_121 sec_121 provides that gross_income will not include gain from the sale_or_exchange of property if during the 5-year period ending on the date of the sale_or_exchange such property has been owned and used by the taxpayer as the taxpayer’s principal_residence for periods aggregating years or more the phrase used by the taxpayer as the taxpayer’s principal_residence for periods aggregating two years or more in ' a constitutes a two-prong test see guinan v united_states ustc cch pbig_number d ariz first ' a requires the taxpayer to use the property as the taxpayer’s principal_residence determining whether a property is the taxpayer’s principal_residence requires an analysis of the relevant facts and circumstances facts_and_circumstances_test sec_1 b of the income_tax regulations after the taxpayer’s principal_residence has been determined the days that the taxpayer’s occupied the principal_residence are added up to determine whether the taxpayer has used the principal_residence for the requisite two years the taxpayer_relief_act_of_1997 pub_l_no 111_stat_788 tra amended and and repealed ' prior to its amendment under tra ' e provided that no gain_or_loss shall be recognized if such exchange qualifies for nonrecognition of gain under ' f former ' provided that gain from the sale_or_exchange of a principal_residence old residence was recognized only to the extent that the taxpayer s adjusted_sales_price of the old residence exceeded the taxpayer s cost of purchasing a new residence within the plr-100634-05 replacement_period generally years before or after the date of sale under former ' whether property qualified as a taxpayer’s principal_residence was determined on the date of the sale_or_exchange applying a facts_and_circumstances_test see former ' c of the income_tax regulations although reference to ' in ' e has been replaced with a reference to ' tra does not demonstrate congressional intent to modify the limitation of nonrecognition at the corporate level to the extent that the shareholder’s unit qualifies as the shareholder’s principal_residence under the facts_and_circumstances_test thus for purposes of ' e a shareholder’s unit will be considered the shareholder’s principal_residence if the residence is the shareholder’s principal_residence under the facts_and_circumstances_test as provided in ' b of the regulations without the necessity of also satisfying the two-year ownership and use requirement provided in ' a therefore we hold that corporation will recognize no gain_or_loss on the distribution of the condominiums to tenant-stockholders who utilize their units as their principal residences and that for purposes of sec_216 a tenant-stockholder’s unit shall be considered the tenant-stockholder’s principal_residence so long as the residence satisfies the definition provided in sec_1_121-1 without the necessity of also satisfying the two-year ownership and use requirement provided in sec_121 ruling_request sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized over the adjusted_basis provided in ' for determining gain and the loss is the excess of the adjusted_basis provided in ' for determining loss over the amount_realized under ' c the entire amount of gain_or_loss must be recognized except as otherwise provided sec_216 provides that except as provided in regulations no gain_or_loss shall be recognized on the distribution by a cooperative_housing_corporation of a dwelling_unit to a stockholder in such corporation if such distribution is in exchange for the stockholder's stock in such corporation and such dwelling_unit is used as his principal_residence within the meaning of sec_121 the non-recognition provided by sec_216 is limited to those circumstances where the dwelling_unit being distributed by the cooperative_housing_corporation is used as the tenant-stockholder’s principal_residence where the dwelling_unit distributed is not used as the tenant-stockholder’s principal_residence the general rules of sec_1001 will apply therefore we hold that corporation will recognize gain in an amount equal to the amount by which the fair_market_value of a distributed unit exceeds the adjusted_basis of the unit in the hands of corporation on the distribution of a unit to a tenant- stockholder who does not utilize his unit as a principal_residence ruling_request plr-100634-05 section sec_216 provides that the term cooperative_housing_corporation means a corporation-- a having one and only one class of stock outstanding b each of the stockholders of which is entitled solely by reason of his ownership of stock in the corporation to occupy for dwelling purposes a house or an apartment in a building owned or leased by such corporation c no stockholder of which is entitled either conditionally or unconditionally to receive any distribution not out of earnings_and_profits of the corporation except on a complete or partial_liquidation of the corporation and d percent or more of the gross_income of which for the taxable_year in which the taxes and interest described in subsection a are paid_or_incurred is derived from tenant-stockholders sec_1_216-1 provides that none of the stockholders of the corporation may be entitled either conditionally or unconditionally except upon a complete or partial_liquidation of the corporation to receive any distribution other than out of earnings_and_profits of the corporation although sec_216 does not specifically qualify the term any distribution as any distribution with respect to stock a mere distribution from creditor to debtor apart from and incidental to the corporation-stockholder relationship is not within the contemplation of the statute because the language not out of earnings_and_profits of the corporation except on a complete or partial_liquidation of the corporation clearly contemplates a distribution made with respect to stock revrul_75_547 1975_2_cb_89 while the term any distribution contemplates a distribution made with respect to stock it does not contemplate a distribution of an apartment in complete redemption of a tenant-stockholder’s stock in the cooperative_housing_corporation to the extent it is applicable the complete redemption of a tenant-stockholder’s stock in exchange for an apartment is governed by sec_216 therefore we hold that corporation will not be disqualified as a cooperative_housing_corporation within the meaning of sec_216 with respect to any distribution of a unit to a tenant-stockholder in exchange for all of the tenant-stockholder’s stock in corporation and the cancellation of the related proprietary lease ruling_request sec_1_216-1 provides in relevant part that each stockholder of the corporation whether or not the stockholder qualifies as a tenant-stockholder under sec_216 and paragraph f of this section must be entitled to occupy for dwelling purposes an apartment in a building or a unit in a housing development owned or leased by such corporation plr-100634-05 revrul_78_31 1978_1_cb_76 considered a scenario where a cooperative_housing_corporation owned a portion of an apartment building revrul_78_31 concluded that there is no requirement that a cooperative_housing_corporation must own an entire apartment building in order to satisfy the provisions of sec_216 b b it is sufficient that the corporation owns the apartments that its tenant-stockholders are entitled to occupy in addition the fact that the apartments are condominium units does not preclude the cooperative_housing_corporation from being considered as owning apartments in a building therefore we hold that corporation will continue to qualify as a cooperative_housing_corporation within the meaning of sec_216 even though in accordance with the plan of conversion corporation will own a number of condominiums rather than the undivided buildings ruling_request revrul_85_132 considered the issue of whether the exchange of stock in a cooperative_housing_corporation for legal_title to a condominium unit and an undivided_interest in the common elements results in nonrecognition of gain under sec_1034 revrul_85_132 concludes that the exchange of the tenant-stockholder’s stock in the corporation for legal_title to the condominium unit occupied by the tenant- stockholder and an undivided_interest in the common elements will qualify as a sale within the meaning of sec_1034 and no gain_or_loss will be recognized to the tenant- stockholder on such sale subject_to the limitations of sec_1034 and sec_1 in congress enacted sec_216 as of the technical_and_miscellaneous_revenue_act_of_1988 p l with an effective date retroactive to the tax_reform_act_of_1986 sec_216 was enacted to provide corporate level relief from the application of sec_336 to the extent sec_1034 had already provided for nonrecognition on the tenant-stockholder level sec_216 as enacted provided that except as provided in regulations no gain_or_loss shall be recognized on the distribution by a cooperative_housing_corporation of a dwelling_unit to a stockholder in such corporation if such distribution is in exchange for the stockholder’s stock in such corporation and such exchange qualifies for nonrecognition of gain under sec_1034 the conference_report states that no gain_or_loss is recognized to a residential housing cooperative when property that qualifies as a principal_residence is distributed to a tenant-stockholder in exchange for the tenant-stockholder’s stock to the extent the exchange qualifies for nonrecognition at the shareholder level under sec_1034 of the code see h_r conf_rep no pincite sec_216 as enacted provided for no gain_or_loss where the exchange of the tenant-stockholder’s stock for the unit qualifies for nonrecognition of gain under sec_1034 under revrul_85_132 the conversion is treated as a sale in which the taxpayer has sold his principal_residence in the cooperative_housing_corporation and plr-100634-05 immediately bought a condominium for the same price triggering the rollover of all gain under sec_1034 for the tenant-stockholder in the taxpayer_relief_act_of_1997 congress amended sec_121 and repealed sec_1034 in conjunction with the repeal of sec_1034 the taxpayer_relief_act_of_1997 provided a conforming amendment to sec_216 to reflect the sec_1034 repeal the amendment to sec_216 resulted in the current language which provides that no gain_or_loss shall be recognized on the distribution by a cooperative_housing_corporation of a dwelling_unit to a stockholder in such corporation if such distribution is in exchange for the stockholder’s stock in such corporation and such dwelling_unit is used as his principal_residence within the meaning of sec_121 the legislative_history to the taxpayer_relief_act_of_1997 provides no explanation of the amendment to sec_216 revrul_85_132 established that the conversion of a cooperative_housing_corporation into condominium ownership is a sale_or_exchange subject_to the rules of former sec_1034 sec_216 was enacted to provide a corporate level complement to the treatment already afforded by sec_1034 on the tenant-stockholder level when sec_1034 was repealed in sec_216 was amended to reflect the substitution of amended sec_121 as the key provision governing the sale of an individual’s principal_residence there is no indication in the statute or legislative_history to suggest that congress intended to make any change to sec_216 other than the replacement of the reference to sec_1034 with a reference to sec_121 absent a showing of congressional intent to broaden the application of sec_216 to include tenant-stockholders sec_216 should continue to be interpreted as only addressing the consequences to the cooperative_housing_corporation on the conversion to condominium ownership because the conversion is treated as a sale_or_exchange the tax treatment of the tenant-stockholders who use their units as their principal_residence is governed by sec_121 to the extent it applies therefore we hold that consistent with the treatment of the conversion as a sale_or_exchange and subject_to the provisions of sec_121 gain_or_loss shall be recognized by each tenant-stockholder who exchanges their stock in corporation in exchange for a unit that is used as the tenant-stockholder’s principal_residence to the extent that the unit’s fair_market_value exceeds the tenant-stockholder’s basis in his stock accordingly each tenant-stockholder may exclude from gross_income the gain from the exchange of the stock in corporation only if the requirements of ' have otherwise been satisfied in determining whether a tenant-stockholder meets the requirements of sec_121 if corporation meets all the requirements of sec_216 to be a cooperative_housing_corporation the exchange of the tenant-stockholder’s stock in corporation for a condominium unit will qualify as an exchange of the unit the tenant-stockholder is entitled to occupy as a result of holding such stock further the ownership and use tests of sec_121 discussed above will be applied as though the tenant-stockholder owned and used such unit see sec_121 plr-100634-05 ruling_request sec_1012 provides that the basis_of_property is its cost the cost is the amount_paid for such property in cash or other_property sec_1_1021-1 of the regulations the basis_of_property acquired in an exchange is its fair_market_value unless otherwise provided in the code or regulations see 126_fsupp_184 ct_cl therefore we hold that the basis in the condominium unit for each tenant-stockholder who exchanges their stock for a condominium unit will equal the fair_market_value of the shareholder’s condominium unit ruling_request sec_1223 provides that in determining the period for which a taxpayer has held property received in an exchange there shall be included the period for which the taxpayer held the property exchanged if the property has for the purposes of determining gain_or_loss from a sale_or_exchange the same basis in whole or in part in the taxpayer's hands as the property exchanged and the property exchanged at the time of such exchange was a capital_asset as defined in ' or property described in ' because the basis in the acquired condominium unit will not be determined by reference to the basis of the co-op stock ' is inapplicable a tenant-stockholder’s holding_period for the stock will not be tacked on to the shareholder’s holding_period for the condominium unit instead we hold that the holding_period will run from the date that the tenant-stockholder acquires the condominium unit ruling_request sec_216 provides that among other requirements for being considered a cooperative_housing_corporation each of the stockholders of which is entitled solely by reason of his ownership of stock in the corporation to occupy for dwelling purposes a house or an apartment in a building owned or leased by such corporation sec_1_216-1 provides in relevant part that each stockholder of the corporation whether or not the stockholder qualifies as a tenant-stockholder under sec_216 and paragraph f of this section must be entitled to occupy for dwelling purposes an apartment in a building or a unit in a housing development owned or leased by such corporation such right must be conferred on each stockholder solely by reasons of his or her ownership of stock in the corporation that is the stock must entitle the owner thereof either to occupy the premises or to a lease of the premises a lease between a cooperative_housing_corporation and a tenant-stockholder is often the mechanism under which a tenant-stockholder takes possession of a unit in the plr-100634-05 cooperative however under sec_216 a tenant-stockholder has the right to possess a unit in the building solely due to the ownership of stock in the corporation the lease between the corporation and a tenant-stockholder functions much like the covenants typical with the direct ownership of residential_real_property therefore the lease should be viewed as a condition on the tenant-stockholder’s ownership of stock in the corporation and not as a separate asset any valuation of a unit to be distributed to a tenant-stockholder would necessarily include any conditions on the ownership of that unit therefore we hold that for purposes of valuing each unit to be distributed to a tenant- stockholder by corporation the proprietary lease encumbering the unit and held by the tenant-stockholder shall be taken into account by corporation and the tenant- stockholder ruling_request sec_216 provides that a cooperative_housing_corporation is a corporation percent or more of the gross_income of which for the taxable_year in which the taxes and interest described in subsection a are paid_or_incurred is derived from tenant- stockholders sec_118 provides that in the case of a corporation gross_income does not include any contribution to the capital of the corporation the requirement in sec_216 that eighty percent or more of the gross_income of the cooperative_housing_corporation for the taxable_year must be derived from tenant- stockholders contemplates that only items that would be includible in the gross_income of the corporation are included in determining whether eighty percent of the gross_income is derived from tenant-stockholders thus if an item is not considered gross_income to the cooperative_housing_corporation it is not taken into account for purposes of sec_216 see 452_f2d_1036 ct_cl therefore we hold that amounts considered to be contributions of capital excluded from income pursuant to sec_118 shall not be considered gross_income for purposes of the percent gross_income_test set forth in sec_216 except as specifically provided no opinion is expressed or implied as to the federal 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 provides that it may not be used or cited as precedent plr-100634-05 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 s joseph h makurath senior technician reviewer branch office of associate chief_counsel passthroughs special industries -


t c memo united_states tax_court jeffrey chou and cindy chou petitioners v commissioner of internal revenue respondent docket no 19015-05l filed date robert l sommers for petitioners alvah lavar taylor for petitioner cindy chou jonathan a neumann and shannon edelstone for respondent memorandum findings_of_fact and opinion cohen judge this action was commenced in response to notices of determination concerning collection action s under sec_6320 and or the issues for decision are whether the court should determine petitioners’ tax_liability for after that liability has been conceded by respondent and respondent has abated an assessment based on petitioners’ amended_return for and whether petitioner cindy chou mrs chou qualifies for relief under sec_6015 unless otherwise indicated all section references are to the internal_revenue_code these issues arise in the context of a frequently occurring factual situation involving the alternative_minimum_tax amt on incentive stock_options isos exercised in followed by a drop in the value of the shares a claim by the taxpayer that the taxable_event occurred in a later year when the value of the shares was lower and attempts to avoid or compromise the outstanding amt liability findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioners resided in california at the time that their petition was filed petitioners have been married at all times since they have two children the older of whom was born on date mrs chou graduated from the university of texas with a degree in radio television and film and studied interior decorating after college mrs chou has a small interior design business but she is mainly a stay-at-home mother for petitioners’ two children petitioner jeffrey chou mr chou has never abused mrs chou at any time in mr chou began employment as a hardware engineer for granite systems granite as part of his employment package mr chou received big_number isos with an exercise price of dollar_figure per share the isos vested over a 4-year period several weeks after mr chou began his employment granite merged with cisco systems cisco cisco converted mr chou’s granite isos into cisco isos and through stock splits mr chou’s isos grew to approximately big_number over the next several years mr chou received the cisco isos in connection with his status as a cisco employee in mr chou exercised big_number of his cisco isos when the fair_market_value of the cisco stock had an average price of dollar_figure per share mr chou did not sell any of the cisco shares acquired by him through the exercise of the isos during by the end of the price per share of cisco stock was approximately dollar_figure in date petitioners had their tax_return prepared and were told that they owed dollar_figure in tentative amt because of the exercise of mr chou’s stock_options by date the price per share of cisco stock was dollar_figure petitioners filed a joint form_1040 u s individual_income_tax_return for in date on the line for amount you owe the sum of dollar_figure was reported mrs chou’s signature on the return appeared approximately inches below_the_line for amount you owe her occupation was shown as interior designer on date petitioners filed an offer-in- compromise oic on doubt as to liability for citing pending federal legislation on date while their oic was pending the internal_revenue_service sent them a notice_of_intent_to_levy for they ultimately withdrew their oic for based on doubt as to liability and on date submitted an oic based on effective tax_administration or in the alternative doubt as to liability with special circumstances their oic was rejected on date and petitioners sought review by the appeals_office on date the appeals_office sustained rejection of the oic for petitioners sought judicial review of that rejection more than days after the offer was rejected petitioners’ federal_income_tax return for was timely filed in date on or about date petitioners filed joint amended returns for and claiming that the transaction involving the cisco shares originally reported on their tax_return should have been reported in petitioners explained their position as follows taxpayers amend their personal income_tax return to report their amt preference in tax_year instead of tax_year taxpayers received stock pursuant to sec_422 through the exercise of an iso in tax_year and initially treated the stock as an amt preference item in tax_year however the stock contained a substantial restriction of forfeiture under sec_83 therefore the stock vested for amt preference purposes when the restriction lapsed in tax_year taxpayers have filed an amended_return for reflecting this change in taxpayers’ case they exercised an iso under sec_422 to qualify for the capital_gain benefits provided by the statute taxpayers were required to hold the stock for at least months this 12-month restriction constitutes a substantial_risk_of_forfeiture since rights in property were conditioned upon the occurrence of a specified event the 12-month holding_period related to the transfer and the failure to hold the stock for months causes a substantial forfeiture the loss of capital_gain benefits under sec_422 when stock is subject_to a substantial_risk_of_forfeiture as defined in sec_83 the date for the calculation of the amt preference and for inclusion thereof in amt is the date the restrictions lapse the 12-month restriction lapsed in and the value of the stock on the date the restriction lapsed will be used for amt purposes the liability shown on petitioners’ return filed in date was assessed based on petitioners’ reporting the irs accepted petitioners’ amended_return for and made a second assessment against petitioners in the amount of dollar_figure on date the irs did not accept petitioners’ amended_return for on date the irs sent petitioners a notice_of_intent_to_levy for on the same date the irs sent petitioners a collection letter showing the unpaid balance of petitioners’ liability for to be dollar_figure on date the irs sent petitioners a notice_of_federal_tax_lien for on date petitioners filed a request for a collection_due_process_hearing for and in response to the notice_of_intent_to_levy on date petitioners filed a request for a collection_due_process_hearing for and in response to the notice_of_federal_tax_lien on date petitioners filed a refund action for in the u s district_court for the northern district of california on date the district_court action was dismissed for lack of subject matter jurisdiction the dismissal was appealed to the u s court_of_appeals for the ninth circuit but the appeal was dismissed on date on date the irs notified petitioners that their amended_return for was being audited on date respondent’s appeals_office sent a decision letter concerning equivalent_hearing to petitioners regarding their tax_liability for an equivalency hearing had been conducted because no request for a hearing was filed within the 30-day period prescribed by sec_6320 and or with respect to petitioners’ liability for in the decision letter a notice_of_intent_to_levy dated date was not sustained because petitioners’ oic was pending at the time that the levy notice was issued no notice_of_determination concerning collection action s under sec_6320 and or for has ever been issued in an oic submitted with respect to the requested sec_6330 hearing and signed by each petitioner on date it was represented in march jeff and cindy had their tax returns prepared and were told that they owed dollar_figure in tentative amt because of the exercise of his stock_options on date mrs chou filed a form_8857 request for innocent spouse relief for and the letter submitting mrs chou’s claims stated that the claim was being submitted as part of petitioners’ sec_6330 hearing for the request asserted if jeff and cindy’s oic is not granted then cindy’s claim for innocent spouse relief should be granted as to her since she did not cause the amt liability and received no economic benefit from jeff’s exercise of his cisco isos no representation was made in the form_8857 concerning mrs chou’s knowledge of the tax due for at the time the return was filed appeals officer lawrence dorr dorr was assigned petitioners’ oic the proposed levy and lien actions with respect to collection of petitioners’ reported liability for and mrs chou’s sec_6015 relief claim on date responding to an inquiry from dorr about her thoughts regarding the payment of tax when she signed the tax_return petitioners submitted a handwritten statement from her as follows at the time i signed the tax_return it was my understanding that my husband would take care of paying the taxes since the increase in our taxes was the result of employee stock_options occurring in his separate stock account i did not receive any brokerage statements for this account and did not know the amount of funds in this account ever since we’ve been married my husband has always taken care of all our tax filings and at the time i signed the tax_return i had no reason to believe otherwise the transmittal letter by mrs chou’s counsel noted that the knowledge factor is just one of several factors to be considered and is not a conclusive factor the sec_6015 claim in accordance with irs procedure was sent to a centralized unit in cincinnati ohio the file relating to the sec_6015 claim was then transmitted from cincinnati to oakland california but was lost in transit in order to consider mrs chou’s claim dorr recreated the file relating to that claim in recreating the file dorr failed to maintain a complete case activity record and did not prepare any document supporting his determination with respect to mrs chou’s sec_6015 claim the file that has been stipulated as the administrative record in this case omitted at least four other items that should have been included in the administrative record those items are a true and complete copy of the notice_of_intent_to_levy dated date and the letter p dated date a true and complete copy of a request for a collection_due_process_hearing for and that petitioners filed on date in response to the notice_of_intent_to_levy issued by the irs on date a letter sent by petitioners’ counsel robert l sommers sommers to appeals officer dorr on date and a letter sent by sommers to appeals officer dorr on date on date the appeals_office sent to petitioners notices of determination concerning collection action s under sec_6320 and or with respect to those notices contained an explanation in relevant part as follows your representative has advanced several arguments for applying the amt on the exercise of the stock_options at issue in rather than the first argument is that the exercise of the options was restricted in such a way as to subject you to a substantial_risk_of_forfeiture the restriction cited by your representative is the provision of sec_422 that provides for capital_gain treatment on the sale of stock held for at least twelve months your representative refers to this as the required 12-month holding_period and argues that your rights in the stock were conditioned on the 12-month holding_period your representative cites prentice i robinson ca-1 ustc in that case the court held that the petitioner did not own transferable rights to stock acquired from his employer for the first year after receipt of the stock however that decision was based on a specific sell- back agreement requiring that the petitioner sell his shares back to the corporation at the original cost if he wished to dispose_of them in less than one year that agreement created a substantial_risk_of_forfeiture and rendered the stock non-transferable for one year on its own terms not because of sec_422 no such agreement exists in the present case when you acquired the stock in early it was acquired without restriction the provisions of sec_422 impose no restriction on the sale of stock they do provide favorable tax treatment if the stock is held for one year while this might have disadvantaged you for tax purposes had you sold the stock before holding it for a year it in no way restricted your ability to sell or otherwise dispose_of the stock at any point your representative also argues that the service has a duty_of_consistency which requires that it treat the options as subject_to amt in not in support of that he cites estate of hilda ashman ca-9 ustc big_number in short that case states that a taxpayer cannot take a position which is to his advantage in one year and then take an opposite position after that year is barred by the statute_of_limitations the statutes for both and are still open by virtue of your claim_for_refund in orange securities corp ca-5 ustc the court held that there is a duty_of_consistency on both the taxpayer and the commissioner you originally filed your return and reported the amt for that year the service accepted that return when you filed amended returns for both and to shift the amt to the later year the service accepted the amended_return for but not the one for thus you found yourselves assessed very substantial amt for both years for the same underlying exercise of stock_options your representative argues that since the service accepted the amended_return for and assessed the amt shown thereon it must--to be consistent--accept the amended_return for and abate the amt for that year the service has not taken inconsistent positions it has consistently argued that the liability attaches to further the service has taken the position that the resolution of the inconsistency can be achieved by simply abating the amt for this is the position taken by the revenue_agent in the examination of the amended returns your claim_for_refund is under consideration in appeals and will be submitted sustaining the application of the amt in and proposing abatement of the amt for incentive stock_options were issued to you by cisco systems as part of your compensation_for services you exercised the options in and big_number shares of cisco stock were transferred to you unconditionally and without restriction the amt liability produced by these transactions attaches to the year the lien notice stated addressing efficient collection with concern over the intrusiveness of collection internal_revenue_manual dollar_figure provides for the filing of a notice_of_federal_tax_lien for balances due of over dollar_figure the lien is intrusive but it is appropriate in this instance to protect the government’s interest you have made no payments toward either or and there is no indication that the liability for will be paid voluntarily in terms of alternatives to collection you have filed an oic based on doubt as to liability doubt as to collectibility and effective tax_administration that offer is being rejected on all three grounds it is the service’s position that ultimately there will be no amt liability for however until the issue is finally decided in the various venues to which you have turned for relief the lien continues to be appropriate the levy notice stated addressing efficient collection with concern over the intrusiveness of collection sec_6330 requires that the determination by an appeals officer under this subsection shall take into consideration whether any proposed collection action balances the needs for the efficient collection_of_taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary the levy is intrusive but it is appropriate in this instance to protect the government’s interest you have made no payments toward either or and there is no indication that the liability for will be paid voluntarily in terms of alternatives to collection you have filed an oic based on doubt as to liability doubt as to collectibility and effective tax_administration that offer is being rejected on all three grounds it is the service’s position that ultimately there will be no amt liability for however until the issue is finally decided in the various venues to which you have turned for relief the levy notice continues to be appropriate on date the irs appeals_office sent mrs chou a notice_of_determination concerning your request for relief under the equitable relief provision of sec_6015 that denied mrs chou’s request for innocent spouse relief for and the notice simply stated in relevant part we’ve determined that for the above tax_year s we - cannot allow your request no further explanation was given no further explanation was placed in the administrative file by notice served date this case was set for trial in san francisco california on date on date respondent filed a motion for continuance of trial representing in part respondent concedes that the determination set forth in the notice_of_determination concerning collection action s under sec_6320 and or issued to petitioners on date for petitioners’ income_tax_liability for the taxable_year will not be sustained on date respondent’s appeals officer requested a full abatement of the entire tax_liability assessed against petitioners for the taxable_year petitioner cindy chou’s claim for relief from joint_and_several_liability under sec_6015 for the taxable_year is moot as respondent has requested an abatement of all tax owed by petitioners for the taxable_year the only issue remaining in this case concerns whether petitioner cindy chou is entitled to relief from joint_and_several_liability under sec_6015 for the taxable_year because a notice_of_determination was not issued for a collection_due_process appeal with respect to the taxable_year sec_6320 and sec_6330 do not provide the court with jurisdiction to hear an appeal of petitioner cindy chou’s claim for relief under sec_6015 for the taxable_year thus the only basis for the tax_court to review respondent’s sec_6015 determination in this case is sec_6015 respondent’s motion for continuance was based on then-outstanding caselaw to the effect that the court would not have jurisdiction to hear mrs chou’s sec_6015 claim because no deficiency had been determined respondent now concedes jurisdiction over that issue based on subsequently enacted legislation as discussed below petitioners objected to respondent’s motion for continuance petitioners also objected to respondent’s abatement of the assessment for accusing respondent of attempting to deprive the court of jurisdiction over that year respondent’s motion for continuance was denied opinion this is an unusual case in which petitioners insist that we should reject respondent’s concession that they owe no tax_liability for that the assessment based on petitioners’ amended_return for that year will be abated and that no collection action will be taken with respect to that assessment petitioners ask the court to determine that they owe tax of dollar_figure for petitioners’ obvious purpose is to have the court determine that they do not owe the tax that they originally reported for a question that is not properly before the court in this case the parties were able to cooperate with respect to a fairly complete stipulation but not otherwise petitioners’ rhetoric includes irresponsible accusations against respondent and respondent unnecessarily attacks the credibility of petitioners’ testimony even after the court commented at trial that their testimony was credible we do not condone or address at length such overzealous advocacy and meritless arguments lack of objectivity serves no purpose other than unreasonably to protract these proceedings for the reasons set forth below we conclude that there is only one issue properly before the court and that is mrs chou’s entitlement to relief under sec_6015 for sec_6330 and liability for our jurisdiction in this case is predicated upon sec_6330 which gives the tax_court jurisdiction with respect to such matter as set forth in the determination of the appeals_office 126_tc_1 125_tc_14 petitioners originally reported almost dollar_figure million in amt liability for as a result of mr chou’s exercise of his cisco options stunned by the consequence and unable to secure relief through an oic petitioners then filed amended returns claiming that the liability should have been reported in when it would be substantially lower because of the reduced value of the stock petitioners now contend that by assessing the tax based on their amended return the irs accepted their position and is required by the duty_of_consistency to abate the liability for in their amended returns in their oic and in their briefs petitioners assert that the capital_gains holding_period under sec_422 renders the stock that they acquired through exercise of cisco isos nontransferable for months without forfeiture of the favorable tax_rates on capital_gains their argument cites sec_83 which deals with the time for recognizing income from property transferred in_connection_with_the_performance_of_services this risk of forfeiture argument is untenable because that term applies to a condition that renders a taxpayer’s beneficial_ownership_of_stock subject_to termination see 127_tc_184 127_tc_43 spitz v commissioner tcmemo_2006_168 racine v commissioner tcmemo_2006_162 facq v commissioner tcmemo_2006_111 merlo v commissioner tcmemo_2005_178 see also 469_f3d_1249 9th cir 75_fedclaims_304 mr chou testified i exercised because i could the stock was vested and i just happened to not sell there is neither logic nor authority supporting the argument that consideration of tax consequences is a risk of forfeiture within the meaning of sec_83 there is no evidence of any nontax reason for mr chou not to sell the stock that he acquired in petitioners raise a series of arguments that they are entitled to a windfall as a result of the assessment now abated for they accuse respondent of gamesmanship apparently believing that the best defense is a strong offense we cannot conclude that the abatement and concession should be rejected respondent’s position as set forth in detail in the date notices of determination quoted at length above was not unreasonable assuming that the tax_liability should have been abated earlier however and paraphrasing justice frankfurter we believe that wisdom comes too seldom and it should not be rejected merely because it comes late wisdom too often never comes and so one ought not to reject it merely because it comes late 335_us_595 frankfurter j dissenting respondent contends that the concession and abatement with respect to render petitioners’ claims with respect to that year moot we agree our jurisdiction under sec_6330 is generally limited to reviewing whether a proposed lien or levy action is proper once respondent concedes that there is no unpaid liability for the year in dispute upon which a lien or levy could be based the case is moot greene-thapedi v commissioner supra pincite gerakios v commissioner tcmemo_2004_203 chocallo v commissioner tcmemo_2004_152 we need say no more about the issue for sec_6015 generally spouses filing joint federal_income_tax returns are jointly and severally liable for the taxes due on those returns sec_6013 sec_6015 provides relief from liability in certain circumstances because the relief sought in this case is from a liability shown on petitioners’ original return and assessed based on that return only sec_6015 is applicable see 120_tc_137 at the time of the motion to continue respondent’s position was that 439_f3d_1009 9th cir revg 118_tc_494 and vacating 122_tc_32 was controlling in this case in that case the court_of_appeals held that the tax_court did not have jurisdiction to hear cases involving relief under sec_6015 where there was no determination_of_a_deficiency respondent now concedes however that the tax relief and health care act of publaw_109_432 120_stat_2922 which amended sec_6015 confers the necessary jurisdiction with respect to mrs chou’s claim for relief for the year respondent contends and we agree that her claim for is moot for the reasons discussed above the testimony of petitioners at trial with respect to the allocation of household responsibilities between them was brief and was credible it was credible because petitioners did not make the improbable claims that now appear in the briefs authored by their counsel as discussed below respondent asserts that we should disregard the testimony of petitioners because we should consider only the administrative record in deciding whether it was an abuse_of_discretion to deny the relief sought by mrs chou respondent acknowledges that this court has held that the determination to deny relief under sec_6015 is subject_to de novo review by the court but relies on our opinion as having been vacated on jurisdictional grounds see 122_tc_32 revd in part and vacated in part on jurisdictional issue 439_f3d_1009 9th cir though we may have occasion in the future to reconsider the court’s approach to these cases as explained in 122_tc_32 and applied in numerous other cases we do not do so here respondent found it necessary to call dorr to explain his reasons for rejecting mrs chou’s claim because his reasons were not anywhere in the administrative record respondent stipulated that at least four other documents that should have been included in the administrative record were not the administrative record had to be recreated by dorr because the parts relating to mrs chou’s claim were lost in transmittal between irs offices the testimony at trial will be considered in determining whether mrs chou is entitled to relief as directed by sec_6015 the commissioner has prescribed guidelines under which a taxpayer may qualify for equitable relief from liability on a joint_return see revproc_2003_61 2003_2_cb_296 revproc_2003_61 sec_4 c b pincite provides in relevant part that relief ordinarily will be granted if three criteria are met the first criterion that the requesting spouse is no longer married to or is legally_separated from the nonrequesting spouse or is not a member of the same household at anytime during the months prior to the request for relief is not satisfied in this case the other two criteria are in dispute they are whether on the date the requesting spouse signed the joint_return she had no knowledge or reason to know that the nonrequesting spouse would not pay the income_tax_liability and that the requesting spouse would suffer economic hardship if relief is not granted revproc_2003_61 sec_4 c b pincite provides a nonexclusive list of factors that may be considered in determining whether taking into account all of the facts and circumstances it would be inequitable to hold a taxpayer such as mrs chou liable for any part or all of the unpaid liability no single factor is determinative respondent concedes that mrs chou has made a good_faith effort to comply with the income_tax laws in the years following the years in issue which is one of the factors favoring relief respondent argues however that factors weighing against relief in this case include lack of economic hardship knowledge or reason to know that the taxes would not be paid and significant benefit beyond normal support from the unpaid tax_liability respondent asserts that the remaining factors that mrs chou was still married to mr chou the absence of abuse and the absence of any mental or physical health condition are neutral petitioners focus on the hardship benefit knowledge and health factors petitioners assert that before analyzing the above factors we must determine whether petitioners actually owe the taxes reported on their original return for we assume that they do because absent compromise there is no tenable argument that they do not we do not comment on the prospects for compromise both parties however rely solely on material submitted in relation to the oic in their discussion of financial matters petitioners provided no testimony or direct evidence at trial as to their basic living_expenses or mr chou’s continuing ability to pay them petitioners’ hardship argument is essentially that if all of the assets owned by petitioners were liquidated and paid towards the unpaid assessment for petitioners would still owe more than dollar_figure million while this may be an appropriate analysis with respect to the oic it does not establish hardship in the current record see sec_301_6343-1 proced admin regs defining hardship as the inability to pay reasonable basic living_expenses so far as the record reflects mr chou continues to earn a substantial income and to provide more than basic support to the family with respect to the significant benefit factor petitioners essentially argue that neither petitioner received a benefit from the unpaid taxes because the taxes accrued on value that they never received from exercise of the stock_options the parties dispute the significance of mr chou’s pledge of the cisco stock to support a loan and use of the proceeds of the loan for purposes other than payment of taxes on the record in this case we conclude that the benefit factor neither favors nor precludes relief with regard to health factors the briefs authored by petitioners’ counsel repeatedly assert that mrs chou had recently given birth and was caring for a newborn infant within the briefs filed in january and date the infant is at various places described as born in late newborn months old months old and months old while thus so careless with the facts on which they rely the briefs accuse respondent of inaccuracies and shoddy analysis these arguments are unsupported unpersuasive and inexcusable the briefs frequently assert the physical and mental demands on the mother of a newborn infant as a health issue and as excusing lack of knowledge of the unpaid liability but nothing in the record supports that characterization mrs chou testified that her child was born on date and the return was signed in date the extent of her testimony with respect to the demands of motherhood was as follows q mrs chou’s counsel lot of work taking care of an infant a mrs chou yes definitely we conclude that there are no special mental or physical health factors in this case petitioners’ briefs similarly overstate the record with respect to mrs chou’s lack of knowledge that the taxes would be paid at the time she signed the return petitioners each testified that mr chou handled the family’s finances consulted with the accountant and paid for the household expenses they also testified that they did not have any joint checking accounts or credit cards mrs chou’s testimony about her state of mind at the time that she signed the return was as follows q mrs chou’s counsel do you remember looking at the return when you signed it do you remember actually signing the return a mrs chou i’m sure i signed it i don’t remember that specific one as different as the--any other particular year in relation to the oic petitioners had submitted a factual statement asserting that they learned of the amt liability in date when she signed the joint income_tax return in april the amount shown as owing dollar_figure appeared approximately inches above her signature in her form_8857 mrs chou did not claim that she did not know of the liability the date statement that she submitted in response to dorr’s inquiry was similarly more cautious and candid in asserting the state of her knowledge to the effect that she was aware of the increased taxes resulting from the stock_options but that she assumed that her husband would take care of paying the taxes mr chou testified as follows a mr chou i had some clue at the time of amt but the gravity of the situation did not occur to me until my tax returns were finalized by my cpa q mrs chou’s counsel okay if i use the term amt-iso or amt-iso situation it just means a shorthand for the alternative_minimum_tax as caused by the exercise of incentive stock_options so you’ll understand what i mean by that after this occurred after your amt-iso situation occurred did you engage in any activities regarding this a yes i engaged in numerous activities first i reported my tax and i went public with my story and i started an organization called reform amt-dot-org we’re a national grassroots organization we have over members acro sec_48 states and our mission is to appeal to congress and try to fix the law q did you engage in any legislative efforts a yes reform amt has been heavily involved with our congress representatives and senators in trying to introduce bills and hopefully pass bills mr chou also testified that he met with the national_taxpayer_advocate and thereafter filed the oic apparently challenging the liability was the strategy adopted when the return was filed without even partial payment there is no suggestion by anyone that mr chou ever deceived mrs chou or concealed anything from her unfortunately no party on direct or cross-examination asked mrs chou in detail about her knowledge of the almost dollar_figure million liability we assume that if she had been asked she would have been truthful in the absence of further explanation it is improbable that mrs chou did not know that rather than paying the tax petitioners would be challenging their liability she certainly did not satisfy her well-established duty_of inquiry see eg albin v commissioner tcmemo_2004_230 demirjian v commissioner tcmemo_2004_22 and cases cited therein on the entire record we conclude that mrs chou knew or had reason to know that the tax would not be paid at the time that she signed the return we do not question petitioners’ allocation of responsibility for family matters between themselves but they have not shown that mrs chou should be relieved of their joint liability on the return we have reviewed the other arguments of the parties they are without merit irrelevant or moot an order of dismissal with respect to and a decision for respondent will be entered


internal_revenue_service number release date index no department of the treasury p o box ben franklin station washington dc person to contact telephone number refer reply to cc psi -- plr-112206-03 date date legend taxpayer generator power marketer project dear this letter responds to your letter dated date and subsequent correspondence submitted on behalf of taxpayer requesting letter rulings under sec_61 and sec_118 of the internal_revenue_code taxpayer represents that the facts are as follows facts generator built project generator signed an interconnection agreement with taxpayer that provides for the interconnection of project with taxpayer’s grid the interconnection agreement has an indefinite term the interconnection agreement will continue until a mutually agreed termination_date not to exceed the date on which project ceases commercial operation taxpayer built and owns the intertie generator reimbursed taxpayer for the cost of the intertie plr-112206-03 generator is selling the electricity from project to power marketer title to all power that is wheeled from project will transfer to power marketer or some third party prior to its transmission on taxpayer’s grid taxpayer represents that generator will treat the cost reimbursements as basis in an intangible asset and recover its basis using the straight-line method over years taxpayer also represents that the amount of power flowing back over the intertie to generator will be less than five percent of the projected power flows in both directions over the intertie during taxpayer’s first ten tax years after the intertie is placed_in_service taxpayer will not put the intertie into its rate base further taxpayer represents the following the intertie contributed by generator to taxpayer has become a permanent part of taxpayer’s capital because taxpayer owns the intertie generator’s contribution was not compensation_for services including transmission services provided to generator by taxpayer the contribution was a bargained-for-exchange the contribution resulted in a benefit to taxpayer in an amount commensurate with its value and the intertie is expected to generate additional income for taxpayer through transmission fees paid_by generator’s customers rulings requested taxpayer requests a ruling by the service that the transfer of the intertie by generator to taxpayer is not a contribution_in_aid_of_construction ciac under sec_118 and is excludable from taxpayer’s gross_income as a nonshareholder contribution_to_capital under sec_118 taxpayer also requests a ruling that payments by generator to taxpayer for system upgrades to taxpayer’s grid are in substance a loan or a refundable deposit not includable in taxpayer’s gross_income under sec_61 as discussed with you on date the service is declining to issue a ruling on this request law and analysis sec_61 and sec_1_61-1 of the income_tax regulations provide that gross_income means all income from whatever source derived unless excluded by law sec_118 provides that in the case of a corporation gross_income does not include any contribution_to_the_capital_of_the_taxpayer sec_118 as amended by a of the tax_reform_act_of_1986 the act and a of the small_business job protection act of provides that for purposes of subsection a except as provided in subsection c the term contribution to the capital of taxpayer does not include any contribution_in_aid_of_construction ciac or any other contribution as a customer or potential customer plr-112206-03 sec_1_118-1 provides in part that sec_118 also applies to contributions to capital made by persons other than shareholders for example the exclusion applies to the value of land or other_property contributed to a corporation by a governmental_unit or by a civic group for the purpose of enabling the corporation to expand its operating facilities however the exclusion does not apply to any money or property transferred to the corporation in consideration for goods or services rendered or to subsidies paid to induce the taxpayer to limit production the legislative_history to sec_118 indicates that the exclusion_from_gross_income for nonshareholder contributions to capital of a corporation was intended to apply to those contributions that are neither gifts because the contributor expects to derive indirect benefits nor payments for future services because the anticipated future_benefits are too intangible the legislative_history also indicates that the provision was intended to codify the existing law that had developed through administrative and court decisions on the subject h_r rep no 83rd cong 2d sess s rep no 83d cong 2d sess notice_88_129 1988_2_cb_541 as modified and amended by notice_90_60 1990_2_cb_345 and notice_2001_82 2001_2_cb_619 provides specific guidance with respect to the treatment of transfers of property to regulated public_utilities by qualifying small power producers and qualifying cogenerators collectively qualifying facilities as defined in sec_3 of the federal power act as amended by section of the public_utilities regulatory policies act of purpa the amendment of sec_118 by the act was intended to require utilities to include in income the value of any ciac made to encourage the provision of services by a utility to a customer see h_r rep no 99th cong 2d sess conference_report in a ciac transaction the purpose of the contribution of property to the utility is to facilitate the sale of power by the utility to a customer in contrast the purpose of the contribution by a qualifying_facility to a utility is to permit the sale of power by the qualifying_facility to the utility accordingly the fact that the amendments to sec_118 render ciac transactions taxable to the utility does not require a similar conclusion with respect to transfers from qualifying facilities to utilities notice_88_129 provides in part that with respect to transfers made by a qualifying_facility to a utility exclusively in connection with the sale of electricity by the qualifying_facility to the utility a utility will not realize income upon transfer of an intertie by a qualifying_facility an intertie may include new connecting and transmission facilities or modifications upgrades or relocations of a utility’s existing transmission network the possibility that an intertie may be used to transmit power to a utility that will in turn transmit the power across its transmission network for sale by the qualifying_facility to another utility wheeling will not cause the contribution to be treated as a ciac plr-112206-03 further the notice provides in part that a transfer from a qualifying_facility to a utility will not be treated as a qualifying_facility transfer qf transfer under this notice to the extent the intertie is included in the utility’s rate base moreover a transfer of an intertie to a utility will not be treated as a qf transfer under this notice if the term of the power purchase contract is less than ten years notice_88_129 also provides in part that a utility that constructs an intertie in exchange for a cash payment from a qualifying_facility pursuant to a purpa contract will be deemed to construct the property under contract and will recognize income from the construction in the same manner as any other taxpayer constructing similar_property under contract subsequent to the construction of the property the qualifying_facility will be deemed to transfer the property to the utility in a qf transfer that will be treated in exactly the same manner as an in-kind qf transfer in addition the notice provides in part that the contribution of a dual-use intertie to a utility will be treated as a qf transfer and therefore nontaxable if in light of all information available to the utility at the time of transfer it is reasonably projected that during the first ten taxable years of the utility beginning with the year in which the transferred property is placed_in_service no more than five percent of the projected total power flows over the intertie will flow to the qualifying_facility notice_2001_82 amplifies and modifies notice_88_129 notice_2001_82 extends the safe_harbor provisions of notice_88_129 to include transfers of interties from non- qualifying facilities and transfers of interties used exclusively or in part to transmit power over the utility’s transmission grid for sale to consumers or intermediaries wheeling the notice requires that ownership of the electricity wheeled passes to the purchaser prior to its transmission on the utility’s transmission grid this ownership requirement is deemed satisfied if title passes at the busbar on the generator’s end of the intertie further notice_2001_82 provides that a long-term interconnection agreement in lieu of a long-term power purchase contract may be used to satisfy the safe_harbor provisions of notice_88_129 in wheeling transactions finally notice_2001_82 requires that the generator must capitalize the cost of the property transferred as an intangible asset and recovered using the straight-line method over a useful_life of years in the instant case the transfer of the intertie is subject_to the guidance set forth in notice_88_129 notice_90_60 and notice_2001_82 for the following reasons the project is a stand-alone generator as contemplated under notice_2001_82 generator and taxpayer have entered into a long-term interconnection agreement the intertie will be used in connection with generator’s sale of electricity wheeled over taxpayer’s transmission grid to third parties the cost of the intertie will not be included in taxpayer’s rate base the intertie is a dual-use intertie however based on all available information during the ten taxable years beginning with the year in which the intertie was placed_in_service no more than five percent of the total power flows over the intertie will flow to generator ownership of the electricity wheeled will plr-112206-03 not be with generator prior to its transmission on the grid and the cost of the intertie will be capitalized by generator as an intangible asset and recovered using the straight- line method over a useful_life of years thus we conclude that the transfer of the intertie by generator to taxpayer meets the safe_harbor requirements of notice_88_129 as amended and modified by notice_90_60 and notice_2001_82 next we must decide whether the contribution qualifies as a contribution_to_capital under sec_118 the legislative_history of sec_118 provides in part as follows this sec_118 in effect places in the code the court decisions on the subject it deals with cases where a contribution is made to a corporation by a governmental_unit chamber of commerce or other association of individuals having no proprietary interest in the corporation in many such cases because the contributor expects to derive indirect benefits the contribution cannot be called a gift yet the anticipated future_benefits may also be so intangible as to not warrant treating the contribution as a payment for future services s rep no 83d cong 2d sess in 319_us_98 the court held that payments by prospective customers to an electric utility company to cover the cost of extending the utility’s facilities to their homes were part of the price of service rather than contributions to capital the case concerned customers’ payments to a utility company for the estimated cost of constructing service facilities primary power lines that the utility company otherwise was not obligated to provide the customers intended no contribution to the company’s capital later in 339_us_583 the court held that money and property contributions by community groups to induce a shoe company to locate or expand its factory operations in the contributing communities were nonshareholder contributions to capital the court reasoned that when the motivation of the contributors is to benefit the community at large and the contributors do not anticipate any direct benefit from their contributions the contributions are nonshareholder contributions to capital id pincite finally in 412_us_401 the court in determining whether a taxpayer was entitled to depreciate the cost of certain facilities that had been funded by the federal government held that the governmental subsidies were not contributions to the taxpayer’s capital the court recognized that the holding in detroit edison co had been qualified by its decision in brown shoe co the court in chicago burlington quincy railroad co found that the distinguishing characteristic between those two cases was the differing plr-112206-03 purpose motivating the respective transfers in brown shoe co the only expectation of the contributors was that such contributions might prove advantageous to the community at large thus in brown shoe co since the transfers were made with the purpose not of receiving direct services or recompense but only of obtaining advantage for the general community the result was a contribution_to_capital the court in chicago burlington quincy railroad co also stated that there were other characteristics of a nonshareholder contribution_to_capital implicit in detroit edison co and brown shoe co from these two cases the court distilled some of the characteristics of a nonshareholder contribution_to_capital under both the and codes first the payment must become a permanent part of the transferee’s working_capital structure second it may not be compensation such as a direct payment for a specific quantifiable service provided for the transferor by the transferee third it must be bargained for fourth the asset transferred foreseeably must benefit the transferee in an amount commensurate with its value fifth the asset ordinarily if not always will be employed in or contribute to the production of additional income and its value assured in that respect chicago burlington quincy railroad co u s pincite based on the facts represented we conclude that the transfer of the intertie by generator to taxpayer possesses the characteristics of a nonshareholder contribution_to_capital as described in chicago burlington quincy railroad co therefore the transfer of the intertie by generator to taxpayer will be a contribution_to_capital under sec_118 accordingly based solely on the foregoing analysis and the representations made by taxpayer and generator we rule that the transfer of the intertie by generator to taxpayer will not constitute a contribution_in_aid_of_construction under sec_118 and will be excludable from the gross_income of taxpayer as a nonshareholder contribution_to_capital under sec_118 except as specifically set forth above no opinion is expressed or implied concerning the federal_income_tax consequences of the above described facts under any other provision of the code or regulations specifically no opinion is expressed or implied as to the following whether taxpayer’s representation that less than five percent of the total projected power flows over the dual-use intertie from taxpayer to generator is a reasonable projection for purposes of the five percent test in notice_88_129 whether the agreement between generator and power marketer is a sales contract or a service agreement and whether the payments by generator to taxpayer for system upgrades to taxpayer’s grid are in substance a loan or a refundable deposit this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent plr-112206-03 sincerely s harold e burghart harold e burghart senior advisor branch office of associate chief_counsel passthroughs and special industries enclosure copy cc