internal_revenue_service national_office technical_advice_memorandum date number release date index uil numbers case mis number tam-122293-98 cc dom it a b3 taxpayer’s name taxpayer’s address taxpayer’s identification no years involved date of conference legend s_corporation individual university foundation date date date year year dollar_figurea dollar_figureb dollar_figurec tam-122293-98 dollar_figured dollar_figuree dollar_figuref dollar_figureg dollar_figureh z y x w issues is a portion of the payment to a state university’s foundation for which the donor receives the right to purchase tickets for seating in a skybox at athletic events in an athletic stadium of such university deductible under l is a portion of the payment to a state university foundation for which the donor receives the right to purchase tickets for seating in a skybox at athletic events in an athletic stadium of such university that is otherwise deductible under sec_170 disallowed because of the limitations of sec_274 if an accrual-basis subchapter_s_corporation authorizes a charitable_contribution on the last day of its taxable_year and pays the contribution by the 15th day of the third month following the close of its taxable_year may the s_corporation elect to treat such charitable_contribution as paid during such taxable_year under sec_170 or is the charitable deduction properly taken when paid under sec_170 conclusions the portion of the payment to a state university’s foundation for which the donor receives the rights to purchase tickets for seating in a skybox at athletic events in an athletic stadium of such university is deductible under l tam-122293-98 no under the provisions of sec_274 sec_274 does not disallow a deduction determined under sec_170 that is specifically allowed a taxpayer without regard to the payment’s connection with the taxpayer’s trade_or_business or income-producing activity the special rule for charitable deductions by accrual-basis corporations set forth in sec_170 does not apply to s_corporations because charitable deductions by s_corporations are not allowed to the s_corporation but rather are passed through to shareholders therefore the deduction for a charitable_contribution made by an s_corporation is properly passed through to shareholders and taken in the year that the contribution is actually paid facts s_corporation is an accrual-basis subchapter_s_corporation whose taxable_year ends on date on date the last day of s corporation’s fiscal_year s_corporation authorized a payment of dollar_figurea to university’s foundation foundation foundation is represented to be an organization described in sec_170 that is organized and operated exclusively to receive hold invest and administer property and to make expenditures to or for the benefit of university a state university which is represented to be an educational_organization described under sec_170 and an institution_of_higher_education as defined in sec_3304 on date the 15th day of the third month following the close of s corporation’s taxable_year in the next calendar_year s_corporation paid dollar_figurea to foundation individual s corporation’s shareholder and a calendar_year taxpayer took a charitable deduction for a portion as discussed below of the dollar_figurea on his year income_tax return s_corporation represented that in return for its payment it received a lease for a specific skybox for university home football games in university’s stadium for y years parking for x cars for each game and passes for w guests to visit persons sitting in the skybox before the game and at halftime the terms under which s_corporation could use the z seats in the skybox were embodied in a license agreement s_corporation received a receipt from foundation as well as an opinion provided to foundation by counsel regarding valuation of the personal benefits received in return for the payment of dollar_figurea foundation provided s_corporation with a receipt in which it calculated as follows tam-122293-98 y season skybox license value pre-game parking passes to visit skybox total_payment less benefits valued amount subject_to sec_170 time sec_80 deduction claimed dollar_figured dollar_figuree dollar_figureh dollar_figurec dollar_figurea -dollar_figurec dollar_figureb dollar_figure dollar_figuref in filing his year return individual took a charitable deduction of dollar_figuref on audit the revenue_agent proposed disallowance of the dollar_figuref deduction under sec_274 on the grounds that it represented an amount_paid for use of a skybox for more than event technical_advice was sought on the disallowed deduction of dollar_figuref pursuant to sec_274 s corporation’s representatives now concede that dollar_figureg of the dollar_figureb was paid for the tickets for z seats in the skybox they concede that the claimed deduction under sec_170 should be reduced by of that dollar_figureg which equals the amount incorrectly deducted we understand that the per seat ticket price paid_by s_corporation was the same as paid for other non-luxury seat tickets in the university’s stadium law and analysis is a portion of the payment to a state university’s foundation for which the donor receives the rights to purchase tickets for seating in a skybox at athletic events deductible under l sec_170 of the internal_revenue_code allows as a deduction any charitable_contribution as defined in sec_170 c the payment of which is made within the taxable_year revrul_67_246 1967_2_cb_104 states that to be deductible as a charitable_contribution for federal_income_tax purposes under sec_170 a payment to or for the use sec_170 defines charitable_contribution as a contribution to or for_the_use_of among others a state or a foundation organized and operated exclusively for educational_purposes 2under sec_170 the percentage limitation on charitable_contributions for an individual i sec_50 or of the taxpayer’s contribution_base generally adjusted_gross_income for the taxable_year depending generally on the type of property and the type of qualified donee under sec_170 the percentage limitation on charitable_contributions by a corporation is of the taxpayer's taxable_income with certain adjustments tam-122293-98 of a qualified charitable_organization must be a gift to be a gift_for such purposes there must be among other requirements a payment of money or transfer of property without adequate_consideration the supreme court has stated that the sine qua non of a charitable_contribution is a transfer of money or property without adequate_consideration u s v american bar endowment 477_us_105 american bar endowment in american bar endowment the court observed that a payment to charity might have a dual character and adopted a two-part test to determine whether part of the payment is deductible as a charitable_contribution first the payment is deductible only to the extent that the payment exceeds the fair_market_value of the privileges or benefits received second the taxpayer must make the excess payment with the intention of making a gift generally where a transaction involving a payment is in the form of a purchase of an item of value the presumption arises that no gift has been made for charitable_contribution purposes the presumption being that the payment in such case is the purchase_price revrul_67_246 thus where consideration is received in connection with payments to a charitable_organization the presumption generally is that the payments are not gifts if a charitable_contribution_deduction is claimed with respect to a payment generally the burden is on the taxpayer to establish that the amount_paid is not the purchase of the privileges or other_benefits and that part of the payment in fact does qualify as a gift revrul_86_63 1986_1_cb_88 superseding revrul_84_132 1984_2_cb_55 under sec_170 the taxpayer in certain circumstances is relieved of the burden of establishing what portion of a dual payment does in fact qualify as a gift sec_170 provides that percent of the amount_paid by a taxpayer to or for the benefit of an educational_organization which is described in subsection b a ii and which is an institution_of_higher_education as defined in sec_3304 is allowable as a charitable_contribution_deduction if such amount would be allowable as a deduction under sec_170 but for the fact that the taxpayer receives directly or indirectly as a result of paying such amount the right to purchase tickets for seating at an athletic event in an athletic stadium of such institution sec_170 provides that if a donor makes a payment to or for the benefit of an educational_institution both for the right to purchase tickets and for the purchase of the tickets themselves the portion of the payment subject_to the percent rule and the portion representing the ticket purchase are treated as separate amounts for purposes of sec_170 sec_170 was enacted by the technical_and_miscellaneous_revenue_act_of_1988 p l sec_6001 102_stat_3683 and is effective for taxable years beginning after date tam-122293-98 in this instance the benefits that s_corporation received for its payment to foundation consisted of the right to purchase tickets the tickets themselves the right to use the skybox passes to visit the skybox and parking s_corporation made the payment to foundation which has been represented to be an organization described in sec_170 iv that is organized and operated exclusively the benefit of university which is represented to be an educational_organization described under sec_170 ii and an institution_of_higher_education as defined in sec_3304 f the tickets that s_corporation received the right to buy were for seating at athletic events in university’s athletic stadium sec_170 is applicable despite the fact that the seating is located in a special viewing area within the athletic stadium thus the portion of s corporation’s payment to foundation for the right to buy tickets for seating is considered as paid for the benefit of university under sec_170 and sec_80 percent of such portion is deductible under sec_170 subject_to the percentage limitations and other requirements of that section the remainder of the payment which was for the ticket purchase the right to use the skybox passes to visit the skybox and parking privileges is not deductible under sec_170 4an organization described in sec_170 is an organization which as pertinent here normally receives a substantial part of its support from any state or from direct or indirect_contributions from the general_public and which is organized and operated exclusively to receive hold invest and administer property and to make expenditures_for the benefit of a college or university that is an educational_organization as described in sec_170 and that is an agency_or_instrumentality of a state or which is owned or operated by a state or by an agency_or_instrumentality of a state 5an education organization defined in sec_170 is one which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on 6under sec_3304 the term institution_of_higher_education means an educational_institution in any state which- admits as regular students only individuals having a certificate of graduation from a high school or the recognized equivalent of such certificate is legally authorized within such state to provide a program of education beyond high school provides an educational program for which it awards a bachelor’s or higher degree or provides a program which is acceptable for full credit toward such degree or offers a program of training to prepare students for gainful employment in a recognized occupation and is a public or other nonprofit institution tam-122293-98 s_corporation contends that it is entitled to rely upon the allocation made by foundation for purposes of determining the value of goods and services s_corporation received in exchange for the contribution s_corporation cites sec_1_170a-1 of the income_tax regulations which provides that donee estimates of the value of goods or services may be treated as fair_market_value - for purposes of sec_170 a taxpayer may rely on either a contemporaneous written acknowledgment provided under sec_170 f and 170a-13 f or a written disclosure statement provided under sec_6115 for the fair_market_value of any goods or services provided to the taxpayer by the donee organization regulation sec_1_170a-1 provides an exception that a taxpayer may not treat an estimate of the value of goods or services as their fair_market_value if the taxpayer knows or has reason to know that such treatment is unreasonable we are not addressing the donee's valuation of the skybox of the right to buy tickets of the passes to visit the skybox or of the parking privileges in this technical_advice_memorandum valuation involves determinations of fact that are best handled in the field is a portion of the payment to a state university foundation for which the donor receives the right to purchase tickets for seating in a skybox at athletic events that is otherwise deductible under sec_170 disallowed because of the limitations of sec_274 sec_274 provides that no deduction otherwise allowable under the chapter 1-1400c shall be allowed with respect to a facility used in connection with an activity referred to in sec_274 relating generally to entertainment sec_1_274-2 of the income_tax regulations further provides that the term entertainment means any activity which is of a type generally considered to constitute entertainment amusement or recreation when sec_274 was amended in to read as it applies to the year in question the legislative_history provided that sec_274 would be inapplicable to expenditures_for tickets to sporting and theatrical events regardless of whether the tickets are sec_170 provides that no deduction shall be allowed under sec_170 for any contribution of dollar_figure or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization that includes the following information the amount of cash and a description but not value of any property other than cash contributed whether the donee organization provided any goods or services in consideration in whole or in part for any property described in and a description and good_faith estimate of the value of any goods or services referred to in or if such goods or services consist solely of intangible religious benefits a statement to that effect tam-122293-98 purchased by a fee which entitles the taxpayer to use a seat sky-box lounge box or other similar facility which provides a viewing area for such a sporting or theatrical event these costs generally would be subject either to the existing provisions of law relating to entertainment activities or to those which govern the deductibility of business_gifts h rept no 95th cong 2d sess c b vol sec_274 added by the tax_reform_act_of_1986 provides that in the case of a skybox or other private luxury box leased for more than one event the amount allowable as a deduction with respect to such events shall not exceed the sum of the face value of non-luxury box seat tickets for the seats in such box covered by the lease sec_274 provides that sec_274 shall not apply to any deduction allowable to the taxpayer without regard to its connection with his trade_or_business or with his income- producing activity in the case of a taxpayer which is not an individual the preceding sentence shall be applied as if it were an individual the legislative_history is brief the restrictions provided by your committee’s bill are not to apply with respect to items which are deductible under specific provisions of law which apply both to business and nonbusiness taxpayers thus deduction for interest_paid on a loan to acquire an entertainment_facility or property taxes paid with respect to it would continue to be allowed as a deduction whether or not the entertainment facilities meet the tests of the new provision h rept no 87th cong 2d sess reprinted in 1962_3_cb_402 in this case the amount s_corporation paid to foundation in connection with the use of a skybox for more than event exceeded the sum of the face value of non-luxury box seat tickets for the seats in the particular skybox under sec_274 the excess would not be deductible unless in accordance with sec_274 a deduction would be specifically allowed under another code provision to a taxpayer treating as an individual a taxpayer that is not an individual without regard to the payment’s connection with the taxpayer’s trade_or_business or income-producing activity as discussed in issues and a deduction of a portion of s corporation’s payment is specifically allowed pursuant to sec_170 without regard to the payment’s connection with its trade_or_business accordingly under sec_274 sec_274 does not disallow a deduction determined under sec_170 with respect to s corporation’s payment to foundation if an accrual-basis subchapter_s_corporation authorizes a charitable_contribution on the last day of its taxable_year and pays the contribution by the 15th day of the third month following the close of its taxable_year may the s_corporation elect to treat such charitable_contribution as paid during such taxable_year under sec_170 or is the charitable deduction properly taken when paid under sec_170 tam-122293-98 as discussed above sec_170 of the internal_revenue_code allows as a deduction any charitable_contribution the payment of which is made within the taxable_year under sec_170 however a corporation reporting its taxable_income on the accrual basis may elect to deduct a charitable_contribution in the year in which the board_of directors authorizes the contribution if the payment is made by the 15th day of the third month following the close of the taxable_year the legislative_history to sec_170 provides that this exception for accrual basis corporations was desirable because corporations intending to make the maximum charitable_contribution allowable as a deduction had experienced difficulty in determining before the end of the taxable_year what constituted percent of their net_income the sec_170 gross_income limitation for corporations at the time of enactment s rep no 81st cong 1st sess 1949_2_cb_289 sec_1363 of the code states that the taxable_income of an s_corporation is computed in the same manner as in the case of an individual with certain exceptions among which is an exception that the deductions referred to in sec_703 including the deduction for charitable_contributions provided in sec_170 are not allowed to the corporation sec_1366 provides that in determining the tax of a shareholder each shareholder takes into account the shareholder's pro_rata share of the corporation's items of income including tax-exempt_income loss deduction or credit the separate treatment of which could affect the liability for tax of any shareholder sec_1366 provides further that the items referred to in sec_1366 include amounts described in sec_702 sec_702 refers to charitable_contributions as defined in sec_170 the legislative_history of sec_1366 provides that the corporate limitation on charitable_contributions will no longer apply instead charitable_contributions by s_corporations will pass through to the shareholders and be subject_to the individual limitations on deductibility see h_r rep no 97th cong 2d sess s rep no 97th cong 2d sess under sec_1363 an s_corporation computes its taxable_income in the same manner as an individual the election in sec_170 is not available to an individual an individual taxpayer may deduct a charitable_contribution only in the year in which payment is actually made to the charitable_organization 8the election may be made only at the time of the filing of the return for such taxable_year and is made by reporting the contribution on the return sec_1_170a-11 the regulations require the taxpayer to attach to the return a written declaration made under the penalties of perjury by an officer authorized to sign the return stating that the resolution authorizing the contribution was adopted by the board_of directors during the taxable_year and a copy of the resolution by the board_of directors tam-122293-98 accordingly in this case s_corporation should have reported the charitable_contribution on its tax_return for the year in which it actually paid the charitable_contribution and s corporation’s shareholder individual is not entitled to a charitable_contribution_deduction until year caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 of the code provides that it may not be used or cited as precedent signed by michael d finley branch chief cc dom it a


internal_revenue_service number release date index number -------------------------------- --------------------------------------------- ------------------------- --------------------------- - department of the treasury washington dc person to contact ------------------------ ---------- ------------- telephone number --------------------- refer reply to cc psi b02 - plr-165470-03 date date legend x ---------------------------------------------------------------------- a -------------------------- ------------------ -------------------------- d1 year dear -------------- ---------- ------- this responds to a letter dated date and subsequent correspondence submitted by x s authorized representative on behalf of x requesting a ruling under ' b of the internal_revenue_code the information submitted states that x was incorporated on d1 of year a the president of x represents that the shareholders of x intended for x to be an s_corporation however x s attorney failed to timely file a completed form_2553 election by a small_business_corporation for x sec_1362 of the code provides that if b a an election under ' a is made for any taxable_year after the date prescribed by ' b for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s plr-165470-03 corporation for x s first taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically ruled upon above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions of the code including whether x was or is a small_business_corporation under ' b 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 pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x s authorized representative sincerely yours audrey w ellis reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purposes


t c memo united_states tax_court richard p console petitioner v commissioner of internal revenue respondent docket no filed date richard p console pro_se steven w ianacone for respondent memorandum opinion laro judge respondent determined the following deficiencies additions to tax and accuracy-related_penalty with respect to petitioner’s federal income taxes accuracy-- related additions to tax penalty year deficiency sec_6653 hb a sec_6661 a sec_6653 b sec_6663 dollar_figure 1dollar_figure dollar_figure --- --- big_number big_number big_number ---- --- big_number -- big_number dollar_figure ---- big_number --t --- --- dollar_figure big_number -- --- -- --- ‘additionally sec_6653 b imposes an addition of percent of the interest due on the deficiency following a trial at which neither party presented any substantive evidence relating to respondent’s determinations we must decide whether petitioner is liable for those amounts we hold he is section references are to the internal_revenue_code in effect for the subject years and rule references are to the tax_court rules_of_practice and procedure petitioner resided in new jersey when his petition was filed background on date respondent moved the court under rule f to issue an order directing petitioner to show cause why proposed facts in evidence should not be accepted as established three days later the court granted respondent’s motion and ordered petitioner to file with the court by date a response under rule f showing why the matters set forth in respondent’s motion papers should not be deemed admitted for purposes of this case after petitioner failed to respond to the substance of our order we ordered that the facts and evidence set forth in respondent’s motion papers be deemed established for purposes of this case petitioner is considered under rule f to have stipulated the following relevant facts during each of the taxable years and the petitioner was a shareholder and officer of console wood and curico p c a law firm incorporated under the laws of the state of new jersey during the sic each of the taxable years and the petitioner followed a practice of bringing bills for his personal expenses to the law office for payment with checks drawn on the bank accounts of the law firm all checks in payment of these personal bills were coded by being marked with the letter a checks so coded were entered in the cash disbursement journal of the law firm and charged to an account labeled rpc the above practice was elicited from the petitioner during his testimony at a court appearance where he was on trial for insurance fraud petitioner would meet with his accountant and petitioner would decide the nature of the item business or personal and would direct the accountant where to deduct the items determined to be business all items determined to be personal by the petitioner were charged to petitioner as additional income and reported on his personal return based on a review of the accountant’s work papers the law firm’s cash disbursement journal the cancelled checks coded with an a discussions with the accountant and the court testimony of petitioner there was an excess of personal expenses of petitioner paid_by the law firm over the amounts reported as income by petitioner for the taxable years and petitioner’s fraudulent omission of specific items of income on his income_tax returns filed for the taxable years and is a part of a four year pattern of intent to evade taxes - - the petitioner understated his taxable_income on his income_tax returns for the taxable years and in the amounts of dollar_figure dollar_figure dollar_figure and dollar_figure respectively the petitioner understated his income_tax liabilities on his income_tax returns for the taxable years and in the amounts of dollar_figure dollar_figure dollar_figure and dollar_figure respectively a part of each deficiency in income_tax for taxable years and is due to fraud with intent to evade taxes richard p console the petitioner herein is the same person who was the defendant in the criminal case of united_states of america v richard p console district of new jersey case number nhp the respondent herein is a party in privity with the united_states of america the prosecuting party in the aforesaid criminal case in which the petitioner herein was the defendant the indictment filed on date in said criminal case sets forth the following charge against the defendant the petitioner herein the grand jury charges count one on or about date in the district of new jersey and elsewhere richard p console esq the defendant unlawfully wilfully and knowingly did attempt to evade and defeat a large part of the income_tax due and owing by himself to the united_states of america for the calendar_year by preparing and causing to be prepared signing and causing to be signed and filing and causing to be filed with the internal_revenue_service a false and fraudulent united_states individual_income_tax_return on behalf of himself wherein it was stated that his taxable_income for the said calendar_year was dollar_figure and that the --- - income_tax due and owing to the united_states of america dollar_figure whereas the defendant then and there well knew that his taxable_income for the said calendar_year was approximately dollar_figure upon which taxable_income there was then due and owing to the united_states of america an income_tax of approximately dollar_figure in violation of title_26 united_states_code sec_7201 and title united_states_code sec_2 the petitioner on date entered a plea of guilty to the charge set forth against him in said indictment on date the united_states district_court entered its judgment pursuant to said plea among the issues of fact determined in the aforesaid criminal case was whether richard p console the defendant therein and the petitioner herein did in fact willfully file a false and fraudulent income_tax return for the taxable_year with intent to evade and defeat income_tax and whether he did in fact by such means understate a part of the income_tax due and owing by him to united_states of america for said year during the tax_year petitioner received dollar_figure income on his purported schedule c business and listed expenses of dollar_figure including dollar_figure in attorneys’s fees the dollar_figure in attorney’s fees was paid for his criminal defense in the action described in paragraph sec_22 through above and in a prior criminal matter described in paragraph above discussion we address first whether petitioner is liable for the deficiencies and additions to tax under sec_6661 for substantial_understatement respondent’s determination is presumed correct and petitioner bears the burden of proving it wrong rule a 290_us_111 petitioner is deemed to have stipulated that he understated his income_tax liabilities for and in the amounts shown as deficiencies and the record contains no evidence that would support a contrary finding nor does the record contain any evidence to prove wrong the deficiency for or the additions to tax under sec_6661 for returns due before date a taxpayer whose return contains a substantial_understatement_of_income_tax is liable for an addition_to_tax under sec_6661 equal to percent of the underpayment attributable to the understatement 90_tc_498 as to respondent’s determination of these deficiencies and additions thereto petitioner relies solely on his argument that the notice_of_deficiency is invalid because he alleges respondent impermissibly used grand_jury_material during the audit underlying the notice_of_deficiency at trial petitioner called two witnesses to attempt to prove this allegation the first witness was a special_agent in respondent’s criminal ' an understatement is substantial if it exceeds the greater of a percent of the tax required to be reported on the return or b dollar_figure sec_6661 a and ii an understatement is reduced to the extent the position taken resulting in the understatement was supported by substantial_authority or the taxpayer adequately disclosed in the return or in an attachment relevant facts relating to his or her position sec_6661 b and investigation division he was involved with petitioner’s grand jury investigation and testified that he had prepared reports and computations of petitioner’s tax_liabilities exclusively for use in the grand jury proceedings he also testified that he was unaware that any of those reports or computations were used by respondent in the course of the audit underlying the notice_of_deficiency the second witness one of respondent’s revenue agents provided no testimony that would support petitioner’s allegation on the record before us we are unpersuaded that respondent relied on any grand_jury_material in the formulation of the notice_of_deficiency we hold that the notice_of_deficiency is valid accordingly we sustain respondent’s determination as to the deficiencies and the additions to tax under sec_6661 we turn next to respondent’s determination that petitioner is liable for the additions to tax for fraud under sec_6653 and an accuracy-related_penalty for fraud under sec_6663 respondent must prove this determination by clear_and_convincing evidence sec_7454 rule b 84_tc_405 80_tc_1111 an addition_to_tax or accuracy-related_penalty for fraud is a civil sanction provided primarily as a safeguard for the protection of the revenue and to reimburse the government for the heavy expense of investigation and the loss resulting from the taxpayer's fraud 303_us_391 fraud denotes intentional wrongdoing on the part of the taxpayer with the specific purpose of evading a tax known or believed to be owing 92_tc_661 fraud is shown by proof that the taxpayer intended to conceal mislead or otherwise prevent the collection of his or her taxes and that there is an underpayment_of_tax 317_us_492 398_f2d_1002 3d cir 394_f2d_366 5th cir affg tcmemo_1966_81 rowlee v commissioner supra pincite thus in order to sustain his burden as to fraud respondent must prove that petitioner underpaid his taxes for the relevant years and some part of each underpayment was due to fraud ’ tt is well settled in this court that the commissioner may establish fraud by relying upon matters deemed admitted under rule 85_tc_267 81_tc_644 77_tc_334 the commissioner may also establish fraud by relying on facts deemed to be stipulated under if respondent establishes that some part of the underpayment for a year is due to fraud all of the underpayment is deemed attributable to fraud unless petitioner proves otherwise see sec_6653 as in effect for through sec_6663 as in effect for rule f ambroselli v commissioner tcmemo_1999_158 on the basis of our review of the record we conclude that respondent has clearly and convincingly proven both prongs of the two-part test for fraud petitioner is deemed under rule f to have stipulated that a part of each deficiency for and was due to fraud with the intent to evade taxes as to petitioner is also deemed to have stipulated that he pled guilty to a violation of sec_7201 petitioner’s conviction of criminal_tax_evasion for under sec_7201 collaterally estops him from denying that his underpayment of income_tax for was due to fraud for purposes of sec_6653 b see eg 47_f3d_716 5th cir 708_f2d_243 6th cir affg tcmemo_1981_1 castillo v commissioner supra pincite- 82_tc_413 affd without published opinion 772_f2d_910 9th cir 43_tc_50 affd 360_f2d_358 4th cir we sustain respondent’s determinations of the additions to tax and the accuracy-related_penalty for fraud decision will be entered for respondent


internal_revenue_service number release date index number ----------------------------- --------------------------------------------------- ----------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-138647-08 date december x ------------------------------------------------------------------------------------------------------ ----------------------- state ------------ date ----------------- dear ------------- this responds to a letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated in state on date it was intended for x to be an s_corporation effective date however no form_2553 election by a small_business_corporation was timely filed for x sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s_corporation will be effective generally if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election for the plr-138647-08 taxable_year or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year and sec_1362 shall not apply based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective date accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective date within days following the date of this letter then such election will be treated as timely made for date a copy of this letter should be attached to the form_2553 except as expressly provided herein no opinion is expressed or implied concerning the federal_income_tax consequences of the facts described above under any other provision of the code including whether x is in fact an s_corporation for federal tax purposes 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 pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely bradford r poston senior counsel branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n contact person telephone number identification_number number release date date uil no dear this is in response to your letter dated -----------------requesting an information_letter under section dollar_figure of revproc_2006_4 2006_1_irb_132 relating to the federal tax status of a single-member limited_liability_company assume that a corporation c was established as a nonprofit corporation under the laws of the state of x and that the internal_revenue_service has recognized c as an organization described in sec_501 of the internal_revenue_code assume further that l was formed under the laws of the state of x as a limited_liability_company and that c is the sole member of l l has filed no election on form_8832 to be treated as a corporation or partnership separate from c sec_301_7701-1 of the procedure and administration regulations provides that whether an organization is an entity separate from its owners for federal tax purpose is a matter of federal tax law and does not depend on whether the organization is recognized as an entity under local law sec_301_7701-1 of the regulations provides that the code prescribes the classification of various organizations for federal tax purposes sec_301_7701-1 of the regulations provides that under sec_301_7701-2 and certain organizations that have a single owner can choose to be recognized or disregarded as entities separate from their owners sec_301_7701-2 of the regulations states a business_entity with only one owner is classified as a corporation or is disregarded if the entity is disregarded its activities are treated in the same manner as a sole_proprietorship branch or division of the owner sec_301_7701-3 of the regulations provides that a business_entity that is not otherwise classified as a corporation under sec_301_7701-2 or is eligible to elect its classification for federal tax purposes sec_301_7701-3 of the regulations also provides in part that an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 of the regulations provides a default classification for an eligible_entity that does not make an election sec_301_7701-3 provides that unless the entity elects otherwise a domestic eligible_entity is disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 of the regulations provides that an eligible_entity may elect to be classified other than as provided in sec_301_7701-3 by filing form_8832 announcement 1999_43_irb_545 provides that when the owner of an eligible_entity that is treated as a disregarded_entity is exempt from taxation under sec_501 of the code it must include as its own information pertaining to the finances and operation of the disregarded_entity in its annual information_return announcement further states when an entity is disregarded as separate from its owner its operations are treated as a branch or division of the owner the internal_revenue_service has recognized c as an organization described in sec_501 of the code although l is a separate legal entity under applicable state law since l’s sole member is c and l has made no election to be treated as a corporation or partnership separate from c for federal tax purposes l is disregarded and treated as a component of c we also suggest referring to internal_revenue_service publication rev tax issues for limited_liability companies this information_letter is advisory only and has no binding effect on the internal_revenue_service see section dollar_figure of revproc_2006_4 2006_1_irb_132 if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter steven grodnitzky manager exempt_organizations technical group sincerely


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b07-plr-138078-02 date date legend p p1 x y a b c d e f location date date date date date date amount amount dear this letter responds to a letter dated date submitted on behalf of p by its authorized representative requesting rulings under sec_29 of the internal_revenue_code the facts as represented by p and p’s authorized representative are as follows on date p received plr and p1 received plr which ruled on similar issues addressed by this letter p seeks a confirmation of the rulings in light of the purchase of the interests in p and p1 by x and y the merger of p and p1 a change in the chemical reagents used to produce synthetic_fuel and the relocation of p’s two synthetic_fuel facilities the facilities to e’s an affiliate of f site in location the site as described in the ruling_request p is a delaware limited_liability_company taxable as a partnership on date p merged with p1 p became the resulting_partnership for federal_income_tax purposes p owns and operates the facilities for producing a solid synthetic_fuel from coal the product using the process described below the facilities were constructed by p and p1 the facilities are secondary coal recovery system facilities designed by a each facility consists of three production lines each of which consists of a briquetter which is fed by its associated mixer and each of which is capable of being operated independently because each production line is capable of being operated independently and can independently produce synthetic_fuel each independent production line may be treated as a separate facility each facility was constructed pursuant to a written contract entered into by a and b on date a assigned to each of p and p1 all of its rights and obligations under the construction_contract with respect to one facility on date b subcontracted with c to perform the procurement assembly and installation services under the construction_contract p provided an opinion of counsel that the construction_contract constituted a binding written contract under applicable state laws prior to date and at all times thereafter through completion of the contract the issue regarding when the facilities were placed_in_service was subject_to examination and the issue was reviewed by appeals following such examination and review the service determined without mutual concessions that the facilities were placed_in_service prior to date it is the policy of the internal_revenue_service that such determinations are not reconsidered absent extraordinary circumstances for example fraud or misrepresentation and then only with the consent of the regional_director_of_appeals on date x purchased an interest in p and p1 from a pursuant to a purchase agreement y purchased the remaining interest in p and p1 from d on date pursuant to a purchase agreement x and y have made and are expected to continue to make periodic capital contributions to p to enable it to pay its operating costs and other obligations a proforma attached to the ruling_request demonstrates that project expenses are projected to exceed revenues p has relocated the facilities to the site in connection with the relocation of the facilities most major components of each facility directly necessary to produce a qualified_fuel were relocated to the site certain equipment included in the original construction was scrapped or sold and not relocated in connection with the relocation p also installed certain equipment that is not directly necessary for the production of qualified_fuel such as coal and material handling equipment a building and an office maintenance building at the site following the relocation the fair_market_value of the original property included in each facility is more than percent of each facility’s total value the cost of the new equipment included in the facility plus the value of the original property p has entered into a synthetic_fuel and coal supply agreement with e under which e agreed to purchase a minimum of amount of synthetic_fuel a year and to use commercially reasonable efforts to purchase up to amount tons of synthetic_fuel a year if e does not satisfy its purchase obligation or the production of synthetic_fuel exceeds e’s requirements p can sell synthetic_fuel to third parties p has represented that all sales of synthetic_fuel will be to unrelated persons p has supplied a detailed description of the process employed at the facilities p also has proposed that from time to time one of four alternative chemical reagents may be used in the process for the production of product as described the facilities and the process implemented in the facilities including the chemical reagents meet the requirements of revproc_2001_34 2001_22_irb_1293 a recognized expert in combustion coal and chemical analysis has performed numerous tests on the coal used at the facilities and the product produced at the facilities and has submitted reports in which the expert concludes that significant chemical changes take place with the application of the process to the coal including the alternative chemical reagents p with use of the process expects to maintain a level of chemical change in the production of synthetic_fuel that is determined through similar analysis by experts to be a significant chemical change the rulings issued in plr and plr which you wish to be reconfirmed in this private_letter_ruling are as follows p with use of the enumerated process will produce a qualified_fuel within the meaning of sec_29 the contract for the construction of the facilities constitutes a binding written contract in effect before date within the meaning of sec_29 production from the facilities will be attributable solely to p within the meaning of sec_29 entitling p to the sec_29 credit for qualified_fuel from the facilities that is sold to an unrelated_person the sec_29 credit attributable to p may be allocated to the members of p in accordance with the members’ interests in p when the credit arises for the sec_29 credit a member’s interest in p is determined based on a valid allocation of the receipts from the sale of the sec_29 qualified_fuel a termination of p under sec_708 will not preclude the reconstituted partnership from claiming the sec_29 credit on the production and sale of synthetic_fuel to unrelated persons because each facility was placed_in_service prior to date within the meaning of sec_29 relocation of a facility to a different location after date will not result in a new placed_in_service_date for that facility for purposes of sec_29 provided the fair_market_value of the original property is more than percent of that facility’s total fair_market_value at the time of relocation the changes in facts since the issuance of plr and plr are the purchase of interests in p and p1 by x and y the merger of p and p1 the change in chemical reagents used to produce the synthetic_fuel and the relocation of the facilities as described in the ruling_request the above rulings are not affected by the purchase of interests in p and p1 by x and y the merger of p and p1 the change in chemical reagents used to produce the synthetic_fuel or the relocation of the facilities as described in the ruling_request in addition p has indicated that it may relocate one or two of the independent production lines to another location accordingly p has also requested the following ruling because each facility was placed_in_service prior to date within the meaning of sec_29 relocation of one or more of the independent production lines of a facility to a new location after date will not result in a new placed_in_service_date for that facility or an independent production line for purposes of sec_29 provided all essential components of the independent production line are retained and the production output of the independent production line is not significantly increased at the new location ruling_request to qualify for the sec_29 credit p’s facilities must have been placed_in_service before date pursuant to a binding written contract in effect before date as discussed above the service made a determination that the facilities were placed_in_service prior to date revrul_94_31 1994_1_cb_16 concerns sec_45 which provides a credit for electricity produced from certain renewable resources including wind the credit is based on the amount of electricity produced_by_the_taxpayer at a qualified_facility during the 10-year period beginning on the date the facility was originally placed_in_service and sold by the taxpayer to an unrelated_person during the taxable_year revrul_94_31 holds that for purposes of sec_45 a facility qualifies as originally placed_in_service even though it contains some used_property provided the fair_market_value of the used_property is not more than percent of the facility’s total value the cost of the new property included in the facility plus the value of the used_property revrul_94_31 concerns a factual context similar to the present situation consistent with the holding in revrul_94_31 the relocation of the facilities to a different location after date or replacement of part of the facilities after that date will not result in a new placed_in_service_date for each facility for purposes sec_29 provided the fair_market_value of the property used at the original facility is more than percent of each facility’s total fair_market_value at the time of relocation or replacement the cost of the new equipment included in the facility plus the value of the property used at the original facility revrul_94_31 describes a windfarm that consists of an array of wind turbines towers pads transformers roadways fencing on-site power collection systems and monitoring and meteorological equipment notwithstanding that the windfarm consisted of all of these items the ruling concludes that the facility for purposes of sec_45 is confined to the property on the windfarm necessary for the production of electricity from wind_energy emphasis added the present situation is similar to revrul_94_31 thus for purposes of determining a facility’s total fair_market_value at the time of relocation or replacement a facility consists of the process equipment directly necessary for the production of the qualified_fuel starting at the immediate input of the coal and chemical reagents to the pug mills or mixers including any coal hoppers and reagent tanks directly feeding the pug mills or mixers through the output from the briquetters or other forming equipment including output hoppers if any hence each facility’s total fair_market_value includes the process equipment such as pugmills or mixers the briquetters or other forming equipment the equipment necessary to interconnect such equipment the electrical instrumentation control systems and auxiliaries related to such equipment including the structures that house such electrical instrumentation and control systems the foundation platform s for the above-referenced equipment and an appropriate allocation of the engineering project management overhead and other costs assignable to the relocation of such equipment and construction a facility’s total fair_market_value does not include costs associated with the purchase and installation of equipment that supports the operation of the facility but is not directly necessary for the production of the qualified_fuel such as coal beneficiation or preparation equipment eg crushers screens dryers or scales other material handling or conveying equipment eg stacking tubes transfer towers storage bunkers mobile equipment or conveyors certain site improvements eg fencing lighting earthwork paving separate office and bathhouse trailers for facility personnel and buildings if a building for purposes of sec_168 of the code and other administrative assets sampling and quality control are necessary for operational control of a production facility however a particular type of sampling equipment generally is not necessary for the production of qualified_fuel thus the costs of sampling equipment are excluded from the facility’s total fair_market_value unless the particular sampling equipment is necessary for operational control of the facility ruling_request revproc_2001_30 2001_19_irb_1163 provides that a facility including one of multiple facilities located at the same site may be relocated without affecting the availability of the credit if all essential components of the facility are retained and the production capacity of the relocated facility is not significantly increased at the new location p has represented that each of the facilities are designed with three separate and independent production lines so that each line can be operated as a separate_unit to produce synthetic_fuel p has represented that all of the major components of the production line would be relocated if the production line is relocated to a new site p has also represented that relocation of one or more production lines to another site would require the duplication of relatively minor components and site specific items involved in the relocation of any facility such as site preparation paving foundations area lighting and utilities based on the information submitted and the representations made we conclude that p may relocate one or more of the independent production lines provided the major or essential components of the independent production line are retained and the production output of the relocated production line is not significantly increased at the new location the production output is the amount of qualified_fuel including the production of a briquetted fuel product that can reasonably be expected to be actually produced by each facility using the prevailing practices in the industry regarding the performance of maintenance with regard to the various pieces of equipment in the facility reasonable allowances for shutdowns for repairs and or replacement of parts etc conclusions accordingly based on the representations of p and p’s authorized representative we conclude as follows p with use of the enumerated process will produce a qualified_fuel within the meaning of sec_29 the contract for the construction of the facilities constitutes a binding written contract in effect before date within the meaning of sec_29 production from the facilities will be attributable solely to p within the meaning of sec_29 and p will be entitled to the sec_29 credit for qualified_fuel from the facilities that is sold to an unrelated_person the sec_29 credit attributable to p may be allocated to the members of p in accordance with the members’ interests in p when the credit arises for the allocation of the sec_29 credit a member’s interest in p is determined based on a valid allocation of the receipts from the sale of the sec_29 qualified_fuel a termination of p under sec_708 will not preclude the reconstituted partnership from claiming the sec_29 credit on the production and sale of synthetic_fuel to unrelated persons because each facility was placed_in_service prior to date within the meaning of sec_29 relocation of a facility to a different location after date or replacement of part of a facility after that date will not result in a new placed_in_service_date for that facility for purposes of sec_29 provided the fair_market_value of the original property is more than percent of that facility’s total fair_market_value at the time of relocation or replacement because each facility was placed_in_service prior to date within the meaning of sec_29 relocation of one or more of the independent production lines of a facility to a new location after date will not result in a new placed_in_service_date for that facility or an independent production line for purposes of sec_29 provided all essential components of the independent production line are retained and the production output of the independent production line is not significantly increased at the new location except as specifically ruled upon above we express no opinion concerning the federal_income_tax consequences of the transaction described above we also express no opinion on the determination of fair_market_value of either the property constituting the facility or the used_property transferred from the original facility this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling may be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in this ruling see section dollar_figure of revproc_2002_1 2002_1_irb_1 however when the criteria in section dollar_figure of revproc_2002_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances s sincerely joseph h makurath senior technician reviewer office of associate chief_counsel passthroughs and special industries cc


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp plr-109838-99 date date acquiring acquiring sub target state a state b business x business y date date date plr-109838-99 this letter is in reply to your letter dated date requesting rulings about the federal_income_tax consequences of a partially completed transaction the information submitted is summarized below acquiring is a state a corporation engaged in business x acquiring is a publicly traded corporation with common and preferred_stock authorized and common_stock outstanding acquiring is the common parent of a consolidated_group that files its consolidated_returns on a calendar_year basis using the accrual_method of accounting acquiring sub was a state a corporation organized by acquiring solely for the purpose of acquiring target acquiring sub conducted no business or operations except those necessary to facilitate the transaction before the transactions described below acquiring owned all of the stock of acquiring sub target is a state b corporation engaged in business y prior to the transaction described below target was a publicly traded corporation target had common and junior common_stock authorized and common_stock outstanding target was the common parent of a consolidated_group that filed its consolidated_returns on a calendar_year basis using the accrual_method of accounting on date pursuant to discussions which commenced in date the management of acquiring and target entered into an agreement to combine the businesses of the two companies while management would have preferred to merge target directly into acquiring this type of combination was not possible because target had significant contracts and agreements with many of its suppliers customers and business partners which could not be assigned prior to the combination due to time constraints accordingly on date pursuant to state b law and in accordance with a plan_of_reorganization acquiring sub merged with and into target the acquisition merger target survived the merger and target shareholders received acquiring voting common_stock in exchange for their target stock the taxpayers represent that the acquisition merger viewed independently of the proposed upstream_merger qualified as a reorganization under sec_368 and sec_368 of the internal_revenue_code because the necessary contract assignments either have been or will shortly be obtained acquiring proposes to liquidate target with and into acquiring by upstream_merger the upstream_merger the taxpayers represent that the upstream_merger will qualify as a statutory merger under applicable state law and viewed independently of the acquisition merger would qualify under sec_332 the taxpayers further represent that if the acquisition merger had not occurred and target had merged directly into acquiring such merger would have qualified as a reorganization under sec_368 plr-109838-99 pursuant to sec_3 of revproc_99_3 1999_1_irb_103 the internal_revenue_service will not rule as to whether a proposed transaction qualifies under sec_368 including a transaction that qualifies under sec_368 by reason of sec_368 or sec_368 however the service has the discretion to rule on significant subissues that must be resolved to determine whether a transaction qualifies under sec_368 accordingly based on the information submitted and the representations made and provided that i the acquisition merger and the upstream_merger are treated as steps in an integrated_plan pursuant to the step-transaction doctrine and ii the acquisition merger and the upstream_merger qualify as statutory mergers under applicable state law we hold as follows for federal_income_tax purposes the acquisition merger and the upstream_merger will be treated as if acquiring directly acquired the target assets in exchange for acquiring stock and acquiring’s assumption of target liabilities through a statutory merger as that term is used in sec_368 see revrul_67_274 1967_2_cb_141 and revrul_72_405 1972_2_cb_217 we express no opinion regarding whether the acquisition merger and the upstream_merger are steps in an integrated_plan or whether the acquisition merger and the upstream_merger qualifies as a reorganization under sec_368 we express no opinion about the tax treatment of the transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by the above rulings this ruling is directed only to the taxpayers on whose behalf it was requested sec_6110 provides that it may not be used or cited as precedent each affected taxpayer should attach a copy of this letter to its federal_income_tax return for the taxable_year in which the transaction covered by this ruling letter is consummated plr-109838-99 we have sent a copy of this letter to the taxpayer_representative as designated on the power_of_attorney on file in this office sincerely yours assistant chief_counsel corporate by ken cohen senior technical reviewer branch


significant index no department of the treasury internal_revenue_service sec_4 washington d c tax_exempt_and_government_entities_division may 280s set ep qa al in re plan company company this letter constitutes notice that with respect to the above-named defined benefit pension_plan sec_401 of the internal_revenue_code code and section i of the employment retirement income security act of erisa do not apply to the amendment described below sec_401 of the code provides that a plan is not a qualified_plan if an amendment is adopted while the employer is a debtor in a case under title united_states_code or similar federal or state law and such amendment increases liabilities of the plan by reason of i any increase in benefits ii any change in the accrual_of_benefits or iii any change in the rate at which benefits become nonforfeitable under the plan with respect to employees of the debtor and such amendment is effective prior to the effective date of such employer’s plan_of_reorganization sec_401 of the code provides that sec_401 will not apply to any plan amendment if i the plan were such amendment to take effect would have a funded_current_liability_percentage of percent or more ii the secretary_of_the_treasury determines that such amendment is reasonable and provides for only de_minimis increases in the liabilities of the plan with respect to employees of the debtor iii such amendment only repeals an amendment described in sub sec_412 or iv such amendment is required as a condition of qualification under this part section i of erisa prohibits a plan amendment that increases the liabilities ofa plan maintained by an employer that is a debtor under title of the code or similar federal or state law by reason of a any increase in benefits b any change in the accrual_of_benefits or c any change in the rate at which benefits become nonforfeitable under the plan with respect to employees of the debtor and --gsuch amendment is effective prior to the effective date of such employer's plan_of_reorganization section i of erisa provides that section i shall not apply to any plan amendment that a the secretary_of_the_treasury determines to be reasonable and that provides for only de_minimis increases in the liabilities of the plan with respect to employees of the debtor b such amendment only repeals an amendment described in sec_302 c is required as a condition of qualification under the code or d was adopted prior to or pursuant to a collective bargaining agreement entered into prior to the date on which the employer became a debtor in a case under title of the code or similar federal or state law section i of erisa provides that section i only applies to plans other than multiemployer plans for which the funded_current_liability_percentage is less than percent after taking into account the effect of the amendment is a wholly-owned subsidiary of company company was the sponsor company of the plan prior to date company filed for protection under chapter of the u s bankruptcy code on date the plan_of_reorganization for company which was approved and effective date provided that company became the sponsor of the plan on date the plan was adopted on date and effective as of date several plans of company and its affiliates were merged into the plan on date while the plan covers approximately big_number participants no participants are currently accruing benefits under the plan the plan was amended on date prior to company 2’s date of reorganization the amendment consisted of parts part sec_1 and of the amendment provide elective special early retirement provisions for certain employees effective date and date respectively in particular special early retirement provisions are set forth for employees meeting the eligibility criteria related to location age and service the increase in accrued_benefits provided there under was determined under the plan’s formula as in effect immediately prior to the plan mergers of date taking into account service under predecessor plans resulting in an improved benefit formula for some employees and reflected an additional years of credited service the reductions for early commencement - i of benefits were reduced and temporary early retirement supplements were also provided in some cases providing supplements to surviving spouses part of the amendment provides for the updating of references to the applicable_interest_rate under sec_417 of the code part of the amendment adds provisions under the economic growth and tax relief act of egtrra based on the model amendments published in notice_2001_57 2001_38_irb_279 part of the amendment adds a new paragraph based on model plan amendment published in revrul_2001_62 2001_53_irb_632 relating to applicable mortality tables after the amendment described above the plan had a current_liability percentage that was less than pertent and the employer was still a debtor in possession in a case code the amendment was adopted prior to under title of the company 2’s date of reorganization to a reflect changes to maintain the plan’s qualified status based on applicable_published_guidance and b coincide with reductions in force that company and company considered necessary based on business circumstances at specified locations which allowed both companies to reduce expenses and remain competitive part sec_3 through of the amendment are clearly required as a condition of qualification under sec_401 a of the code so under sec_401 of the code and section i c of erisa sec_401 of the code and section i of erisa do not apply to these parts of the plan amendment part sec_1 and of the amendment cannot be considered reasonable merely because they were adopted to coincide with reductions in force that company and company considered necessary based on business circumstances at specified locations which allowed company to reduce expenses and remain competitive however while the minimum_funding_standard under sec_412 of the code for the plan_year ending date the year the amendment was adopted was zero company made a contribution to the plan in the amount of dollar_figure on date which exceeded the amount of the increase in actuarial accrued liability resulting from the amendment dollar_figure accordingly part sec_1 and of the amendment are considered reasonable the actuarial information furnished indicates that the increase in current_liability resulting from the amendment wa sec_1 which is less than three percent the increase in actuarial accrued liability resulting from the amendment wa sec_1 which is also less than three percent the increase in the normal_cost to the plan of the amendment was zero because benefit accruals in the plan had previously ceased _ moreover the increase in the minimum_funding_standard for the plan for the plan_year ending date not taking into account the credit balance in the funding_standard_account was less than hence the amendment provides for only de_minimis increases in the liabilities of the plan - accordingly sec_401 of the code and section i of erisa do not apply to the amendment described above because part sec_1 and of the amendment are reasonable and provide for de_minimis increases in plan liabilities of the plan within the meaning of sec_401 of the code and section i of erisa and part sec_3 through of the amendment are required as a condition of qualification under the code within the meaning of sec_401 of the code and section i c of erisa this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent we have sent a copy of this letter to the manager ep classification in _ and to your authorized representative pursuant to a power_of_attorney on file in this office to the manager ep compliance unit in lf you require further assistance in this matter please contact sincerely yours wa donna m prestia manager employee_plans actuarial group


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-112129-08 date september x a b c legend --------------- ----------------------------------------------- ----------------------- ------------------------- ----------------------------- --------------------- country ------------------ country --------- d1 d2 --------------------- --------------------- dear ------------ this letter responds to a letter dated date and subsequent correspondence written on behalf of x requesting a ruling under sec_301_9100-3 of the procedure and administration regulations facts x was formed under the laws of country x represents that it is a foreign_entity eligible to elect to be classified as a disregarded_entity for federal tax purposes x plr-112129-08 was a wholly-owned subsidiary of a a country corporation b a country corporation acquired a through a subsidiary entity c on d1 upon b’s acquisition of a it was intended that x would be treated as a disregarded_entity effective d2 however due to inadvertence a form_8832 entity classification election to treat x as a disregarded_entity effective d2 was not timely filed law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an entity separate from its owner sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 entity classification election with the service_center designated on form_8832 sec_301_7701-3 provides that an election under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed if an election specifies an effective date more than days prior to the date on which the election is filed it will be effective days prior to the date it was filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but not more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-2 provides the standards the commissioner will use to determine whether to grant an automatic_extension of time for making certain elections plr-112129-08 sec_301_9100-3 provides the guidelines for granting extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301 a provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that x has satisfied the requirements of sec_301 and sec_301_9100-3 as a result x is granted an extension of sixty days from the date of this letter to file a properly executed form_8832 with the appropriate service_center to elect to be classified as a disregarded_entity effective d2 a copy of this letter should be attached to the form_8832 except as specifically set forth above we express no opinion concerning the federal tax consequences of the above described facts under any other provision of the internal_revenue_code in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely s william p o’shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court richard a vaitonis petitioner v commissioner of internal revenue respondent docket no filed date larry d harvey for petitioner randall l preheim for respondent memorandum opinion vasquez judge this case is before the court on respondent’s motion for summary_judgment pursuant to rule unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code in effect for the year in issue after a concession the sole issue for decision is whether petitioner can exclude from income wages earned during from working in antarctica background at the time he filed the petition petitioner resided in portland oregon during petitioner performed services at mcmurdo station in ross island antarctica on his federal_income_tax return petitioner excluded wage income earned and received during for services performed in antarctica i summary_judgment discussion rule a provides that either party may move for summary_judgment upon all or any part of the legal issues in controversy full or partial summary_judgment may be granted only if it is demonstrated that no genuine issue exists as to any material fact and that the legal issues presented by the motion may be decided as a matter of law see rule b 98_tc_518 affd 17_f3d_965 7th cir we conclude that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law respondent concedes that no penalty pursuant to sec_6662 is due from petitioner for ii in general sec_61 provides that gross_income means all income from whatever source derived accordingly citizens of the united_states generally are taxed on income earned outside the geographical boundaries of the united_states unless the income is specifically excluded from gross_income 117_tc_95 affd sub nom 68_fedappx_44 9th cir affd sub nom 357_f3d_1108 10th cir exclusions from income are construed narrowly and taxpayers must bring themselves within the clear scope of the exclusion id iii sec_911 in 126_tc_89 473_f3d_790 7th cir arnett ii we addressed the arguments made by the parties herein regarding sec_911 the u s court_of_appeals for the seventh circuit agreed with our analysis of sec_911 and affirmed our conclusion that antarctica is not a foreign_country pursuant to sec_911 and the regulations thereunder arnett v commissioner f 3d pincite we shall not repeat our analysis from arnett i herein we follow our analysis and holding in arnett i and the analysis and holding of the court_of_appeals in arnett ii in 126_tc_89 affd 473_f3d_790 7th cir we concluded our opinion with a continued iv conclusion accordingly for the reasons stated in arnett i arnett ii and herein we conclude that petitioner cannot exclude from gross_income wages earned during from working in antarctica to reflect the foregoing an appropriate order and decision will be entered continued citation of sec_863 suggesting that sec_863 provided an additional reason to rule against the taxpayer id pincite see also sec_863 providing that income earned in antarctica by a u_s_person is sourced in the united_states in arnett v commissioner f 3d pincite the u s court_of_appeals for the seventh circuit addressed sec_863 in greater detail stating at the outset we think that it is important to note that considering antarctica not to be a foreign_country is compatible with the general statutory scheme notably sec_911 is found under subtitle a chapter subchapter_n of the irc which is designated tax based on income from sources within or without the united_states part i of this subchapter entitled source_rules and other general rules relating to foreign_income deems any activity in antarctica to be space_or_ocean_activity in turn the united_states is designated the source country of income from such activity when earned by a citizen_of_the_united_states sec_863 although this provision does not provide a definitive answer as to whether antarctica is a foreign_country it supports the conclusion that sec_911 is not intended to apply to income earned for services provided in antarctica we take this opportunity to state our agreement with the court of appeals’ conclusion set forth above see also 450_us_1


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc psi b01-plr-109324-00 date date legend portfolio trust fund company manager state state declaration date dollar_figurea dollar_figureb this letter responds to your submission of date together with subsequent correspondence in which you requested certain rulings under sec_704 sec_721 and sec_7704 of the internal_revenue_code facts portfolio is a sub-trust of trust which was organized as a business_trust under the laws of state pursuant to declaration trust is registered as an investment_company under the investment_company act of act portfolio is a separate business_trust under the laws of state which recognize that separate trusts established under a single instrument with common trustees are independent legal entities portfolio is registered as an investment_company under the act portfolio and fund represent that portfolio is classified as a partnership under sec_301_7701-3 of the procedure and administration regulations portfolio serves as an investment vehicle for fund fund is a separate series of company a state corporation that is an open-end management investment_company under the act fund invests substantially_all of its assets available for investment in portfolio and has the same investment objective as portfolio fund is treated as a corporation for federal_income_tax purposes and has elected or will elect to be taxed plr-109324-00 as a regulated_investment_company ric under part i of subchapter_m of chapter of subtitle a of the code fund intends to be operated in a manner which would permit it to continue to qualify as a ric portfolio was formed on date when manager became a partner in portfolio in exchange for cash of dollar_figurea and fund became a partner in portfolio in exchange for securities and other assets with a fair_market_value of dollar_figureb manager is the investment_advisor for fund beneficial interests in portfolio are issued solely in private_placement transactions that do not involve any public offering within the meaning of sec_4 of the securities act of as amended act portfolio will not register its shares under the act because shares in portfolio may be issued solely in private_placement transactions that do not involve any public offering within the meaning of sec_4 of the act investments in portfolio only may be made by investment companies or certain other entities that are accredited investors within the meaning of regulation d under the act the interest of each partner in portfolio is limited to the net assets of portfolio and does not extend to the assets of any other investment vehicles of trust portfolio has not invested in any of trust’s other investment vehicles nor are any of trust’s other investment vehicles invested in portfolio except as required by sec_704 and sec_1_704-1 each partner will be allocated a pro_rata share of partnership income gain loss deduction and credit in accordance with the regulations under sec_704 each partner’s initial capital_account balance will be the amount of money and the fair_market_value of the property contributed to portfolio by the partner under sec_1_704-1 portfolio will revalue its investment portfolio to fair_market_value as of the close of each day portfolio will adjust each partner’s capital_account to reflect the partner’s share of the net change in the value of its portfolio of securities from the close of the prior day to the close of the current day portfolio intends to qualify as a securities_partnership under sec_1_704-3 the number of partners in portfolio will be limited to or fewer calculated pursuant to sec_1_7704-1 portfolio has made the following additional representations fund has contributed either cash and or a portfolio of assets that meets the diversification requirements of sec_1_351-1 as further defined in sec_368 for purposes of this test government securities are not included within the meaning of securities under sec_368 but are included within the meaning of total assets in sec_368 the assets contributed by fund other than cash will consist of readily plr-109324-00 marketable_stock and securities as defined in sec_1_351-1 prior to the taxpayer_relief_act_of_1997 all cash received by portfolio will be invested in readily marketable_stock and securities as defined in sec_1_351-1 prior to the taxpayer_relief_act_of_1997 the burden of making sec_704 allocations separate from reverse sec_704 allocations is substantial law and analysis ruling portfolio and fund have requested a ruling that portfolio will not be a publicly_traded_partnership within the meaning of sec_7704 sec_7704 provides that a publicly_traded_partnership is treated as a corporation sec_7704 and sec_1_7704-1 provide that for purposes of sec_7704 the term publicly_traded_partnership means any partnership if interests in the partnership are traded on an established_securities_market or readily_tradable on a secondary market or the substantial equivalent thereof sec_1_7704-1 provides that interests in a partnership are readily_tradable on a secondary market or the substantial equivalent thereof if taking into account all of the facts and circumstances the partners are readily able to buy sell or exchange their partnership interests in a manner that is comparable economically to trading on an established_securities_market sec_1_7704-1 provides that interests in a partnership are not readily_tradable on a secondary market or the substantial equivalent thereof for purposes of sec_7704 if i all interests in the partnership were issued in a transaction or transactions that was not required to be registered under the act and ii the partnership does not have more than partners at any time during the taxable_year sec_1_7704-1 provides that for purposes of sec_1_7704-1 a person owning an interest in a partnership grantor_trust or s_corporation flow-through_entity that owns directly or through other flow-through entities an interest in the partnership is treated as a partner in the partnership only if i substantially_all of the value of the beneficial owner’s interest in the flow-through_entity is attributable to the flow-through entity’s interest direct or indirect in the partnership and ii a principal purpose of the use of the tiered arrangement is to permit the partnership to satisfy the 100-partner limitation of sec_1_7704-1 plr-109324-00 portfolio has represented that the number of partners in portfolio will be limited to or fewer calculated pursuant to sec_1_7704-1 no interest in portfolio has been or will be issued in a transaction or transactions required to be registered under the act accordingly portfolio will not be a publicly_traded_partnership within the meaning of sec_7704 ruling portfolio and fund have requested a ruling that portfolio and fund will not recognize gain_or_loss under sec_721 and sec_351 as a result of the contribution of assets by fund to portfolio sec_721 states generally that no gain_or_loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership sec_721 states that sec_721 shall not apply to gain realized on a transfer of property to a partnership that would be treated as an investment_company within the meaning of sec_351 if the partnership were incorporated treas reg c provides that a transfer of property will be considered to be a transfer to an investment_company if i the transfer results directly or indirectly in diversification of the transferor’s interests and ii the transferee is among other possibilities a corporation more than percent of the value of whose assets are held for investment a transfer will not result in diversification and therefore not constitute a transfer to an investment_company if a transferor transfers a diversified portfolio of stocks and securities as determined under sec_368 applying the relevant provisions of sec_368 but treating government securities as part of total assets but not as securities of an issuer sec_1_351-1 after applying the law to the facts submitted and the representations made we conclude that portfolio and fund will not recognize gain_or_loss under sec_721 and sec_351 as a result of the contributions of assets by fund to portfolio we express no opinion about whether subsequent transfers of stock and securities to portfolio by any transferor will affect the tax consequences of the original transfers ruling portfolio and fund have requested permission to aggregate built-in gains and losses from qualified_financial_assets contributed to portfolio with built-in gains and losses from revaluations of qualified_financial_assets held by portfolio for the purpose of making sec_704 and reverse sec_704 allocations sec_704 provides that income gain loss and deduction with respect to property contributed to the partnership by a partner is shared among the partners so plr-109324-00 as to take account of the variation between the basis of the property to the partnership and its fair_market_value at the time of contribution sec_1_704-3 states that the purpose of sec_704 is to prevent the shifting of tax consequences among partners with respect to precontribution gain_or_loss under sec_704 a partnership must allocate income gain loss and deductions with respect to property contributed by a partner to the partnership so as to take into account any variation between the adjusted tax basis of the property and its fair_market_value at the time of the contribution this allocation must be made using a reasonable method that is consistent with the purpose of sec_704 sec_1_704-3 provides that the principles of sec_1_704-3 apply to allocations with respect to property for which differences between book_value and adjusted tax basis are created when a partnership revalues partnership property under sec_1_704-1 reverse sec_704 allocations a partnership that makes allocations with respect to revalued property must use a reasonable method that is consistent with the purposes of sec_704 and c sec_1_704-3 indicates that sec_704 generally applies on a property-by- property basis therefore in determining whether there is a disparity between adjusted tax basis and fair_market_value the built-in gains and built-in losses on items of contributed or revalued property generally cannot be aggregated sec_1_704-3 sets forth a special rule allowing certain securities partnerships to make reverse sec_704 allocations on an aggregate basis specifically sec_1_704-3 provides that for purposes of making reverse sec_704 allocations a securities_partnership may aggregate gains and losses from qualified_financial_assets using any reasonable approach that is consistent with the purposes of sec_704 once a partnership adopts an aggregate approach the partnership must apply the same aggregate approach to all of its qualified_financial_assets for all taxable years in which the partnership qualifies as a securities_partnership sec_1_704-3 defines a securities_partnership as a partnership that is either a management company or an investment_partnership and that makes all of its book allocations in proportion to the partners’ relative book capital accounts except for reasonable special allocations to a partner that provides management services or investment advisory services to the partnership under sec_1_704-3 a partnership is a management company if it is registered as a management company under the act sec_1_704-3 defines qualified_financial_assets as any personal_property including stock that is actively_traded as defined in sec_1_1092_d_-1 defining actively_traded property for purposes of the straddle rules for a management company qualified_financial_assets also include the following even if not actively plr-109324-00 traded shares of stock in a corporation notes bonds debentures or other evidences of indebtedness interest rate currency or equity notional_principal_contracts evidences of an interest in or derivative financial instruments in any security currency or commodity including any option forward or futures_contract or short position or any similar financial_instrument sec_1_704-3 and e v describe two approaches to making aggregate reverse sec_704 allocations that are generally reasonable -- the partial netting approach and the full netting approach however sec_1_704-3 provides that other approaches may be reasonable in appropriate circumstances sec_1_704-3 provides that an allocation method or combination of methods is not reasonable if the contribution of property or event that results in reverse sec_704 allocations and the corresponding allocation of tax items with respect to the property are made with a view to shifting the tax consequence of built-in_gain or loss among the partners in a manner that substantially reduces the present_value of the partners' aggregate tax_liability furthermore sec_1_704-3 provides that the character and other tax_attributes of gain_or_loss allocated to the partners under an aggregate approach must a preserve the tax_attributes of each item of gain_or_loss realized by the partnership b be determined under an approach that is consistently applied and c not be determined with a view to reducing substantially the present_value of the partners' aggregate tax_liability portfolio has represented that its allocations have complied and will comply with sec_1_704-3 the aggregation rule_of sec_1_704-3 applies only to reverse sec_704 allocations therefore a securities_partnership using an aggregate approach must generally account for any built-in_gain or loss from contributed_property separately the preamble to sec_1_704-3 explains that the final regulations do not authorize aggregation of built-in gains and losses from contributed_property with built-in gains and losses from revaluations because this type of aggregation can lead to substantial distortions in the character and timing of income and loss recognized by contributing partners t d 1995_1_cb_120 however the preamble also recognizes that there may be instances in which the likelihood of character and timing distortions is minimal and the burden of making sec_704 allocations separate from reverse sec_704 allocations is great consequently sec_1 e iii authorizes the commissioner to permit by published guidance or letter_ruling aggregation of qualified_financial_assets for purposes of making sec_704 allocations in the same manner as that described in sec_1_704-3 in this case portfolio will use the partial netting approach described in sec_1_704-3 portfolio’s burden of making sec_704 allocations separate from reverse sec_704 allocations is represented to be substantial in addition the likelihood plr-109324-00 that this type of aggregation could be abused by portfolio and its partners is minimal it is represented that fund is a publicly_offered_regulated_investment_company as defined in sec_67 and sec_1_67-2t after applying the relevant law to the facts presented and the representations made we conclude that portfolio may aggregate built-in gains and losses from qualified_financial_assets contributed to portfolio by fund with built-in gains and losses from revaluations of qualified_financial_assets held by portfolio for purposes of making sec_704 and reverse sec_704 allocations provided that a contribution or revaluation of property and the corresponding allocation of tax items with respect to the property are not made with a view to shifting the tax consequences of built-in_gain or loss among the partners in a manner that substantially reduces the present_value of the partners' aggregate tax_liability except as specifically ruled upon above we express no opinion on the federal tax consequences of the transactions described above under any other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transaction s that are not specifically covered by the above rulings ruling three is limited to allocations of gain_or_loss from the sale_or_other_disposition of qualified_financial_assets made under sec_704 sec_704 and sec_1_704-3 specifically no opinion is expressed concerning i whether fund qualifies as a ric that is taxable under subchapter_m part i of the code ii allocations of items other than items of gain_or_loss from the sale_or_other_disposition of qualified_financial_assets or iii the aggregation of built-in gains and losses from qualified_financial_assets contributed to portfolio other than those described above in addition portfolio must maintain sufficient records to enable it and its partners to comply with sec_704 and sec_737 this ruling is directed only to the taxpayer s 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 portfolio and portfolio’s second authorized representative sincerely david r haglund senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes