office_of_chief_counsel internal_revenue_service memorandum number release date cc ita b03 ajpfalzgraf postf-119060-03 uilc date date to dean h wakayama associate area_counsel sbse attn catherine l campbell from christopher f kane chief branch office of the associate chief_counsel ita subject sale of conservation reserve program payments - - legend taxpayer factor r s t u v w x y year year year year year year year year year year -------------------- -------------------------------------- -------- -------- -------- --------- --------- --------- --------- -------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- postf-119060-03 year year this chief_counsel_advice responds to your request for advice regarding whether taxpayer must include in gross_income in the year of receipt a lump-sum payment received from factor for the sale to factor of taxpayer’s right to receive payments under conservation reserve program crp contracts we note that the field has not raised the question of whether the payments received by taxpayer under the crp contracts or from factor are subject_to self employment contributions act seca taxes thus this response does not discuss the seca_tax treatment of the payments i facts taxpayer entered into three crp contracts with the u s department of agriculture usda the crp u s c is a usda voluntary conservation reserve program under which land is enrolled through the use of contracts the program generally assists owners and operators of land to conserve and improve the soil water and wildlife resources of such land the crp offers among other things annual payments called rental payments to owners and operators for converting highly_erodible_cropland normally devoted to the production of an agricultural commodity to less intensive use the first crp contract crp dated september year entitled taxpayer to annual crp payments of dollar_figurer and had a contract period of october year to september year the second crp contract crp dated january year entitled taxpayer to annual crp payments of dollar_figures and had a contract period of february year to september year the third crp contract crp dated september year entitled taxpayer to annual crp payments of dollar_figuret and had a contract period of october year to september year pursuant to the crp contracts taxpayer agreed not to harvest sell or otherwise make commercial use of trees or forage or other cover on the farmland subject_to the crp contracts taxpayer also agreed to certify crop and land use annually and to control all weeds insects pests and other undesirable species to the extent necessary to ensure the establishment and maintenance of the approved cover the usda agreed subject_to availability of funds to make the annual crp payments after october of each year of the contract period the crp contracts provide that if taxpayer breaches the terms of the crp contracts or makes an erroneous or fraudulent representation with respect to the crp contracts he would not be entitled to further payment and would be required to refund payments received plus interest and liquidated_damages dollar_figures dollar_figuret dollar_figurew dollar_figurer dollar_figures dollar_figuret dollar_figurev dollar_figurer dollar_figures dollar_figuret dollar_figurev dollar_figurer dollar_figures dollar_figuret dollar_figurev dollar_figurer dollar_figures dollar_figuret dollar_figurev dollar_figurer dollar_figures dollar_figuret dollar_figurev dollar_figurer dollar_figures dollar_figuret dollar_figurev dollar_figurer dollar_figures dollar_figuret dollar_figurev dollar_figurer dollar_figures dollar_figuret dollar_figurev year year year year year year year year year postf-119060-03 taxpayer entered into a purchase and assignment agreement with factor dated november year pursuant to which taxpayer sold to factor for dollar_figureu his right to percent of nine annual cpr payments taxpayer sold to factor his rights to percent of the eight dollar_figurev crp payments due annually from october year to october year and percent of the dollar_figurew payment due in october year the following chart summarizes the amounts taxpayer was to receive under each of the three crp contracts contract crp crp crp sum pursuant to the purchase and assignment agreement factor is entitled to receive all crp payments due under the crp contracts and is required within days of receipt to remit to taxpayer the portion of each crp payment if any that exceeded the amount of such payment sold to factor pursuant to the purchase and assignment agreement taxpayer relinquished to factor all rights to the crp payments taxpayer agreed to comply with the terms of the crp contracts any applicable lease and applicable statutes rules and regulations related to the crp payments taxpayer also agreed not to sell or encumber his ownership_interest in the farm without the prior consent of factor if any portion of the crp payments is offset on account of any_action or omission of taxpayer taxpayer promised to pay to factor within days of demand the entire amount of any payment plus an additional percent of the amount offset the purchase and assignment agreement states that the assignment of the crp payments by taxpayer to factor is not a loan and does not constitute a joint arrangement between taxpayer and factor pursuant to the purchase and assignment agreement the failure of taxpayer to comply with the terms of the purchase and assignment agreement any lease the crp contracts or applicable statutes rules and regulations constitutes a default under the purchase and assignment agreement in the event of default either party shall be entitled to any and all remedies including the right to recover damages available under any applicable law in addition factor is entitled to an injunction restraining a breach by taxpayer and to specific performance of any such provision of the purchase and assignment agreement in the event that the total amount of any annual crp payment is less than the amount purchased by factor other than due to a breach by taxpayer factor shall have a right to recover the shortage by offsetting against future crp payments in addition in the event of any breach default or failure to perform by taxpayer factor is entitled to liquidated_damages equal to the amount of crp payments not received by factor plus percent of such payments as required by the purchase and assignment agreement taxpayer executed a usda form ccc-36 assignment of payment notifying the usda that he had assigned a postf-119060-03 portion of his crp payments to factor the form ccc-36 was executed by taxpayer on october year taxpayer uses the cash_receipts_and_disbursements_method of accounting year income_tax return on his original year income_tax return taxpayer included the dollar_figureu received from factor for the sale of his crp payments in income on form_4835 farm rental income and expenses in november year taxpayer filed a year form 1040x amended u s individual_income_tax_return claiming a refund for year on the amended_return taxpayer reduced his income by dollar_figureu the amount received from factor and explained that dollar_figureu which was not income to the taxpayer was incorrectly reported as other income on form_4835 of the original return this amendment is to correct this incorrect reporting year income_tax return on his original year income_tax return taxpayer included the annual dollar_figurev crp payment dollar_figurex of which was sold to factor in year in income on form_4835 taxpayer deducted as an expense on form_4835 the dollar_figurex that had been sold to factor in november year taxpayer filed a year form 1040x on the amended_return taxpayer stated that on his original form_4835 for year dollar_figurex was claimed in error and has been removed year income_tax return on his year income_tax return taxpayer included the dollar_figurev annual crp payment in income on form_4835 taxpayer contends that the dollar_figureu was not income to him in year because he did not have an unrestricted claim of right to the funds and held them as a conduit as outlined above taxpayer amended his year and year tax returns and filed his year tax_return to exclude from income the dollar_figureu lump sum received in year and include in income the entire annual crp payments for year and year the field proposes to deny the claim_for_refund on the year amended_return and to decline to accept the year amended_return the revenue_agent questions whether taxpayer may exclude from gross_income the dollar_figureu lump sum received from factor in year as the proceeds from the sale of his crp payments the revenue_agent questions whether taxpayer should include in gross_income the entire annual crp payments for year and year postf-119060-03 ii issues is the dollar_figureu lump-sum payment that taxpayer received from the sale of percent of his annual crp payments includible in his gross_income in year the year of receipt are the annual crp payments for year and year includible in taxpayer’s gross_income iii holdings the dollar_figureu lump-sum payment that taxpayer received from the sale of percent of his annual crp payments is includible in his gross_income in year the year of receipt as ordinary_income only the portion of the crp payments for year and year not sold to factor are includible in taxpayer’s gross_income iv analysis generally a lump-sum payment received in a bona_fide sales transaction in adequate_and_full_consideration for the right to receive a future ordinary_income stream results in ordinary_income to the seller in the year of receipt accordingly we conclude below that taxpayer must include the dollar_figureu lump-sum payment received from factor in gross_income in year the year of receipt as ordinary_income inclusion in gross_income of dollar_figureu lump-sum payment sec_451 provides that the amount of any item_of_gross_income shall be included in the gross_income for the taxable_year in which received by the taxpayer unless under the method_of_accounting used in computing taxable_income such amount is to be properly accounted for as of a different period sec_1_451-1 of the income_tax regulations states that under the cash_receipts_and_disbursements_method of accounting an item is included in gross_income when actually or constructively received see also sec_1_446-1 of the income_tax regulations claim of right amounts received under a claim of right without restriction on disposition are included in income when received even though the taxpayer may have to repay part or all of the amounts at a later date 286_us_417 taxpayer received the dollar_figureu lump-sum payment in year under a claim of right without restriction on disposition therefore the dollar_figureu lump-sum payment is included in taxpayer’s gross_income in year the year of receipt taxpayer didn’t hold the lump- sum payment as a conduit for factor or any other party the fact that under the terms postf-119060-03 of the purchase and assignment agreement in the event of default by taxpayer taxpayer may have to pay liquidated_damages to factor equal to the amount of crp payments not received by factor plus interest does not preclude income inclusion in the year of receipt id sale of right to future income stream a lump-sum payment received in a bona_fide sales transaction in adequate_and_full_consideration for the right to receive a future income stream is includible in gross_income in the year of receipt later payments of the income stream to the purchaser are not includible in the gross_income of the seller in 22_tc_1019 the tax_court held that taxpayer a life_insurance agent who purchased rights to renewal_commissions on life_insurance policies to be received in the future when earned by other agents is taxable on the excess of the renewal_commissions received over the amounts paid for them in so holding the court rejected the taxpayer’s argument that the assignors of the renewal_commissions should be taxed when the renewal_commissions were received by taxpayer because the assignors earned the renewal_commissions the court explained that the case at issue differed from assignment_of_income cases because in the case at issue there was an arm’s- length purchase at fair value of property rights the assignors for full adequate and valuable consideration parted with all rights title and interest in their right to collect the renewal_commissions in affirming the tax_court in cotlow the second circuit noted that taxpayer in purchasing future renewal_commissions performs a discounting function and also undertakes the risk that by lapse or termination of a policy renewal_commissions will cease 228_f2d_186 2d cir the second circuit also stated that w here there is an arm’s length assignment_of_income rights for a valuable consideration it is clear that the assignor realizes only the amount of the consideration received and the assignee is taxable for receipts in excess of this amount cotlow f 2d pincite the taxpayer in 472_f2d_867 6th cir sought to accelerate future income to avoid losing the tax_benefit of an interest_deduction to accomplish this he assigned to his son anticipated stock_dividends from stock taxpayer owned in exchange for dollar_figure taxpayer then directed that all future dividend checks be issued to his son until the aggregate amount of dollar_figure had been paid to the son taxpayer reported the dollar_figure as ordinary_income in the year_of_sale and his son reported the dividends in excess of basis when later received the court determined that the transaction was a bona_fide sale for adequate_consideration not merely gratuitous and distinguished the case from the line of assignment_of_income cases originating with 311_us_112 the court also distinguished the case from those in which courts recharacterized a purported sale as a loan because the risk of nonpayment had not shifted to the assignee e g 556_f2d_1107 ct_cl certainty of repayment of buyer of future income stream is characteristic of a loan postf-119060-03 in the instant case taxpayer and factor entered into an arm’s-length assignment of taxpayer’s income right percent of the annual crp payments for valuable consideration through the terms of the purchase and assignment agreement taxpayer guaranteed only that he would comply with his obligations under the crp contracts the risk that the usda would not comply with the terms of the crp contracts shifted to factor accordingly taxpayer is taxable on the lump-sum payment received in year and improperly attempted to exclude the lump-sum payment on an amended year return cf plr the lump-sum payment is taxable to taxpayer as ordinary_income 313_us_28 amount received in lieu of future rents is ordinary_income 356_us_260 sale of future oil_payment rights results in ordinary_income inclusion in gross_income of year and year crp payments based on the discussion in above taxpayer improperly included in gross_income on his amended year return and year return the portion of the annual crp payments purchased by factor however taxpayer is taxable on the excess of the crp payment he received in year and year over the portion of those payments that he sold to factor specifically taxpayer is taxable on dollar_figurey in each year year and year the excess of dollar_figurev the entire annual cfc payment for each year over dollar_figurex the portion of the crp payment sold to factor if you have any questions call --------------------at -------------------- taxpayer also contends that his transaction with factor was an obligation-shifting transaction as defined in sec_1 l -2 h of the proposed income_tax regulations we assume taxpayer took interest_expense deductions on his amended year tax_return and year tax_return based on that theory the service withdrew proposed_regulations sec_1 i -2 by withdrawal of notice of proposed rulemaking published in the federal_register on date fed reg the transaction that taxpayer entered into with factor would not be an obligation-shifting transaction within the meaning of the withdrawn proposed_regulations even if they had been finalized in the format originally proposed the proposed_regulations would not apply to taxpayer accordingly taxpayer cannot exclude the dollar_figureu lump-sum payment received from factor in year on the basis that he entered into an obligation-shifting transaction with factor likewise taxpayer may not take interest_expense deductions on his amended year tax_return and year tax_return on that basis


t c summary opinion united_states tax_court anthony d and misty l hough petitioners v commissioner of internal revenue respondent docket no 13031-07s filed date anthony d and misty l hough pro sese farhad asghar and daniel w layton for respondent gerber judge this case was heard pursuant to the provisions of section of the internal_revenue_code in effect when the petition was filed pursuant to sec_1unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable_year in issue and all rule references are to the tax_court rules_of_practice and procedure b the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case respondent determined a dollar_figure income_tax deficiency and a dollar_figure accuracy-related_penalty under sec_6662 for petitioners’ tax_year the income_tax deficiency was based upon a dollar_figure adjustment for unreported income and self-employment_tax on that amount petitioners have conceded the dollar_figure adjustment the issues remaining for our consideration are whether petitioner husband was an employee or self-employed for and whether petitioners are liable for the accuracy-related_penalty background petitioners resided in california at the time their petition was filed mr hough earned his living as a plumber during he went to work for jesse waddell who ran a plumbing business named arrowhead plumbing arrowhead mr waddell would obtain plumbing jobs typically new_construction and he would assign mr hough to perform plumbing work arrowhead had a business office and each workday mr hough would go either to the office for an assignment or to an existing assigned jobsite mr hough was an experienced and 2the notice_of_deficiency contained the determination that petitioners were not entitled to the earned_income_credit with petitioners’ concession that the dollar_figure is income petitioners also concede the earned_income_credit because their income exceeds the range within which that credit applies see sec_32 skilled plumber and did not need much supervision on larger jobs mr waddell who was also a plumber would work on the site with mr hough mr hough worked for mr waddell only when arrowhead had plumbing jobs accordingly the work was continuous for the period of time that arrowhead obtained plumbing jobs during mr hough worked for arrowhead for about one-half of the year mr waddell would pay mr hough every other week using an hourly rate times the number of hours worked mr waddell and mr hough had an unusual financial arrangement mr waddell assured mr hough that he would take care of all taxes on payments made to mr hough and that mr hough would not have to report the payments as income under the terms of the arrangement mr waddell would not claim a deduction on his income_tax return for payments to mr hough and would pay additional income_tax so that mr hough was not required to report the income that arrangement continued from into accordingly mr hough did not report any income or wages received from mr waddell for plumbing work from through 3we are not required to address the bona fides or tax effect of this arrangement because mr waddell issued a form 1099-misc miscellaneous income to mr hough for the year in question in while mr hough was working for arrowhead mr waddell was advised by his accountant and tax preparer to have mr hough fill out a form_w-4 employee’s withholding allowance certificate which is used by employees to declare the number of tax exemptions for purposes of withholding income_tax mr hough did complete a form_w-4 for although it was understood that they were continuing the same arrangement as in prior years where no taxes were withheld from payments made to mr hough and mr waddell would report the income and claim no deductions for the amounts paid to mr hough on date after he had already filed his tax_return mr hough received a form 1099-misc miscellaneous income from arrowhead reflecting dollar_figure of nonemployee income for mr waddell changed his mind just before the due_date of mr hough’s return because he was experiencing financial difficulties and was not in a position to bear the additional tax burden by not claiming amounts paid to mr hough as a deduction mr hough continued to believe that mr waddell had taken care of the taxes and he did not report the dollar_figure on his income_tax return or amend the return he had filed however for mr waddell claimed the dollar_figure paid to mr hough as a deduction for labor in connection with his plumbing business respondent sent petitioners a notice_of_deficiency determining that the dollar_figure was mr hough’s income and that self-employment_tax was due on that amount petitioners have conceded that the dollar_figure was income but contend that mr hough was an employee of mr waddell and is therefore not liable for self-employment_tax further petitioners contend that they are not responsible for an accuracy-related_penalty under sec_6662 discussion4 mr hough worked for mr waddell on plumbing jobs he believed that he was mr waddell’s employee and that mr waddell took care of all taxes arising from their employer-employee relationship respondent determined for that mr hough was an independent_contractor liable for self-employment_tax and not mr waddell’s employee self-employment_income has been explained as follows sec_1401 imposes a tax on self-employment_income attributable to a taxpayer from any trade_or_business carried on by the taxpayer sec_1401 sec_1402 and b sec_1_1401-1 income_tax regs the term trade_or_business has the same meaning under sec_1402 defining net_earnings_from_self-employment as under sec_162 sec_1402 118_tc_138 affd 353_f3d_595 8th cir trade_or_business under sec_162 has been interpreted to mean an activity conducted with continuity and regularity and with the primary purpose of making income or a profit 480_us_23 4there is no question in this case about who has the burden_of_proof or whether the burden shifted under sec_7491 bot v commissioner supra the carrying on of a trade_or_business for purposes of self-employment_tax generally does not include the performance of services as an employee sec_1402 117_tc_308 123_tc_219 affd 137_fedappx_373 1st cir the question of whether an individual is an employee or self-employed is factual 503_us_318 factors that have been considered by courts in making this determination are the skills required the source of instrumentalities and tools the location of the work the duration of the relationship whether the business has the right to assign additional projects to workers the extent of the worker’s discretion over when and how long to work the method of payment the worker’s role in hiring paying assistants whether the work is part of the regular work of the business the providing of worker benefits and the tax treatment of the worker id pincite no one factor is dispositive and the various aspects of the relationship are weighed and balanced to reach a result nlrb v united ins co of am 390_us_254 mr hough possessed the skills to perform his job with minimal supervision and he provided his own tools the supplies to complete the job were provided by mr waddell and he also decided the location and the type of plumbing work to be done by mr hough the job assignments continued for extended periods and mr hough exclusively worked for mr waddell regularly over a period of years mr waddell generally directed mr hough’s daily activities deciding where he was to work and the type of plumbing to be done the work mr hough performed was a regular part of arrowhead’s business and mr hough was paid an hourly wage biweekly mr hough did not receive any employee_benefits but he was not provided a single form_w-2 wage and tax statement or form 1099-misc for the first years that he worked for mr waddell it was only on the last day for filing a tax_return that mr waddell sent mr hough a form_1099 when mr hough began working for mr waddell during mr waddell asked him to fill out a form_w-4 which is intended for employees to advise their employers of the number of dependency_exemptions being claimed for purposes of the withholding of income_tax considering all of these factors we find and hold that mr hough was mr waddell’s employee and not liable for self- employment_tax for respondent also determined an accuracy-related_penalty with respect to petitioners’ underpayment_of_tax sec_6662 and b and provides for a 20-percent penalty on the underpayment_of_tax due to negligence disregard of rules and regulations or a substantial_understatement_of_income_tax a substantial_understatement exists if the understatement of income_tax exceeds percent of the tax required to be shown or dollar_figure sec_6662 petitioners’ concession of the dollar_figure of unreported income makes it clear that there was a substantial_understatement_of_income_tax therefore the accuracy-related_penalty would apply unless petitioners demonstrate that the underpayment was due to reasonable_cause and that they acted in good_faith 299_f3d_221 3d cir affg 115_tc_43 petitioners had filed their return before mr waddell sent them a form 1099-misc reflecting dollar_figure of income they were therefore on notice that the circumstances had changed from prior years but they did nothing to address this change for example they did not make an inquiry about the form 1099-misc or attempt to file an amended_return for in these circumstances petitioners did not have reasonable_cause and they did not act in good_faith accordingly respondent’s determination of an accuracy-related_penalty is sustained to reflect the foregoing and concessions by the parties decision will be entered under rule


sin -0513 date sep department of the treasury internal_revenue_service washington d c no third party contacts contact person id number telephone number ope to employer_identification_number o o o o o o e w e z o v o d o l u l l y o w dear sir or madam we have considered your ruling_request dated date as supplemented by your letter of date you have asked us to rule that the proposed use of m’s parking facility by certain other exempt_organizations will not result in m’s receipt of unrelated_business_taxable_income or adversely affect m's tax exempt status m is an outgrowth of n n is a liberal arts college exempt under sec_501 c of the code and classified as a public charity under sec_170 b a ii in the 1970's n received a federal grant to study the feasibility of developing a two-year program to train students for careers as primary care physicians who would work in medically under-served areas among minority and poor populations the study revealed a severe shortage of dollar_figure physicians in the united_states as well as a shortage of physicians for rural areas and inner cities in the united_states to address these shortages n developed a two-year basic sciences program the students in this program transferred to other medical schools at the end of the two-year program to complete their medical training m was formed in to become a four-year degree granting institution and to carry on n's program of medical training as a full fledged medical school m has been recognized as exempt under sec_501 of the code and is classified as a public charity under sec_170 1ha ii trustees be persons who are also members of n's board_of trustees additional ex-officio member on that board its assets will be distributed to n or for its benefit m's articles of incorporation require that at least four members of its board_of n's president serves as an m's charter also specifies that upon dissolution all of ok m is also structurally tied to n o p q and r through its membership in b bisa consortium of private institutions of higher education exempt under sec_501 c of the code and a supporting_organization described in sec_509 a b‘s charter limits its membership to sec_501 c educational institutions b’s board_of trustees currently consists of members as follows i the chair of the governing board_of each of the six member institutions ii the president of each of the six member institutions and iii six elective members all of b's member institutions are located within walking distance from each other b functions as a vehicle to assist the member institutions in activities that may be carried out jointly and cooperatively for the benefit of each and all said institutions b promotes the interests of its member institutions by directing programs building and maintaining joint facilities and raising external funds for cooperative ventures b's members currently share the library the dual degree engineering program the radiation safety program the administrative data processing center the career planning and placement center security and shuttle services and cross registration within this context m proposes to build a space parking deck adjacent to its administration and classroom building students and visitors employees will pay an annual or daily parking fee reserved spaces will be offered for an additional fee students will receive a reduced_rate hours a day seven days a week the parking facility will be used by m's employees m will operate the facility m proposes to let the students faculty and staff affiliated with the other members of b specifically with n and o use the parking facility as available for the same fees charged its own students faculty and staff m indicates that this is primarily for the convenience of the members of the academic community it serves in that the facility will provide safe affordable parking for students faculty and staff and allow the easy cross registration and cross facility use contemplated by b based on these representations m has asked us to rule that the revenue received from the use of the parking deck by its faculty students and staff as well as the faculty students and staff of institutions affiliated with m through b specifically n and o will not be considered unrelated_business_taxable_income and that the receipt of such amounts will not jeopardize m's exemption under sec_501 c of the code sec_501 of the internal_revenue_code provides for the exemption from federal_income_tax of organizations organized and operated exclusively for religious charitable educational or other specified purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual and which does not engage in proscribed legislative and political activities sec_1_501_c_3_-1 d of the income_tax regulations provides that the term charitable is used in its generally accepted legal sense and includes the advancement of education sec_511 of the code imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 of the code sec_512 of the code defines the term unrelated_trade_or_business to mean the gross_income derived by an organization from any unrelated_trade_or_business defined in sec_513 regularly carried on by it less the allowable deductions which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in subsection b sec_513 a of the code provides that the term unrelated_trade_or_business means any trade_or_business the conduct of which is not substantially related to the exercise or performance by such organization of its charitable educational or other purpose or function constituting the basis for its exemption however section a further states that such term does not include any trade_or_business which is carried on by an organization described in sec_501 c primarily far the convenience of its members officers patients or employees sec_1_513-1 of the regulations provides that for purposes of sec_513 the term trade_or_business generally includes any activity carried on for the production_of_income from the performance of services identity as a trade_or_business merely because it endeavors which may or may not be related to the exempt purposes of the organization sec_513 of the code provides that an activity does not lose its is carried on within a larger complex of other sec_1_513-1 d of the regulations provides that a trade_or_business is related to exempt purposes only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes other than through the production_of_income substantially related only if the causal relationship is exist the production of the income or the performance of the service from which the gross_income is derived must contribute importantly to the accomplishment of exempt purposes whether the activities productive of gross_income contribute importantly to such purposes depends in each case upon the facts and circumstances involved for this relationship to a substantial one further it is in revrul_69_269 1969_1_cb_160 a hospital was concerned with providing sufficient a fee was charged for_the_use_of these facilities and all profits were placed in the parking space for visitors because visitation was considered to be supportive therapy and part of patient treatment because of a serious lack of adequate parking space the hospital constructed a parking lot for patients and visitors only adjacent to its main building the lot was not for general_public use hospital's general operating fund the hospital is to provide health care for members of the community and without adequate parking facilities for patients and visitors the hospital could not operate with maximum effectiveness in serving the public facilities contributes importantly to the accomplishment of the hospital's exempt purposes and therefore does not constitute an unrelated_trade_or_business within the meaning of sec_513 of the code the revenue_ruling states in part that one of the purposes of the revenue_ruling concludes that providing the parking in revrul_69_268 1969_1_cb_160 a hospital operated a cafeteria and coffee shop that was open to persons visiting hospital patients the operation of the eating facilities was held not unrelated_trade_or_business within the meaning of sec_513 because visits by outsiders were regarded as a form of supportive therapy that assists in the recovery_of patients visitors to use the eating facilities the hospital enabled the visitors to spend more time with the patients and contributed importantly to the hospital's exempt_purpose in addition the facilities served hospital personnel which allowed them to remain on the premises in order to be available for emergency situations and other hospital duties by allowing the in revrul_58_194 1958_1_cb_240 an organization operated a book and supply store and the facilities of the organization were available to everyone connected with the a cafeteria and restaurant on the campus of a state university for the convenience of the student body and faculty university and the profits were used solely for the benefit of the students and faculty of the university because the organization served almost exclusively the members of the faculty and student body it was considered performing functions for their benefit and convenience and in furtherance of the university's educational program revrul_81_19 1981_1_cb_353 describes an organization formed as a support organization to a university one of its activities was the management of vending machine facilities in of the campus for the convenience of the students activity was an integral part of the activities of the university and the organization was operating the program for the convenience of the university community the income from this activity would not be subject_to tax as unrelated_business_income the revenue_ruling concluded that because this all parts m proposes to operate the parking deck for the convenience of its own students faculty and sec_513 provides a specific exception to the definition of unrelated trade or staff business for a business that is carried on by an organization described in sec_501 primarily for the convenience of its members officers patients or employees rev ruls and revrul_81_19 provide two examples of the type of business activity often encompassed within the convenience exception the operation of a parking deck for faculty students and staff like the operation of a book store or the operation of vending machines on campus is an integral part of operating a large urban campus and is undertaken primarily for convenience rather than income production accordingly the income from the operation of the parking deck for m s faculty students and staff is not subject_to tax as unrelated_business_income sec_513 however does not cover services provided for the convenience of other members of the community m’s plans to allow the faculty students and staff of the other members of b to use the facility must be analyzed under the facts_and_circumstances_test of sec_1_513-1 d of the in rev ruls and the service applied the facts_and_circumstances_test regulations to hospitals operating a parking lot a cafeteria and a gift shop for both patients and visitors providing similar services for its patients would have been clearly covered by the convenience exception in sec_513 a of the code because the services were not limited to its patients the hospital had to establish that the services to visitors contributed importantly to its accomplishment of exempt purposes to establish that the activity was not an unrelated_trade_or_business to determine that allowing other consortium members to use the parking facility is related to m’s exempt purposes m must similarly establish that this activity contributes importantly to the accomplishment of its exempt purposes m ts structurally related to n and several other members of b through interlocking boards of in addition m along with n o p q and r share an educational mission and have this results in many faculty trustees agreed to share resources through the consortium structure of b students and staff participating in activities on more than one campus allowing free access to m‘s campus for faculty students and staff of these associated institutions is essential for m to satisfy its educational_purposes the provision of parking facilities to the faculty students and staff of consortium members will enable them to park safely while teaching working or attending classes at m operating a medical school without such a parking facility m could not operate at maximum providing convenient parking facilities thus contributes importantly to m’s exempt_purpose of effectiveness accordingly we rule that operating the parking deck for m’s faculty students and staff as well as the faculty students and staff of consortium members will not constitute unrelated_trade_or_business within the meaning of sec_513 in addition we rule that the operation of the parking facility in the manner described will not jeopardize m's exempt status under sec_501 c of the code as long as m continues to operate as a school within the meaning of sec_170 ah ii of the code this ruling is directed only to the organization that requested sec_6110 k of the internal_revenue_code provides that it may not be used or cited by others as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely bereta v bow’ gerald v sack chief exempt_organizations technical branch


internal_revenue_service number release date index numbers ---------------------------- -------------- -------------------------------- --------------------- ------------------------------ 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 plr-104037-19 date date legend distributing -------------------------------- --------------------------------------------------------------------- ------------------------------------------------------------- controlled --------------------------------------------------------------------- ------------------------------------------------------------- --------------------------- sub --------------------------------------------------------------------- ------------------------------------------------------------- -------------------------- sub --------------------------------------------------------------------- ------------------------------------------------------------- ---------------------------- --------------------------------------- sub ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------ ----------------------------------------------------------------- ------------------------------------------------------------- x y busine sec_1 ------------------------------- ------------------------------------- ------------------ plr-104037-19 busine sec_2 ---------------------------------------- ------------------------------------------------------------------------------ ------------------------------------------------------------- busine sec_3 other assets retained assets a b c d e f g h state a a b c d e ---------------------------------------------------------- -------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ---------------------------------------------- --------------------------------- ----------------------------- ---------------------- ---------------------- ------------------------ ----------------- ---------------------- ---------------------------- -------------- ------ ------ ------ ------ ------ plr-104037-19 f g h i j ------ ------ ------ ------ ------ dear ------------------ this letter responds to your letter dated date as supplemented by subsequent submissions requesting transactional rulings with respect to a covered transaction described below pursuant to revproc_2017_52 2017_41_irb_283 the information submitted in that letter and in subsequent correspondence is summarized below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this office has made no determination regarding whether the distribution as defined below i satisfies the business_purpose requirement of sec_1_355-2 ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled_corporation or any predecessor or successor of the distributing_corporation or any successor of the controlled_corporation within the meaning of sec_1_355-8t see sec_355 and sec_1_355-7 summary of the facts distributing is a subchapter_s_corporation individuals a b c and d collectively own of the stock of distributing b c and d are the children of a hereinafter a b c and d will be collectively referred to as the split-off shareholders individuals e f g and h collectively own the remaining of the stock of distributing f g and h are the children of e hereinafter e f g and h will be collectively referred to as the remaining shareholders plr-104037-19 distributing owns all of the stock of controlled and sub each of which is a qualified_subchapter_s_subsidiary qsub controlled owns all of the stock of sub also a qsub sub owns approximately a at least 33⅓ of the capital and profits in sub a state a limited_liability_company treated as a partnership for federal_income_tax purposes x a holding_company owns approximately b of sub the balance of the capital and profits of sub c is owned by other parties the split-off shareholders have an economic_interest in x of approximately d which includes a voting interest of approximately e the remaining shareholders have an economic_interest in x of approximately f which includes a voting interest of approximately g the remaining interest in x approximately h of economic_interest and approximately i of voting interest is owned by other parties the split-off shareholders will have no ability to influence or control x sub or the other shareholders of x or sub controlled operates busine sec_1 sub operates busine sec_2 finally sub as an investment owns approximately j of y which operates busine sec_3 the proposed transaction distributing will transfer to controlled the assets described in step sec_1a through 1c collectively the transferred assets a the assets comprising busine sec_1 b of sub 1’s interest in y and c the other assets d distributing will retain the retained assets the transfer of the transferred assets and retention of the retained assets are intended to equalize the value of controlled and distributing immediately after the distribution of controlled stock as described in step below controlled will assume the liabilities associated with the transferred assets the transfer of the transferred assets described in step and the assumption_of_liabilities described in this step are collectively described as the contribution none of these liabilities is evidenced by a debt_instrument controlled therefore will not assume liability for any distributing debt within the meaning of revproc_2018_53 sec_3 2018_43_irb_667 and distributing will distribute all of the controlled stock proportionately to each of the split-off shareholders in exchange for all of their distributing stock this step is described as the distribution - the contribution and the distribution collectively are described as a covered transaction within the meaning of sec_2 a of rev_proc plr-104037-19 representations except as otherwise set forth in the next sentence distributing makes all the representations in sec_3 of the appendix to revproc_2017_52 representations and in sec_3 of the appendix to revproc_2017_52 do not apply with respect to representation sec_3 and in sec_3 of the appendix to revproc_2017_52 distributing makes the following alternative representations a b a a a a and b transactional ruling sec_1 the distribution will cause a termination of controlled’s qsub election because controlled will cease to be a wholly owned subsidiary of an s_corporation for federal tax purposes controlled will be treated as a new corporation acquiring all of its assets and assuming all of its liabilities from distributing immediately before the termination of controlled’s qsub election in exchange for the stock of controlled pursuant to sec_1_1361-5 sec_1361 and c the contribution followed by the distribution will qualify as a reorganization under sec_368 distributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing on the contribution sec_361 and sec_357 no gain_or_loss will be recognized by controlled on the contribution sec_1032 controlled’s basis in each asset received from distributing in the contribution will be the same as the basis of such asset in the hands of distributing immediately before the contribution sec_362 controlled’s holding_period for each asset received from distributing in the contribution will include the period during which distributing held that asset sec_1223 no gain_or_loss will be recognized by distributing on the distribution of controlled sec_361 no gain_or_loss will be recognized by and no amount will be included in the income of each of the split-off shareholders upon the receipt of controlled plr-104037-19 stock in exchange for all of that shareholder’s distributing stock in the distribution sec_355 the basis of the shares of controlled in the hands of each of the split-off shareholders immediately after the distribution will be the same as the basis of the distributing shares surrendered in exchange therefor sec_358 the holding_period of the controlled shares received by each of the split-off shareholders in the distribution will include the holding_period of the distributing shares surrendered in exchange therefor provided that the distributing shares were held as a capital_asset in that shareholder’s hands on the date of the distribution sec_1223 earnings_and_profits if any will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 distributing’s accumulated_adjustments_account will be allocated between distributing and controlled in a manner similar to the manner in which earnings_and_profits of distributing will be allocated under sec_312 in accordance with 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 and will not in itself render controlled ineligible to elect to be an s_corporation for its first taxable_year if controlled otherwise meets the requirements of a small_business_corporation under sec_1361 controlled will be permitted to make a subchapter_s_election under sec_1362 for its first taxable_year provided that such election is made effective immediately following the termination of the original qsub election caveat except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of the proposed transactions under any provision of the code and regulations or the tax treatment of any condition existing at the time of or effects resulting from the proposed transactions that is not specifically addressed by this letter procedural statements 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 plr-104037-19 in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives 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 sincerely susan e massey branch chief branch corporate cc


tcmemo_2008_162 united_states tax_court dominic maga petitioner v commissioner of internal revenue respondent docket no 5635-06l filed date dominic maga pro_se terry serena for respondent memorandum opinion chiechi judge this case is before the court on respon- dent’s motion for summary_judgment respondent’s motion we shall grant respondent’s motion 1although the court ordered petitioner to file a response to respondent’s motion petitioner failed to do so background the record establishes and or the parties do not dispute the following petitioner resided in ohio at the time he filed the petition in this case on date respondent issued to petitioner a separate notice_of_deficiency with respect to each of his taxable years and which he received on date respondent issued to petitioner a separate notice_of_deficiency with respect to each of his taxable years and which he received on date respondent issued to petitioner a notice_of_deficiency with respect to his taxable_year which he received in each of those notices respon- dent determined a deficiency in and additions under sec_6651 and a respectively to petitioner’s federal_income_tax tax petitioner did not file petitions in the court with respect to the respective notices of deficiency relating to his taxable years and on date respondent assessed petitioner’s tax as well as additions to tax under sec_6651 and sec_6654 respectively and interest as provided by law for each of hi sec_2all section references are to the internal_revenue_code in effect at all relevant times all rule references are to the tax_court rules_of_practice and procedure taxable years and on may may april and date respectively respondent assessed petitioner’s tax as well as additions to tax under sec_6651 and sec_6654 respectively and interest as provided by law for each of his taxable years and we shall refer to those unpaid assessed amounts as well as interest as provided by law accrued thereafter as petitioner’s unpaid liabilities for through respondent timely issued to petitioner a notice of balance due with respect to each of petitioner’s unpaid liabilities for through on date respondent issued to petitioner a final notice_of_intent_to_levy and notice of your right to a hearing notice_of_intent_to_levy with respect to petitioner’s unpaid liabilities for through on date in response to the notice_of_intent_to_levy petitioner filed form request for a collection_due_process_hearing petitioner’s form and requested a 3respondent did not determine in the respective notices of deficiency relating to petitioner’s taxable years through additions to tax under sec_6651 nonetheless respondent assessed additions to tax under that section for each of those years except 4the notice_of_intent_to_levy also pertained to a frivolous_return penalty under sec_6702 that respondent imposed on peti- tioner for each of his taxable years and on date the court ordered those penalties dismissed from this case for lack of jurisdiction hearing with respondent’s appeals_office appeals_office in petitioner’s form petitioner stated the following as the reason for his disagreement with the notice_of_intent_to_levy as per imfs my mfr is not required to file a return see attached attached to petitioner’s form were copies of his undated letter to jim keegan of the internal_revenue_service and certain documents titled imf mcc transcript-specific in response to petitioner’s form a settlement officer with the appeals_office settlement officer sent to petitioner a letter dated date settlement officer’s date letter in that letter the settlement officer admonished petitioner about advancing frivolous arguments and offered petitioner a telephonic conference pincite a m on date or on another date that was more convenient to petitioner in the settlement officer’s date letter the settle- ment officer also offered petitioner a face-to-face conference if he wished to raise relevant nonfrivolous issues in the settle- ment officer’s date letter the settlement officer asked petitioner to provide her with copies of his tax returns for his taxable_year sec_2002 and by letter dated date petitioner asked the settlement office to reschedule the telephonic conference to date by letter dated date the settlement officer informed petitioner that the telephonic conference had been rescheduled to a m on date as he had requested in a letter dated date petitioner’s date letter which petitioner characterized as a determination_letter petitioner asserted inter alia this is in regard to the collection_due_process_hearing cdph per your letter of date this cdph is being handled by mail therefore consider this my objections to this alleged notice_of_intent_to_levy for the years through petitioner’s date letter contained certain statements contentions arguments and requests that the court finds to be frivolous and or groundless petitioner attached to petitioner’s date letter copies of the respective notices of deficiency that respondent issued to him with respect to his taxable years through on date the appeals_office issued to peti- tioner a notice_of_determination concerning the collection action s under sec_6330 notice_of_determination that notice stated in pertinent part it is the determination of appeals not to grant you relief under sec_6330 from the proposed collection action please find further details contained in the attachment to this letter an attachment to the notice_of_determination stated in pertinent part you requested a collection_due_process cdp hearing under the provisions of internal_revenue_code irc sec_6330 following receipt of letter lt final notice-notice of intent to levy and your right to a hearing dated date your form request for a collection_due_process_hearing was re- ceived timely as it was made within the 30-day period for requesting a cdp hearing in your request you indicated that per your imf your mfr is and that indicates you are not required to file a tax_return you also asked for various documents from the internal_revenue_service irs for the purpose of challenging the validity of the income_tax_liability and assessment procedures on date i mailed you a hearing appoint- ment letter offering you a telephonic hearing or hear- ing by correspondence you were not offered a face-to- face hearing because you indicated in your request you wanted to discuss items that were frivolous or ground- less and appeals does not offer face-to-face hearings if the only items you wish to discuss are of a frivo- lous nature you were advised that if you were inter- ested in receiving a face-to-face hearing you needed to be prepared to discuss issues relevant to paying your liability and you needed to submit those issues by the timeframe given you failed to submit relevant issues and therefore you were not offered a face-to-face hearing the proposed levy is the appropriate action in this case based on the reasons as stated below you failed to voluntarily file a tax_return for income_tax periods ending date date date date date and date the irs prepared the tax returns for you under the service’s substitute-for- return procedures the irs issued letter statu- tory notice_of_deficiency concerning the tax periods ending date and on date for and on date sic for the tax period ending date and sent them to you by certified mail the letter notified you of the proposed tax penalties and interest and gave you the opportunity to contest the proposed assessments by petitioning the united_states tax_court there is no record that you filed such a petition the statutory_notice_of_deficiency is your one time opportunity to contest or dispute the liability the collection_due_process cdp hearing is not a second opportunity to dispute the underlying tax_liability sec_6330 states that you may also raise at the hearing challenges to the underlying tax liabil- ity for any_tax period if the person did not receive any statutory_notice_of_deficiency for such tax liabil- ity or did not otherwise have an opportunity to dispute such tax_liability the liability remained unpaid and your account was then assigned to collection collection sent you a notice of intent to levy-your right to a hearing on date as explained above your request for a hearing was made timely and you have the right to request judicial review of this notice_of_determination discussion and analysis legal and procedural requirements based on the facts presented in the administrative file the settlement officer has verified that all the requirements of various applicable law and administra- tive procedures have been met assessment was made on the applicable cdp period per sec_6201 and the notice_and_demand for payment was mailed to your last_known_address within days of the assess- ment as required by sec_6303 i verified this with transcripts per transcript review there was a balance due at the time the notice_of_intent_to_levy was issued the proper computer codes were input to sus- pend the collection statute while the case is being considered under sec_6320 sic you do not have a pending bankruptcy case nor did you have a pending bankruptcy case at the time the cdp_notice was issued this appeals settlement officer has had no prior involvement in appeals or collection activity with respect to the liabilities covered by this hear- ing relevant issues raised by the taxpayer challenge to the validity of the assessment you included a number of disputed issues in your re- quest for a hearing all of the issues mentioned were items that the courts have determined are frivolous there was no mention of collection alternatives you questioned the validity of the assessments for and before appeals i sent you literal readable individual_master_file transcripts identifying the taxpayer type of tax tax period date and amount of assessment on date i explained to you via correspondence dated date the transcripts provided show the same essential information found on form_4340 certificate of assessments and payments you failed to identify any irregularity in the assessments for and and thus i find the assess- ments to be valid challenges to the existence of the liability in addition to claiming the assessments are procedur- ally invalid you also assert general challenges to the existence of the liabilities sec_6330 provides that the existence of the underlying tax_liability can only be disputed in appeals at a cdp hearing if the taxpayer did not receive a statutory_notice_of_deficiency for the taxes in question or did not otherwise have an earlier opportunity to dispute such liability our records indicate that you received notices of deficiency for the taxable years and and they indicate that you did not avail yourself of the opportunity to file a petition for redetermination with the tax_court collection alternatives offered by the taxpayer you did not propose any collection alternatives most alternatives require that you be in compliance with all filing_requirements you have not filed a return for or other issues raised by the taxpayer you raised no other relevant issues before you decide to petition this notice of determina- tion you should be advised that the u s tax_court is empowered to impose monetary sanctions up to dollar_figure for instituting or maintaining an action before it primarily for delay or for taking a position that is frivolous or groundless pierson v commissioner t c no it is our conclusion that the position you have taken has no merit and is groundless balancing efficient collection and intrusiveness sec_6330 requires that the appeals_office consider whether a proposed collection action balances the need for efficient collection_of_taxes with the legitimate concern that any collection action be no more intrusive than necessary the proposed levy action is appropriate given the facts and circumstances of this particular case it balances the least intrusive method of collection with the need to efficiently collect taxes the balance favors the proposed levy as you presented no information or collection alternative that would weigh against the need for efficient collection determination all legal and procedural requirements were met prior to the issuance of the notice_of_intent_to_levy and the settlement officer concludes that the action was appro- priate the levy action is sustained on date the court issued an order date order in which inter alia it ordered petitioner to file a response to respondent’s motion in that order the court also concluded that the petition that petitioner filed contained certain statements contentions and arguments that the court found to be frivolous and or groundless in the date order the court reminded petitioner about sec_6673 and admonished him that in the event that he continued to advance frivolous and or groundless statements contentions or argu- ments the court would impose a penalty not in excess of dollar_figure on him under that section thereafter petitioner made no filings in this case discussion the court may grant summary_judgment where there is no genuine issue of material fact and a decision may be rendered as a matter of law rule b 98_tc_518 affd 17_f3d_965 7th cir we conclude that there are no genuine issues of material fact regarding the questions raised in respondent’s motion petitioner did not file a petition with the court with respect to any of the respective notices of deficiency that respondent issued to him relating to his taxable years through where as is the case here the validity of the underlying tax_liability for each of those years is not properly placed at issue the court will review the determination of the commissioner of the internal revenue for abuse_of_discretion 114_tc_604 114_tc_176 as was true of petitioner’s position before the appeals_office petitioner’s position in this case is frivolous and groundless we find that respondent did not abuse respondent’s discretion in making the determinations in the notice of determi- nation with respect to petitioner’s unpaid liabilities for through although respondent does not ask the court to impose a penalty on petitioner under sec_6673 the court consid- ers sua sponte whether to impose such a penalty sec_6673 authorizes the court to require a taxpayer to pay a penalty to the united_states in an amount not to exceed dollar_figure whenever it appears that a taxpayer instituted or maintained a 5it is not clear from the notice_of_determination whether the appeals_office sustained the collection action insofar as it pertained to the respective additions to tax under sec_6651 for petitioner’s taxable years through and that respondent assessed see supra note to the extent that the appeals_office did determine to sustain the collection action with respect to those additions to tax we do not sustain that determination in the respective notices of deficiency with respect to petitioner’s taxable years through and respondent did not determine to impose additions to tax under sec_6651 and did not have the authority to assess any such additions to tax proceeding in the court primarily for delay or that a taxpayer’s position in such a proceeding is frivolous or groundless we believe that petitioner instituted and maintained the instant proceeding primarily for delay we have found that petitioner’s position in this case is frivolous and groundless nonetheless we shall not impose a penalty under sec_6673 on petitioner we caution him that he may be subject_to such a penalty if in the future he institutes or maintains a proceeding in this court primarily for delay and or his position in any such proceeding is frivolous or groundless see 82_tc_403 72_tc_1126 we have considered all of petitioner’s statements conten- tions arguments and requests that are not discussed herein and we find them to be without merit and or irrelevant on the record before us we shall grant respondent’s motion to reflect the foregoing an appropriate order and decision for respondent will be entered 6petitioner made no filings in this case after the court issued its date order in which the court reminded him about sec_6673 and admonished him that the court would impose a penalty on him under that section if he continued to advance frivolous and or groundless statements contentions or arguments


internal_revenue_service number release date index number ------------------------------------------------- ----------------------------- -------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ---------------------------- id no ---------- telephone number --------------------- refer reply to cc ita b6 plr-116986-15 date date legend year year taxpayers ------- ------- ------------------------------------------------- -------------------------------------------------- lot a ------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------- lot b ----------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------- county state month year ------------------------- -------------------- ------- ------- dear -------------------------------------- this letter responds to a request for an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to elect to capitalize property taxes pursuant to sec_266 of the internal_revenue_code for the year calendar_year facts plr-116986-15 taxpayers are married individuals who timely filed a joint federal_income_tax return for the year calendar_year on or around april year taxpayers represent that they owned and held for investment purposes two parcels of unimproved and unproductive real_property lot a and lot b during year which are located in county state taxpayers paid property taxes on these investment properties in year and did not elect under sec_266 to capitalize these taxes to the properties instead the property taxes were reported as itemized_deductions by taxpayers on their year federal_income_tax return in year taxpayers were subject_to the alternative_minimum_tax amt because the deduction for property taxes is not allowed in computing amt taxpayers obtained a limited tax_benefit from reporting the property taxes as itemized_deductions for year taxpayers' tax_return_preparer preparer was not aware of and therefore did not advise taxpayers of the opportunity to make an election under sec_266 and sec_1 b and c of the income_tax regulations to capitalize taxes on unimproved and unproductive real_property in month of year taxpayers sold lot b for a capital_gain in year when preparer was completing preparation of taxpayers’ year federal_income_tax return taxpayers’ accountant alerted preparer to the opportunity of taxpayers making the election to capitalize property taxes under sec_266 preparer then advised taxpayers of the opportunity to make this election which taxpayers did on their year return preparer then also informed taxpayers of the possibility of filing a request for a private_letter_ruling granting extensions of time under sec_301 and to file a sec_266 election for year preparer represents that taxpayers relied on him to provide tax_advice preparer states that until year i did not appreciate that the election under sec_266 to capitalize certain expenses paid_or_incurred with respect to nonproductive real_property extended to property taxes law and analysis sec_56 provides that in determining the amount of the alternative_minimum_taxable_income no deduction shall be allowed for any taxes described in sec_164 sec_164 provides that a deduction for state and local and foreign real_property_taxes are allowed as a deduction for the taxable_year within which paid_or_accrued sec_266 provides that no deduction shall be allowed for amounts paid_or_accrued for such taxes and carrying charges as under regulations prescribed by the secretary are chargeable to capital_account with respect to property if the taxpayer elects in accordance with such regulations to treat such taxes or charges as so chargeable plr-116986-15 sec_1_266-1 provides in part that the taxpayer may elect as provided in paragraph c of this section to treat the items enumerated in this subparagraph which are otherwise expressly deductible under the provisions of subtitle a of the code as chargeable to capital_account either as a component of original cost or other basis for the purposes of sec_1012 or as an adjustment to basis for the purposes of sec_1016 the items thus chargeable to capital_account are - i in the case of unimproved and unproductive real_property annual taxes interest on a mortgage and other carrying charges sec_1_266-1 provides that an item not otherwise deductible may not be capitalized under sec_1_266-1 provides that an election with respect to an item described in paragraph b i is effective only for the year for which it is made sec_1_266-1 provides in part that if the taxpayer elects to capitalize an item or items under this section such election shall be exercised by filing with the original return for the year for which the election is made a statement indicating the item or items whether with respect to the same project or to different projects which the taxpayer elects to treat as chargeable to capital_account under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election under all subtitles of the code except subtitles e g h and i provided that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301 b defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin an election includes an application_for relief in respect of tax as well as a request to adopt change or retain an accounting_method sec_301_9100-3 provides extensions of time to make regulatory elections under code sections other than those for which sec_301_9100-2 expressly permits automatic extensions sec_301_9100-3 provides in part that the commissioner will grant a request for an extension of time when a taxpayer provides the evidence including affidavits described in paragraph e establishing to the commissioner's satisfaction that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides in part that except as provided in paragraphs b i through b iii a taxpayer is deemed to have acted reasonably and in good_faith if plr-116986-15 a the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer's experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election or b the taxpayer reasonably relied on a qualified_tax professional and the tax professional failed to make or to advise the taxpayer to make the election sec_301_9100-3 provides in part that a taxpayer is deemed to have not acted reasonably and in good_faith if the taxpayer i seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief the internal_revenue_service will ordinarily not grant relief because of the use of hindsight if specific facts have changed since the due_date for making the election that make the election advantageous to the taxpayer in such a case the service will grant relief only when the taxpayer provides strong_proof that the taxpayer's decision to seek relief did not involve hindsight sec_301_9100-3 provides in part that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money taxpayers have shown that they acted reasonably and in good_faith no specific facts have changed since the due_date for making the sec_266 election for year that make the election advantageous to taxpayers despite the fact that lot b was sold after the due_date for making the election because property taxes are not deductible for purposes of computing alternative_minimum_taxable_income the property taxes are not added to taxpayers’ lot b alternative_minimum_tax basis if a sec_266 election is made see sec_56 sec_1_266-1 accordingly the amount of taxpayers’ capital_gain that they must recognize in computing alternative_minimum_taxable_income arising from the sale of lot b is not affected by taxpayers’ election to capitalize property taxes in lieu of claiming those taxes as deductions for year furthermore the taxpayers have shown that the interests of the government are not prejudiced by granting the requested relief for an extension of time under sec_301_9100-1 for year ruling based solely on the facts and representations submitted consent is hereby granted to taxpayers for year to comply with the requirements of sec_266 for making an annual election to capitalize property taxes on unimproved and unproductive real_property accordingly taxpayers are granted an extension of time until days from the date of this private_letter_ruling to make the election to capitalize taxes under section plr-116986-15 for year for lot a and lot b the election shall be made in accordance with the regulations under sec_266 and shall be filed with the appropriate office of the service having jurisdiction over the taxpayers' federal_income_tax return for year please attach a copy of this private_letter_ruling to the amended_return schedules and forms filed in connection with making the election under sec_266 when such documents are filed except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this private_letter_ruling the ruling contained in this letter_ruling is based upon facts and representations submitted by taxpayers with accompanying penalty of perjury statements executed by appropriate parties while this office has not verified any of the material submitted in support of this request for an extension of time to make the sec_266 election all material is subject_to verification on examination this private_letter_ruling is directed only to taxpayers 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 private_letter_ruling is being sent to taxpayers' authorized representative sincerely cheryl l oseekey senior counsel branch office of associate chief_counsel income_tax accounting