internal_revenue_service department of the treasury washington dc index number person to contact number release date telephone number refer reply to cc dom p si - plr-120311-98 date date x a b c d d1 year state dear this letter responds to a letter dated date and subsequent correspondence written on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year a as x’s president represents that a b c and d the sole shareholders of x intended that x elect to be an s_corporation beginning year its first taxable_year however a form_2553 election by a small_business_corporation was not timely filed for that year because x’s attorney upon whom x had mohammed a samad relied to handle the matter failed to file the form notwithstanding that failure a state s_corporation_election and shareholders’ consent was timely filed for year for year x and its shareholders filed their federal_income_tax returns consistent with the treatment of x as a c_corporation x and its shareholders agree to amend their tax returns consistent with the treatment of x as an s_corporation for x’s year taxable_year sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x's first taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x's year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent mohammed a samad pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely yours branch h grace kim assistant to the chief office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court albert m kun petitioner v commissioner of internal revenue respondent docket no 11988-06l filed date p filed a petition for review pursuant to sec_6320 i r c in response to a determination by r that lien action was appropriate held r’s determination to proceed with collection is sustained albert m kun pro_se margaret burow for respondent memorandum findings_of_fact and opinion wherry judge this case is before the court on a petition for review of a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination the issue for decision is whether respondent may proceed with collection in the form of a filed tax_lien for the total amount of petitioner’s federal_income_tax liabilities for and findings_of_fact some of the facts have been stipulated and are so found the stipulations of the parties with accompanying exhibits are incorporated herein by this reference petitioner a self-employed attorney filed federal_income_tax returns for and for each of those years petitioner reported a tax_liability which was assessed but has not paid any of the tax due on date respondent sent petitioner a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 for and petitioner was informed that the notice_of_federal_tax_lien had been filed a day earlier on date on date petitioner filed a form request for a collection_due_process_hearing 1unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended with respect to those taxable years as the basis for his disagreement he stated statute_of_limitations waiver and estoppel petitioner and respondent’s settlement officer participated in an in-person appeals hearing on date that same day petitioner submitted an offer-in-compromise of dollar_figure on the basis of doubt as to liability and doubt as to collectibility petitioner’s offer-in-compromise covered his federal_income_tax liabilities for through as of the date the lien at issue was filed for the taxable years at issue in this case alone petitioner’s income_tax liabilities exceeded dollar_figure as to those tax_liabilities petitioner in his offer-in-compromise asserted only that i do not owe the tax for the year because the statute_of_limitations has run petitioner also provided a form 433-a collection information statement for wage earners and self-employed individuals indicating that he was an unmarried self-employed attorney with total monthly income of dollar_figure and total monthly living_expenses of dollar_figure the settlement officer informed petitioner that the offer- in-compromise could not be considered at that time because some of the years petitioner listed in the offer were still pending before the court_of_appeals for the ninth circuit on date the court_of_appeals issued a decision affirming this court’s decision in kun v commissioner tcmemo_2004_209 in which this court had sustained respondent’s determination that a notice_of_federal_tax_lien filing was an appropriate enforcement action with respect to petitioner’s and federal_income_tax liabilities 157_fedappx_971 9th cir on date respondent’s appeals_office sent petitioner the aforementioned notice_of_determination therein the appeals_office determined that all legal and procedural requirements for filing the notice_of_federal_tax_lien had been met the appeals_office rejected petitioner’s dollar_figure offer-in- compromise because his reasonable collection potential was believed on the basis of his financial statement and supporting documentation to be dollar_figure the appeals_office further noted 2petitioner filed a motion to vacate or revise the decision entered by the court in accordance with that memorandum opinion the court denied that motion in a supplemental memorandum opinion see kun v commissioner tcmemo_2004_273 therein the court noted that petitioner was merely repeating his argument that respondent did not timely assess the liabilities in question id the court then concluded that petitioner failed to present any evidence at trial in support of his contention that his income_tax liabilities were not timely assessed and that failure also infects his motion id 3by that time the court_of_appeals for the ninth circuit’s decision had become final 4the dollar_figure was petitioner’s net realizable equity in assets the appeals_office calculated that number by first adding together the fair_market_value of petitioner’s assets which included among other things a checking account and a car continued that petitioner was not in compliance with the filing and payment requirements with respect to his taxable_year on date petitioner filed a timely petition with the court contesting the notice_of_determination at the time the petition was filed petitioner resided in california a trial was held on date in san francisco california opinion i collection action a statute_of_limitations there is a 10-year limitations_period for collection that commences upon the assessment of the tax sec_6502 if a hearing is requested under sec_6320 or sec_6330 the collection action s that are the subject s of the requested hearing and the running of any period of limitations under sec_6502 are suspended for the period continued the appeals_office then reduced the value of the noncash assets by percent to determine the quick sale value and then further reduced the value of petitioner’s encumbered or exempt assets by the amount of the encumbrances or exempt_amount 5pursuant to the internal_revenue_manual irm an offer-in- compromise will be deemed not processable if all tax returns for which the taxpayer has a filing requirement are not filed administration irm cch pt at big_number date as of date petitioner had not filed a federal_income_tax return or an extension request nor had he made estimated_tax payments or had any_tax withheld for that year during which the hearing and appeals thereof are pending see sec_6320 sec_6330 petitioner alleges in his petition that respondent is attempting to collect taxes for years in which the statute_of_limitations has clearly run petitioner is incorrect a federal_income_tax deficiency and additions to tax were assessed for each of the tax years now at issue the first such assessment was for and was made on date respondent filed the notice_of_federal_tax_lien with respect to the taxable years now at issue which included on date within the 10-year limitations_period for collection in addition on date petitioner requested a hearing with respect to his and tax years that request suspended and continues to suspend the period of limitations on collection for and the other tax years at issue respondent therefore is not time barred from taking collection action with respect to and the other years at issue petitioner’s entire statute-of-limitations argument focuses on whether the limitations_period was also tolled by an offer-in- compromise that he submitted on date which he contends was for and not that entire issue is a red 6this is in response to a statement by the settlement officer and an argument by respondent that the limitations_period continued herring because as explained above the limitations_period for collection action as to remains open whether or not that limitations_period was tolled by petitioner’s date offer- in-compromise b general rules regarding an appeals hearing if a taxpayer liable to pay taxes fails to do so after demand for payment the tax_liability becomes a lien in favor of the united_states against all of the taxpayer’s real and personal_property and rights to such property sec_6321 the lien arises at the time the assessment is made and continues until the liability is satisfied or becomes unenforceable by reason of lapse of time sec_6322 the secretary is obliged to notify the taxpayer within business days that a notice of a federal_tax_lien has been filed and that administrative appeals are available to the taxpayer sec_6320 upon timely request a taxpayer is entitled to a hearing before the internal_revenue_service office of appeals regarding the propriety of the filing of the lien sec_6320 this hearing is conducted in accordance with the procedural requirements of sec_6330 sec_6320 continued for collection with respect to was tolled under sec_6331 and i from date until days after the court_of_appeals for the ninth circuit’s date decision the taxpayer is entitled to appeal the determination of the appeals_office made on or before date to the tax_court or a u s district_court depending on the type of tax at issue sec_6330 where the validity of the underlying tax_liability is properly at issue the court will review the matter de novo 114_tc_604 114_tc_176 the court reviews any other administrative determination for an abuse_of_discretion sego v commissioner supra pincite goza v commissioner supra pincite an abuse_of_discretion has occurred if the commissioner exercised his discretion arbitrarily capriciously or without sound basis in fact or law 112_tc_19 aside from his statute_of_limitations argument petitioner raises no argument as to the underlying tax_liabilities for the taxable years at issue see 117_tc_127 noting that an argument that the limitations_period on collection has run is a challenge to the underlying tax_liability that we review de novo the only issue left to be addressed is the rejection of petitioner’s offer-in-compromise 7determinations made after date are appealable only to the tax_court see pension_protection_act of publaw_109_280 120_stat_1019 c petitioner’s offer-in-compromise among the issues that may be raised at the appeals_office and are reviewed for an abuse_of_discretion are offers of collection alternatives such as an offer-in-compromise sec_6330 the court reviews the appeals officer’s rejection of an offer-in-compromise to decide whether the rejection was arbitrary capricious or without sound basis in fact or law and therefore an abuse_of_discretion 125_tc_301 affd 469_f3d_27 1st cir woodral v commissioner supra pincite sec_7122 authorizes the secretary to compromise any civil case arising under the internal revenue laws in general the decision to accept or reject an offer as well as the terms and conditions agreed to are left to the discretion of the secretary sec_301_7122-1 proced admin regs however regulations promulgated under sec_7122 provide that no offer to compromise may be rejected solely on the basis of the amount of the offer without evaluating that offer under the provisions of the regulations and the secretary’s policies and procedures regarding the compromise of cases sec_301 f proced admin regs the grounds for compromise of a tax_liability are doubt as to liability doubt as to collectibility and promotion of effective tax_administration sec_301_7122-1 proced admin regs petitioner based his offer-in-compromise on doubt as to collectibility which exists in any case where the taxpayer’s assets and income are less than the full amount of the liability sec_301_7122-1 proced admin regs in determining the taxpayer’s ability to pay the individual facts and circumstances of the taxpayer’s case are considered and the taxpayer is permitted to retain sufficient funds to pay basic living_expenses sec_301_7122-1 proced admin regs petitioner contends that it was an abuse_of_discretion for respondent’s settlement officer to reject his offer-in-compromise without considering the bankruptcy exemption apparently a california statute that allegedly exempts from creditors certain property belonging to a debtor in bankruptcy respondent asserts that because petitioner raised the issue of a potential bankruptcy filing for the first time at trial the issue is not relevant as to whether respondent’s settlement officer abused his discretion as to the merits of petitioner’s argument respondent asserts that any state law exemption is not effective against a federal_tax_lien and that in any event because the 8in the interest of completeness petitioner also based his offer-in-compromise on doubt as to liability with respect to the taxable_year on the basis that the applicable limitations_period on collections had run with respect to that taxable_year we have already addressed that issue 9the statute referred to by petitioner is cal civ proc code sec_703 b west supp notice_of_federal_tax_lien was filed before petitioner would have filed a bankruptcy petition the federal_tax_lien would continue to attach to any exempt_property in reviewing the commissioner’s decision to reject an offer- in-compromise for abuse_of_discretion we cannot consider issues that were not raised before the commissioner’s appeals_office see 129_tc_107 we hold today that we do not have authority to consider sec_6330 issues that were not raised before the appeals_office 118_tc_488 in our review for an abuse_of_discretion under sec_6330 of respondent’s determination generally we consider only arguments issues and other matters that were raised at the collection hearing or otherwise brought to the attention of the appeals_office sec_301_6330-1 q a-f5 proced admin regs there is nothing in the record reflecting that petitioner raised the issue of a potential bankruptcy filing before the appeals_office nor does petitioner assert at least in a comprehensible manner to the contrarydollar_figure moreover respondent is correct that the notice_of_federal_tax_lien filed in february 10in his reply brief petitioner appears to point to respondent’s brief or some other document in what might constitute an effort to demonstrate that petitioner raised the bankruptcy issue before the appeals_office we remain unpersuaded that petitioner raised the issue before the appeals_office would survive a subsequent bankruptcy filing by petitioner regardless of any california statute see u s c sec_522 providing that exempt_property remains subject_to a properly filed tax_lien even though the underlying tax claim may have been discharged 122_tc_287 federal tax_liens are not extinguished by personal discharge_in_bankruptcy because the settlement officer based his decision on an analysis of financial information provided by petitioner indicating a reasonable collection potential in excess of dollar_figure see supra p and on the fact that petitioner was not in compliance with federal_income_tax laws see supra note respondent’s settlement officer did not abuse his discretion in rejecting petitioner’s offer-in-compromise we shall therefore sustain respondent’s determination to proceed with collection by lien ii sec_6673 penalty although respondent does not ask the court to impose a penalty upon petitioner under sec_6673 the court may impose such a penalty sua sponte see 115_tc_576 petitioner is an attorney with a longstanding habit of failing to pay federal_income_tax as an attorney he knew or should have known that he was instituting this case primarily for delay indeed both of his arguments--the argument regarding the statute_of_limitations and the argument regarding bankruptcy--are clearly groundless in light of the relevant statutes and this court’s caselaw his dilatory tactics are further evidenced by the fact that he raised an unsupported statute-of-limitations argument in his prior tax_court case see supra note because we are convinced that petitioner instituted this case primarily in order to delay collection we shall impose upon petitioner a dollar_figure penalty pursuant to sec_6673 the court has considered all of petitioner’s contentions arguments requests and statements to the extent not discussed herein we conclude that they are meritless moot or irrelevant to reflect the foregoing an appropriate order and decision will be entered


t c memo united_states tax_court david edgar holland petitioner v commissioner of internal revenue respondent docket no 16537-12l filed date david edgar holland pro_se jonathan e behrens for respondent memorandum opinion ruwe judge this matter is before the court on respondent’s motion for summary_judgment motion pursuant to rule respondent contends that no 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 at all relevant times genuine dispute exists as to any material fact and that the determination to collect petitioner’s income_tax liabilities by levy should be upheld petitioner has not responded to the motion despite an order from this court instructing him to do so background at the time the petition was filed petitioner resided in delaware petitioner timely filed hi sec_2001 federal_income_tax return and respondent assessed the tax reported on the return petitioner’s withheld taxes were insufficient to pay the tax_liability reported on the return consequently respondent assessed the tax and the failure to pay penalty petitioner did not file federal_income_tax returns for the taxable_year sec_2002 and respondent prepared substitutes for returns sfrs for the taxable_year sec_2002 and pursuant to sec_6020 respondent mailed to petitioner a notice_of_deficiency for the taxable_year sec_2002 and petitioner received the notice_of_deficiency but did not file a petition respondent assessed the tax and penalties as determined in the notice_of_deficiency by order dated date the court directed petitioner to file a response on or before date no response was filed by petitioner respondent sent petitioner a letter final notice_of_intent_to_levy and notice of your right to a hearing dated date advising him that respondent intended to levy to collect the unpaid tax_liabilities for the taxable_year sec_2001 sec_2002 and years at issue and that he could request a hearing with respondent’s office of appeals the amounts of unpaid taxes penalties and interest for the years at issue as of date were as follows assessed accrued accrued year balance penalty interest total dollar_figure --- dollar_figure dollar_figure dollar_figure --- dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure petitioner submitted a timely form request for a collection_due_process or equivalent_hearing in which he did not contest the underlying liabilities but instead requested an offer-in-compromise by letter dated date respondent’s settlement officer acknowledged receipt of petitioner’s collection_due_process cdp hearing request and scheduled a telephone conference call for date in the letter the settlement officer requested that petitioner provide a completed form 433-a collection information statement for wage earners and self-employed individuals so that a decision could be made regarding petitioner’s request for an offer-in-compromise the letter also stated that petitioner had not filed federal_income_tax returns for the years through and that he must provide signed returns for these years to the settlement officer on date the settlement officer received from petitioner a completed form 433-a and signed copies of petitioner’s federal_income_tax returns for the year sec_2001 sec_2002 and through the settlement officer also received an unsigned return for which he returned to petitioner with instructions to sign the return and mail it to the address specified in the instructions for form_1040 u s individual_income_tax_return using the information reported on form 433-a the settlement officer determined that petitioner was able to make monthly payments of dollar_figure towards his tax_liabilities the settlement officer also determined that petitioner had cash on hand of dollar_figure furthermore using the quick sale value method respondent determined that petitioner had equity in real_estate of dollar_figure and equity in vehicles of dollar_figure as a result petitioner had equity in property of dollar_figure that he could sell in order to pay his tax_liabilities because petitioner could make a monthly payment of dollar_figure and had dollar_figure of equity in property the settlement officer determined that petitioner could fully pay the outstanding tax_liabilities for the years at issue during the cdp hearing on date the settlement officer informed petitioner that he did not evaluate petitioner’s eligibility for an offer-in- compromise because petitioner did not submit a form_656 offer_in_compromise the settlement officer gave petitioner until date to submit a form_656 petitioner did not provide the settlement officer with a form_656 respondent issued petitioner a notice_of_determination concerning collection action s under sec_6320 and or dated date sustaining the levy action petitioner timely filed a petition with this court discussion summary_judgment is intended to expedite litigation and to avoid unnecessary and expensive trials 61_tc_861 summary_judgment may be granted where the pleadings and other materials show that there is no genuine dispute as to any material fact and that a decision may be rendered as a matter of law rule a and b 98_tc_518 aff’d 17_f3d_965 7th cir the burden is on the moving party to demonstrate that no genuine dispute as to any material fact remains and that he is entitled to judgment as a matter of law 116_tc_73 in all cases the evidence is viewed in the light most favorable to the nonmoving party 100_tc_32 however the nonmoving party is required to go beyond the pleadings and by his own affidavits or by the ‘depositions answers to interrogatories and admissions on file ’ designate ‘specific facts showing that there is a genuine issue for trial ’ 477_us_317 see also 119_tc_157 115_tc_554 despite our order that petitioner file a response he failed to respond to the motion and has failed to demonstrate that there is a genuine dispute for trial consequently we conclude that there is no dispute as to any material fact and that a decision may be rendered as a matter of law sec_6331 provides that if any person liable to pay any_tax neglects or refuses to pay such tax within days after notice_and_demand for payment then the secretary is authorized to collect such tax by levy upon the person’s property sec_6331 provides that at least days before enforcing collection by way of a levy on the person’s property the secretary is obliged to provide the person with a final notice_of_intent_to_levy including notice of the administrative appeals available to the person if a taxpayer requests a cdp hearing he may raise at that hearing any relevant issue relating to the unpaid tax or proposed levy sec c relevant issues include possible alternative means of collection sec_6330 standard of review if a taxpayer’s underlying liability is properly at issue the court reviews any determination regarding the underlying liability de novo 114_tc_176 underlying liability for sec_6330 permits a taxpayer to challenge the existence or amount of the tax_liability reported on his original return if he has not received a notice_of_deficiency or not otherwise had an opportunity to dispute the tax_liability in question see 122_tc_1 petitioner timely filed hi sec_2001 federal_income_tax return petitioner did not receive a notice_of_deficiency and did not have a previous opportunity to dispute hi sec_2001 tax_liability however during the cdp hearing petitioner submitted an amended_return for the tax shown on the amended_return exceeded the tax shown on the original return therefore petitioner did not dispute the amount of the tax_liability assessed by respondent consequently petitioner’ sec_2001 tax_liability is not properly before the court underlying liabilities for and petitioner received a notice_of_deficiency for the taxable_year sec_2002 and based on sfrs prepared by respondent during the cdp hearing petitioner submitted federal_income_tax returns for the and taxable years the settlement officer forwarded these returns to be processed sec_6330 states a person may also raise at the hearing challenges to the existence or amount of the underlying tax_liability for any_tax period if the person did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability pursuant to sec_6330 a person may not raise the underlying tax_liability if he received a notice_of_deficiency see also sec_301_6330-1 a- e2 proced admin regs the settlement officer’s decision to forward petitioner’ sec_2002 and federal_income_tax returns for processing does not result in a waiver by respondent of the restriction set forth in sec_6330 see 118_tc_572 therefore the settlement officer’s consideration of petitioner’s tax_liabilities for the and taxable years does not allow the court to consider such precluded issues see miller v commissioner tcmemo_2007_35 tax ct memo lexi sec_32 at sec e a-e11 proced admin regs any determination however made by the appeals officer with respect to such a precluded issue shall not be treated as part of the notice_of_determination issued by the appeals officer and will not be subject_to any judicial review emphasis added consequently petitioner’ sec_2002 and tax_liabilities are not properly before the court abuse_of_discretion the court reviews administrative determinations by the commissioner’s office of appeals regarding nonliability issues for abuse_of_discretion 131_tc_197 goza v commissioner t c pincite the determination of the office of appeals must take into consideration the verification that the requirements of applicable law and administrative procedure have been met issues raised by the taxpayer and whether any proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern of the person that any collection be no more intrusive than necessary sec_6330 see also 117_tc_183 the settlement officer properly based his determination on the factors required by sec_6330 offer-in-compromise the settlement of disputed tax_liabilities is governed by sec_7121 and sec_7122 which authorize the secretary to settle any_tax disputes and compromise any civil or criminal case arising under the internal revenue laws regulations under sec_7122 clarify the procedure required with respect to an offer-in- compromise sec_301_7122-1 proced admin regs provides that an offer to compromise a tax_liability pursuant to sec_7122 must be submitted according to the procedures and in the form and manner prescribed by the secretary an offer to compromise a tax_liability must be made in writing must be signed by the taxpayer under penalty of perjury and must contain all of the information prescribed or requested by the secretary revproc_2003_71 sec_4 2003_2_cb_517 provides that an offer to compromise a tax_liability must be submitted in writing on the service’s form_656 offer_in_compromise see also godwin v commissioner tcmemo_2003_289 tax ct memo lexis at taxpayers who wish to propose an offer_in_compromise must submit a form aff’d 132_fedappx_785 11th cir petitioner requested an offer-in-compromise on form during the cdp hearing the settlement officer informed petitioner that he must submit a form_656 to be evaluated for an offer-in-compromise the settlement officer gave petitioner days to submit a form_656 petitioner never submitted a form_656 there is no abuse_of_discretion when the settlement officer fails to consider a taxpayer’s request for an offer-in-compromise when a form_656 was not filed see 124_tc_69 gentile v commissioner tcmemo_2013_175 at waring v commissioner tcmemo_2011_270 tax ct memo lexi sec_262 at ludzack v commissioner tcmemo_2011_111 tax ct memo lexi sec_108 at furthermore petitioner failed to respond to the motion as ordered by the court by failing to respond to the assertions in the motion petitioner waived his right to contest them see rule d lunsford v commissioner t c pincite akonji v commissioner tcmemo_2012_56 tax ct memo lexi sec_49 at consequently the settlement officer did not abuse his discretion in denying petitioner’s request for a collection alternative as a result respondent’s determination is sustained in reaching our decision we have considered all arguments made by the parties and to the extent not mentioned or addressed they are irrelevant or without merit to reflect the foregoing an appropriate order will be issued granting respondent’s motion and decision will be entered for respondent


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b01-plr-139481-02 date aug x date date dear this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was formed on date the shareholders of x desired that x elect s_corporation treatment effective on date but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective date law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that 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 under sec_1362 however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed plr-139481-02 sec_1362 provides that if 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 such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply x did not file an election to be treated as an s_corporation under sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective date within days from the date of this letter x should submit a properly completed form_2553 effective date with a copy of this letter attached to the relevant service_center except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes 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 your authorized representative sincerely s dianna k miosi dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


third party communication none date of communication not applicable office_of_chief_counsel internal_revenue_service memorandum number release date cc ita b05 spark preno-112116-11 uilc 860e date date to steven n balahtsis attorney manhattan group large business international from susan j kassell senior counsel branch income_tax accounting susan thompson baker senior technician reviewer branch financial institutions products william a jackson branch chief branch income_tax accounting subject interaction among charitable_contributions remic excess_inclusion income net operating losses this chief_counsel_advice responds to your request for assistance this advice supersedes the two chief_counsel_advice memoranda issued to ---------------------- on date and date and may not be used or cited as precedent legend taxpayer ----------------------------------------- year ------- year ------- dollar_figurex --------------- dollar_figurey --------------- dollar_figurez --------------- preno-112116-11 issues does taxable_income for purposes of calculating the percentage limitation under sec_170 of the internal_revenue_code code on corporate charitable_contribution deductions include an adjustment for taxpayer’s excess_inclusion income eii under sec_860e is taxpayer entitled to carry back all or a portion of its year charitable contribution deduction as part of its year net_operating_loss nol under sec_172 conclusions in a prior memorandum dated date attached we concluded that taxable_income for purposes of calculating the percentage limitation under sec_170 means taxable_income under sec_63 as adjusted for eii under sec_860e upon further analysis and for the reasons stated below we now believe this conclusion was incorrect taxable_income for purposes of calculating the percentage limitation under sec_170 means taxable_income under sec_63 as adjusted only for the items in sec_170 and not adjusted for eii under sec_860e for different reasons than those stated in a prior memorandum dated march attached taxpayer may not carry back its year charitable_contribution_deduction as part of its year nol under sec_172 facts taxpayer is a corporation that holds a residual_interest in a real_estate_mortgage_investment_conduit remic in tax years year through year taxpayer had eii but otherwise had only nols specifically for tax_year year taxpayer had eii in the amount of dollar_figurex had unspecified nols and made a charitable_contribution in the amount of dollar_figurey taxpayer asserted that its taxable_income for purposes of calculating the percentage limitation under sec_170 is adjusted for eii under sec_860e further taxpayer asserted that its dollar_figurey charitable_contribution in year is deductible under sec_170 because dollar_figurey is less than percent of taxpayer’s eii for that taxable_year or dollar_figurez in the alternative taxpayer argued that if its dollar_figurey charitable_contribution is not deductible in year then the entire dollar_figurey charitable_contribution should be added to taxpayer’s unspecified nols and carried back and forward under sec_172 preno-112116-11 law and analysis sec_63 generally provides that taxable_income means gross_income minus the deductions allowed by chapter of the code other than the standard_deduction under sec_860e the taxable_income of any holder of a residual_interest in a remic for any taxable_year shall in no event be less than the residual_interest holder’s excess_inclusion for such taxable_year sec_170 provides a deduction for qualified charitable_contributions however under sec_170 deductions for charitable_contributions made by a corporation is limited to a maximum of percent of the corporation’s taxable_income for the taxable_year for purposes of calculating the percentage limitation under sec_170 a corporation’s taxable_income is defined as taxable_income under sec_63 computed without regard to- the deduction for charitable_contributions under sec_170 the special_deductions for corporations allowed under part viii except sec_248 relating to organizational_expenditures subchapter_b chapter of the code any nol_carryback to the taxable_year under sec_172 sec_199 and any capital_loss_carryback to the taxable_year under sec_1212 sec_170 of the code sec_1_170a-11 of the income_tax regulations any charitable_contribution in excess of the amount deductible under sec_170 is deductible for each of the five succeeding taxable years in order of time under sec_170 taking into account the special rule for nols under sec_170 calculation of the percentage limitation under sec_170 starts with taxable_income under sec_63 and then makes certain adjustments specified in sec_170 although sec_860e also uses the term taxable_income it does not contain a definition of taxable_income rather sec_860e specifies a minimum amount upon which federal_income_tax must be paid_by a residual_interest holder importing the minimum amount taxed under sec_860e into the definition of taxable_income under sec_170 would not further the legislative purpose of ensuring that residual_interest holders are currently taxed on a minimum amount of income therefore taxable_income for purposes of sec_170 means taxable_income under sec_63 as adjusted only for the items in sec_170 not taking into account eii under sec_860e as a result taxpayer’s taxable_income for purposes of sec_170 is dollar_figure preno-112116-11 the amount of its year charitable_contribution_deduction is dollar_figure and the entire dollar_figurey charitable_contribution from year must be carried over to the next succeeding taxable_year of taxpayer under sec_170 sec_172 allows a deduction equal to the aggregate of the nol carryovers and carrybacks to the taxable_year sec_172 generally provides that the term net_operating_loss means the excess of the deductions allowed by chapter of the code over the gross_income computed with certain modifications because taxpayer’s dollar_figurey charitable_contribution in year is not a deduction allowed in year this amount is not included in taxpayer’s nol in year and therefore cannot be carried back as part of taxpayer’s year nol case development hazards and other considerations this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views if you have any questions regarding the sec_170 issue please call nancy lee cc ita b01 at --------------------- if you have any questions regarding the sec_860e issue please call cathy fung cc fip b02 at --------------------- and if you have any questions regarding the sec_172 issue please call seoyeon sharon park cc ita b05 at -------------- ------- attachments cc -------------------------- attorney san francisco group large business international


t c memo united_states tax_court jaime pena and verna ann pena petitioners v commissioner of internal revenue respondent docket no filed date jaime pena pro_se usha ravi for respondent memorandum findings_of_fact and opinion carluzzo special_trial_judge respondent determined a deficiency of dollar_figure in petitioners' federal_income_tax the issue for decision is whether certain distributions from an individual_retirement_account are includable in petitioners’ income findings_of_fact some of the facts have been stipulated and are so found petitioners are husband and wife they filed a timely joint federal_income_tax return for at the time the petition was filed petitioners resided in danville california references to petitioner are to jaime pena petitioner is an attorney licensed to practice in california prior to the year in issue he was employed as an attorney by jaime pena professional corp the corporation effective as of date for petitioner’s benefit and with petitioner as trustee the corporation established a defined benefit single-employer_plan entitled the jaime pena a p c defined_benefit_plan the plan the plan was a gqualified pension_plan within the meaning of sec_401 over the years the corporation made contributions to the plan on petitioner’s behalf and claimed deductions for those contributions on its corporate federal_income_tax returns none of the contributions were includable or were included in petitioners’ income for any period petitioner never made any contributions to the plan the plan maintained a brokerage account with kidder peabody company the kidder account but investment decisions were section references are to the internal_revenue_code as amended in effect during the relevant period made by petitioner as trustee of the plan in date on petitioner’s behalf and at his direction the plan invested dollar_figure in corporate securities during the plan was terminated and the proceeds of the kidder account were transferred rolled into an individual_retirement_account at daking securities corporation the ira the ira was established for the benefit of petitioner who as its custodian directed how ira funds were to be invested petitioners did not include any of the proceeds rolled over from the kidder account to the ira in their income during petitioner who wa sec_49 years old as of the close of that year received distributions totaling dollar_figure from the ira the ira_distributions petitioners did not include any of the ira_distributions in the income they reported on their federal_income_tax return which includes a schedule d capital_gains_and_losses nothing on the return suggests that any of the transactions listed on the schedule d relate to investments of the plan or the ira in the notice_of_deficiency respondent determined that the ira_distributions received by petitioner in are includable in petitioners’ income for that year other determinations made in the notice_of_deficiency are not in dispute opinion in their petition petitioners allege that the deficiency in this case is based upon respondent’s determination that petitioners could not take ordinary losses in the year of distribution of all of the proceeds on stock previously held in an exempt employees trust petitioners are mistaken on this point as noted above the deficiency in this case is based in large part upon respondent’s determination that the ira_distributions received by petitioner in are includable in petitioners’ income for that year elsewhere in the petition petitioners allege that during the stock was sold at prices below what had been paid for it by the trust and that the proceeds of the sale were distributed to petitioners and nothing was left in the trust according to the petition the aggregate of the proceeds was less than what had been contributed by the employer into the trust in their brief petitioners argue that investment losses were incurred by the plan and therefore they duly listed on schedule d their investment losses exceeding gains incurred by the plan in the allegations contained in the petition and the argument presented in petitioners’ brief relate only to whether petitioners are entitled to a deduction for investment losses sustained by the plan none of their allegations or arguments address respondent’s determination that the ira_distributions are includable in their income consequently we consider petitioners to have conceded the correctness of that determination moreover based upon the evidence presented we are satisfied that petitioners’ deemed concession is consistent with controlling law the ira_distributions are includable in petitioners’ income and respondent’s determination in this regard is sustained because respondent has not challenged any of the deductions taken on petitioners’ return we need not discuss the merits of petitioners’ claim that respondent erred by disallowing the deduction for the plan’s investment losses taken on that return distributions from an ira are includable in the taxpayer’s distributee’s income in accordance with sec_72 see sec_408 the ira_distributions were not received as an annuity by petitioner consequently the distributions are includable in petitioners’ income except to the extent that any distribution or any portion of any distribution is allocable to petitioners’ investment_in_the_contract sec_72 petitioners do not claim that petitioner made nondeductible_contributions to the ira consequently we proceed as though his tax basis in the ira were zero nor do petitioners claim and nothing in the record suggests that petitioners should otherwise be given credit for any investment in the ira within the meaning of sec_72 a and e consequently the entire amount of the distribution is allocated to and must be included in petitioner's income see sec_72 a to reflect the foregoing decision will be entered for respondent


internal_revenue_service national_office technical_advice_memorandum date third party communication none date of communication not applicable index uil no case-mis no number release date territory manager west broadway glendale ca tam-125912-05 taxpayer's name taxpayer's address ----------------------------------------------- ------------------------------------- ------------------------------------- ----------------------- ---------------- --------------- date taxpayer's identification no year s involved date of conference legend company state year year year a year b bb dollar_figurec dollar_figured dollar_figuree puc the decision ------------------------------------ ------------- ------- ------- ----------------- ------- ---- ----------------- ----------------- ----------------- ----------------------------------------------- ----- ------------------------------------------------------- -------------------------- the act tam-125912-05 issue is the gain on the sale of taxpayer’s generation assets includible in gross_income under sec_61 of the internal_revenue_code in the year of the sale of the assets conclusion proceeds from the sale of taxpayer’s generation assets were received under a claim of right and were therefore includible in gross_income under sec_61 of the code in the year_of_sale facts taxpayer is a public_utility holding_company organized under the laws of state one of taxpayer’s wholly owned subsidiaries company is a regulated_public_utility serving electricity customers in state in year a puc began a comprehensive review of the future of regulated electric service in state the review concluded that in the future state’s customers should have a choice of electricity suppliers and that traditional cost-of-service utility regulation would be replaced by competition after three years of deliberations puc issued the decision the decision established puc’s plan for restructuring state’s electric industry in year b state’s legislature passed the act establishing the legal framework for the restructuring both puc and the legislature concluded that competition and choice of providers would be the cornerstone of the deregulated electricity market that was necessary to reduce the cost of electricity to state’s citizens as a result of the restructuring company would no longer have an exclusive right to provide bundled services company would continue to have an exclusive right to transmit and to distribute electricity within specified service areas in state also while company retained some generation assets it would be precluded from providing generation services directly to its customers the restructuring program established by the decision and the act provided a way for all affected utilities to recover prudently incurred costs for investments in business infrastructure and supply contracts that were stranded stranded costs also known as transition costs included costs incurred for investment in generation assets which were deemed unrecoverable in a deregulated environment these costs were measured in part by the estimated difference in the value of generation assets before and after deregulation under the restructuring program these stranded costs would be recovered by way of an added charge to ratepayers which was called the competition transition charge or ctc the ctc recoverable from ratepayers was limited to dollar_figuree tam-125912-05 as part of the restructuring program puc gave taxpayer certain positive economic incentives to divest itself of its generation assets revenues earned through the sale of the assets were applied directly to transition costs through the transition cost balancing account tcba the same account to which the ctc was credited under traditional ratemaking principles applied by puc ratepayers are generally entitled to the benefits of any capital_gains accruing from a sale of utility assets and conversely are responsible for capital losses as well typically a utility would be required to reduce rates charged to ratepayers to the extent of capital_gains received see eg 485_f2d_786 d c cir in the present case however puc allowed company to immediately apply the proceeds from the sale of the plants as a credit to the existing balance of the ctc identified by company and puc this allowed taxpayer to immediately receive and recover part of its transition costs however the ctc that could be charged to ratepayers was offset by proceeds from the sale of power generation plants accordingly in year company sold all of its gas-fired generation assets consisting of bb generating facilities for a total book gain of approximately dollar_figurec and a total_tax gain of approximately dollar_figured taxpayer used these proceeds to recover a portion of its ctc the tax gain was initially reported as gain from the sale of the generation facilities in year taxpayer filed an amended_return for its year tax_year claiming the proceeds in excess of book_value received for the plants sold were not includible in gross_income in year the reason proposed in support of its claim was that taxpayer was subject_to an unequivocal statutory and regulatory obligation to refund the book gain from the sale to ratepayers taxpayer reasons that since the gain proceeds offset the ctc that could be charged to ratepayers in subsequent tax years such gains benefit its ratepayers rather than taxpayer thus according to taxpayer the gain is not includible in gross_income until the tax_year in which the ratepayers receive a credit on their utility bills for the ctc amount the ratepayers would have otherwise been required to pay taxpayer argues that the year in which the ratepayers’ bills are credited is the first year in which taxpayer has a claim of right to the amount thus making the year the bill is credited the proper year for inclusion of the proceeds law and analysis sec_61 defines gross_income as all income from whatever source derived sec_61 specifically refers to gains derived from dealings in property as an item_of_gross_income a taxpayer must recognize the gain from the sale of property unless the gain is otherwise excluded by law sec_1_61-6 of the income_tax regulations the above definition of gross_income must be considered in the context of the claim_of_right_doctrine which has evolved from cases such as 286_us_417 in that case the court held that i f a taxpayer receives tam-125912-05 earnings under a claim of right and without restrictions as to its disposition he has received income and accordingly must be taxed on it id pincite however where a taxpayer is obligated to dispose_of the money it receives in a certain way accruing no benefit to itself the money is not includible in the taxpayer's gross_income see 51_f2d_939 8th cir accordingly for received amounts to be included in gross_income a taxpayer must have a claim of right to such amounts and the amounts must be received without restriction while the united_states supreme court has not directly addressed the precise set of facts presented by this case it has addressed the income_tax treatment of amounts received by utilities in other circumstances in 493_us_203 an electric utility ipl required certain customers with suspect credit to make deposits to insure prompt payment of future utility bills the customer was entitled to a refund of the deposit after making timely payments for several months or satisfying a credit test the customer could choose to take the refund by cash or check or to apply the refund against future bills the deposits were commingled with other receipts and at all times were subject_to ipl's unfettered use and control the service argued that the deposits were advance_payments immediately includible in income while ipl argued they were analogous to loans and as such not taxable the court reasoned that in economic terms the distinction between advance_payments and loans was one of degree rather than kind id pincite while both bestow economic benefits to the recipient economic benefits qualify as income only if they are undeniable accessions to wealth clearly realized and over which the taxpayers have complete dominion id pincite quoting 348_us_426 the key to determining whether a taxpayer enjoys complete dominion over a given sum is whether the taxpayer has some guarantee that he will be allowed to keep the money indianapolis power and light u s pincite the proper focus is on the rights and obligations of the parties at the time the payment was made id pincite because ipl's customers controlled the ultimate disposition of the deposit and had not committed to purchasing any electricity at the time the deposit was made the court found that ipl had no guarantee that it would be allowed to keep the money and held that the deposit amount was not income a long line of cases have applied the above principles in determining whether amounts received by a taxpayer are includible in gross_income at the time of receipt these cases have consistently held that when a taxpayer receives funds with an unequivocal statutory or regulatory duty to repay them thus receiving no economic benefit from the funds they are not includible in gross_income at the time of receipt in 204_f2d_160 9th cir the taxpayer a telephone utility was authorized by its regulatory commission to collect additional funds from customers in and through increased rates in order to curtail demand the commission indicated that the additional funds were not being received as additional revenue or collected for the taxpayer's benefit also the amounts collected could not inure to the benefit of the taxpayer's shareholders rather the amounts were paid into tam-125912-05 a special account over which the commission held ultimate control until these additional funds were held to be not includible in the taxpayer's gross_income in and but includible when made available to the taxpayer in in 792_f2d_683 7th cir rate increases collected by the taxpayer utility pursuant to a state commerce commission's order to discourage consumption were not includible in gross_income in the years received because such increases were not intended to enrich nor be retained by the taxpayer the taxpayer was required to repay these extra amounts to customers in later years even though the customers obtaining the benefit of the repayments were not the same as the customers who paid the increased rates a number of recent cases address the tax consequences of fuel overrecoveries to the utilities collecting such overrecoveries in 125_f3d_1442 fed cir fuel cost overrecoveries received by the utility taxpayer were excludable because the taxpayer had a statutory obligation to repay such amounts to customers thus the taxpayer did not have unrestricted dominion and control_over such amounts when received the court reasoned that it did not matter whether the amounts were refunded by check to customers or offset against customers' bills because either method had the same effect in 114_tc_587 overrecoveries of estimated fuel and energy conservation costs were excludable because the utility did not have complete dominion and control_over such amounts upon receipt regulatory authority required the taxpayer to return overrecoveries with interest to customers the repayment mechanism afforded the taxpayer no opportunity to benefit from overrecoveries and the taxpayer was subject_to a fixed and certain liability to refund overrecoveries that were determinable when the funds were received similarly in cinergy corp v united_states fed cl the taxpayer was not required to recognize fuel cost overrecoveries as income when received because it was required to return overrecoveries to its customers and it lacked complete dominion over the funds as evidenced by the fact that the time and method of refund was controlled by the regulatory authorities and the taxpayer was required to make monthly reconciliation of these accounts to the regulators see also 210_f2d_367 4th cir cert_denied 347_us_1014 676_fsupp_151 w d mich electric energy inc v united_states cl_ct 16_tc_988 and florists' in revrul_2003_39 2003_17_irb_811 the service accepted the holdings in houston industries florida progress and cinergy corp and concluded that fuel cost and energy conservation cost overrecoveries are not includible in gross_income in the year of the overrecovery in cases involving facts substantially_similar to those in these three cases tam-125912-05 transworld delivery association v commissioner 67_tc_333 citing the foregoing line of cases taxpayer argues that the gain proceeds from the sale of generation assets are not includible in gross_income in the year of the sale of such assets because the statutory and regulatory scheme established by state requires that such amounts be used to offset the amount of the ctc that may ultimately be billed to ratepayers consequently the mechanism set up under the decision provides that the economic benefits from the sale of the generation assets inure to the benefit of the ratepayers not taxpayer according to taxpayer the gain proceeds have been received by it subject_to a substantial restriction taxpayer relies on the above cases for its position that the gain proceeds are not includible in gross_income until the ratepayers receive a credit for the ctc they would otherwise have to pay in our view the essence of this case comes down to the fact that taxpayer is entitled to receive a specified amount dollar_figuree as the ctc the amount was determined by measuring taxpayer's stranded costs taxpayer is entitled to recover the dollar_figuree from two sources the ratepayers and or from plant sales the ctc from either source constitutes income when received unless and until taxpayer receives an amount in excess of the dollar_figuree ctc amount it is entitled to receive while the ctc recovered from plant sales may not be again recovered from ratepayers and thus may constitute a benefit of sorts to ratepayers such factor at best is merely incidental to the far more significant obvious and direct benefit taxpayer receives taxpayer as permitted by the decision received and still retains the proceeds from the plant sales moreover there are significant differences between the present case and the court cases the taxpayer cites first in the fuel overrecovery cases the taxpayers collected amounts from ratepayers that they were not by statute permitted to keep thus the use of the term overrecovery in the cases in the present case taxpayer did not receive any excess amounts from ratepayers instead taxpayer received proceeds from an independent third party in a sale transaction and taxpayer was entitled to keep all amounts it received from the sale of its plants thus there are no overrecoveries in the case under consideration in this case puc allowed taxpayer to immediately apply the proceeds from the sale of the plants as a credit to the existing ctc balance identified by company thus allowing taxpayer to immediately receive and recover its transition costs while the sale proceeds offset the ctc amount the ratepayers would have otherwise had to pay such offset does not represent a refund of an overrecovery and thus does not affect taxpayer’s requirement to include the gain on the sale of the plants in gross_income in other words the ratepayers were not the sole source of the ctcs to which taxpayer was entitled the proceeds from the plant sales were also a source hypothetically if the utility recovered in book gain from plant sales an amount in excess of what it was permitted to recover as the ctc such excess would not be income to the utility because taxpayer would not be entitled to keep it that would be a situation controlled by houston industries and florida progress tam-125912-05 such proceeds served as an offset to what could otherwise be levied in the form of rates they were also like the rates includible in income the same would be true in the case of a taxpayer who performs a service for which he is entitled to dollar_figure compensation from either source a or source b but not both in such a case the taxpayer has gross_income of dollar_figure when source a makes his required_payment even though that payment completely offsets the amount owed by source b unlike the taxpayers in indianapolis power light co houston industries inc and all of their sister cases taxpayer in the present case had unrestricted dominion and control_over the proceeds from the sale of generation assets when received the only detriment to taxpayer in receiving its ctc via the sale of its generation assets was that it could not again collect such amount from the ratepayers accordingly in the present case proceeds from the sale of taxpayer’s generation assets are within the meaning of gross_income under sec_61 were received by taxpayer under a claim of right and are required to be included in taxpayer’s gross_income in the year of the sale of the generation assets 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


id office uilc cca_2009092515482844 number release date from ---------------------------- sent friday date pm to -------------------------- cc ------------------ subject statute extension ques - dates the practice of using all numbers should not be continued but you don't need to get a new consent some people and the practice in some countries is to write the day of the month followed by the month and then the year dd mm yy rather than mm dd yy since the form_941 quarters end on and - we shouldn't have a problem eg because in could not be a month you should instruct your folks that the months eg date should always be spelled out in the future thanks for the class


internal_revenue_service p o box cincinnati oh number release date department of the treasury employer_identification_number contact person - id number date date contact telephone number legend uil b name of program x number of awards y dollar range of awards dear we have considered your request for advance approval of your grant-making program under sec_4945 of the internal_revenue_code dated date our records indicate that you were recognized as exempt from federal_income_tax under sec_501 of the code and that you are classified as a private_foundation acting as a private_operating_foundation as defined in sec_509 your letter indicates that you will offer grant making programs under sec_4945 called b b will provide you a way of supporting individuals studying nuclear security issues and other important global policy issues the opportunity to conduct policy relevant research grant recipients will not be chosen from any particular educational or scientific institution or from any particular geographic location a grantee must be a junior non- tenured faculty_member of a college or university a post-doctoral fellow or a pre- doctoral candidate from any discipline who is working on a nuclear security related issue or other important global policy issue in order to obtain the best possible candidates for b you have indicated that you will contact educational and scientific institutions to make known the availability of the grants you have also indicated that b will be publicized in various specialized publications likely to be read by potential applicants and their mentors the candidates will be required submit an application providing details related to the selection criteria grants will be made to individuals operating in foreign countries you will comply with state department and treasury_department recommended procedures in making distributions to foreign individuals under b you do not intend to make grants to countries which appear on the state department list of state sponsors of terrorism to individuals who reside in those countries or to support projects that will be carried out in such countries if grants were issued with respect to such countries it would only be after registering and obtaining a license from the office of foreign assets control ofac to carry out permitted humanitarian activities to avoid making improper grants you will determine the countries in which a grantee will use funds before any grants are made each grantee will be required to agree not to expend funds in countries that are considered state sponsors of terrorism b will not be granted to individuals named on ofac’s list of specially designated nationals and blocked persons sdns before any grant is awarded under b the name of the potential grantee will be checked against the ofac sdn list and the individual’s country of residence and country or countries where the grant will be used against the country based sanctions list you will check the list using a commercial ofac compliance program to enable less than exact matches as well as checking the official ofac list if there appears to be a match you will not make the grant until you have determined through further inquiry which may include contacting ofac whether the grant candidate and the person on the list are the same person only when it has been confirmed that the candidate is not on the list will the grant for b be made each grantee will be required to sign a written_agreement providing that the funds will be used only for the purposes of the grant and will not be used to support any terrorist organization or its support network the grantee is also required to provided a written report as to the use of the grant funds and to return any funds not used for purposes of the grant the key criterion will be a demonstrated commitment to an important area of policy and a capacity for high quality research a grantee must either be an individual whose activities will make a contribution to the area of policy or whose project will enhance the knowledge or improve the skills and talents of the grantee in the area of policy b will be awarded on the basis of academic and professional accomplishments and promise and on the merits of the specific project proposed you will award grants on an objective and nondiscriminatory basis with the assistance of advisors with domain specific expertise you will not use grants to compensate recipients for performing personal services for the organization you will not award grants to your founder trustees employees members of the founder's family to any disqualified_person with respect to the organization or for a purpose that is inconsistent with the purposes set forth in code sec_170 the selection committee will consist of two trustees of the organization in making their selections the committee will rely heavily on an advisory committee of experts in the field of nuclear security trustees will not be in a position to derive a private benefit either directly or indirectly if certain candidates for b are selected over others relatives of trustees or the advisory committee are not eligible to receive the grant the most important criteria in selection will be the applicant’s commitment to the field of nuclear security and his or her capacity for high quality research as demonstrated by his or her previous academic and professional accomplishments of secondary but nearly equal importance are the merits of the research project proposed - whether or not the proposed project is likely to contribute new knowledge to the general body of knowledge on nuclear security and if so how important that new information will be to world and national security applicants will be ranked based on these criteria by an advisory committee final selection will be made by the trustees based on the advisory committee ranking and availability of funds you will award approximately x fellowships per year in the amount of dollar_figurey per fellowship depending on the qualifications of the grantees the funds will be granted over five years funding levels will have small increases each year to adjust for inflation except in extraordinary circumstances no individual will be eligible for repeat funding you will pay the grant funds directly to the grantees each grantee will provide you a written progress report at least once a year this report must include a description of the use of the funds awarded and how such use fulfilled grant purposes within three months after the end of the project a grantee must provide you a written final report summarizing the annual reports and describing the overall benefits of b to the grantee and to the development of the policy area in those instances where the reports submitted or other information including the failure to submit reports indicate that all or any part of a grant is not being used for intended purposes you will investigate and will withhold further payments to the extent possible until you receive and approve delinquent reports if you determine that all or any part of b is being diverted from the intended purposes you will take all reasonable and appropriate steps to recover the grant funds and or to ensure restoration of the diverted funds to the purposes of the grant this would include legal action if deemed appropriate under the circumstances you have agreed to maintain records that include the following e information obtained by you to evaluate the qualifications of potential grantees identification of the grantees including any relationship of any grantee to you or any of the trustees the completed application of each grantee the amount of each grant the date s of each grant payment and reports from grantees and any additional information that you may obtain in the course of the grant administration process sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i its grant procedure includes an objective and nondiscriminatory selection process ii such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and iii the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nondiscrimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 of the code the approval of your award program procedures herein constitutes a one-time approval of your system standards and procedures designed to result in awards which meet the requirements of sec_4945 of the code this determination only covers the grant programs described above thus approval shall apply to subsequent award programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request we have not considered whether grants made under your procedures are excludable from the gross_income of recipients under sec_117 of the code any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and case histories so that any or all award distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions please contact the person whose name and telephone number are shown above sincerely yours lois lerner director exempt_organizations enclosure notice


department of the treasury internal_revenue_service washington d c date number release date uilc 19a uilc cc el gl br1 gl-609302-97 memorandum for district_counsel virginia-west virginia from gary d gray assistant chief_counsel general litigation subject pensions as property of the bankruptcy_estate by memorandum dated date digested in gl bulletin no we took the position that the bankruptcy court’s opinion in 148_br_88 bankr d d c is legally unsound and therefore should not be followed we understand that several district_counsel offices as well as the tax_division of the department of justice have questioned whether our position is correct by memorandum dated date you requested that we reconsider our position issue whether the internal revenue service’s service claim in bankruptcy is secured_by the debtor’s interest in an erisa-qualified plan or other interest generally subject_to a restriction on transfer enforceable under nonbankruptcy law conclusion as discussed below we have reconsidered our position and have concluded that the holding of the bankruptcy court for the district of columbia judge teel in lyons is correct we believe that the debtor’s interest in erisa-qualified pension plans and similar interests are property of the bankruptcy_estate under sec_541 of the bankruptcy code but only for the benefit of the service therefore under sec_506 of the bankruptcy code the service’s claim is secured to the extent of the value of such interests discussion sec_541 provides that property of the bankruptcy_estate consists of all legal or equitable interests of the debtor in property as of the commencement of the case except as provided in sec_541 and c sec_541 further provides that the debtor’s interest in property becomes property of the bankruptcy_estate under gl-609302-97 sec_541 notwithstanding any restrictions on transfer except as provided by sec_541 sec_541 provides a restriction on the transfer of a beneficial_interest of the debtor in a_trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title in 504_us_753 the supreme court was presented with the question whether the debtor’s interest in an employer pension_plan that contained the anti-alienation provision required by title i of the employee_retirement_income_security_act_of_1974 erisa was included or excluded from the bankruptcy_estate under sec_541 the court held that the term applicable nonbankruptcy law in sec_541 was not limited to state law and thus included erisa and other federal_law and that the anti-alienation provision required for qualification under title i of erisa was enforceable under applicable nonbankruptcy law the court concluded that under sec_541 the debtor’s interest in the pension_plan was excluded from the bankruptcy_estate u s pincite under erisa and federal tax law anti-alienation provisions enforceable under erisa against creditors generally are not enforceable against the service see eg travelers insurance co v ratterman u s t c big_number s d ohio while erisa prevents ordinary creditors from attaching pension payments courts have unanimously held that a federal_tax_lien or levy may be imposed on erisa-qualified pension plans 830_fsupp_406 n d ohio rejecting the assertion of the taxpayer’s former spouse that a qualified_domestic_relations_order is the only exception to erisa’s anti-alienation provisions the district_court held that the service may levy on funds in a taxpayer's individual_retirement_account ira and keogh account in re 147_br_106 bankr w d pa section d of erisa provides each pension_plan shall provide that benefits provided under the plan may not be assigned or alienated u s c sec_1056 patterson did not involve bankruptcy claims of the service the chapter trustee was seeking to include in the bankruptcy_estate the debtor’s interest in the qualified_plan in finding that the phrase applicable nonbankruptcy law referred to any relevant nonbankruptcy law including federal_law such as erisa the court looked to the plain language of sec_541 u s pincite the court went on to find that the plan contained restrictions on transfer and the restrictions on transfer were enforceable because a plan participant fiduciary or beneficiary or the department of labor could bring a civil_action to enjoin any act which violated the terms of the plan or erisa u s pincite gl-609302-97 bankruptcy court held that federal_tax_lien may attach to the taxpayer's erisa-qualified pension 127_br_244 bankr d haw erisa anti-alienation provisions do not preclude enforcing a federal_tax_lien or collection on a judgment resulting from an unpaid tax_liability see also 32_f3d_180 5th cir fifth circuit stated in dictum that a taxpayer's pension benefits under an erisa-qualified plan are subject_to levy despite the erisa anti-alienation provision because patterson did not involve a claim of the service it did not address the effect of a plan restriction on transfers that is not enforceable against a particular creditor such as the service that question was addressed in lyons t he pension plans’ provisions are not within the language of sec_541 enforceable under applicable nonbankruptcy law with respect to the irs under sec_541 the debtor’s pension rights thus remain property of the estate and under sec_506 the irs has an allowed claim against the pension rights to the extent of their value b r pincite the court noted that its interpretation was compelled by the plain language of sec_541 as well as policy considerations outside bankruptcy the irs would have an enforceable lien against the debtor’s vested right to receive a future stream of pension income despite spendthrift provisions in the pension plans there is no evidence that in enacting sec_541 congress intended the intervention of bankruptcy to alter the irs’s powers as a tax creditor b r pincite as you point out this same policy consideration-replicating within bankruptcy the result that would occur outside bankruptcy-was also recognized by the supreme court which stated that the patterson decision ensures that the treatment of pension benefits will not vary based on the beneficiary’s bankruptcy status u s pincite judge teel revisited this issue in in re 206_br_614 bankr d d c a case concerning whether a thrift_savings_plan tsp account is property of the lyons involved plans under the teachers insurance and annuity association tiaa college retirement equities fund cref in footnote of the opinion judge teel left undecided whether the result of the case would be different if the plans at issue were erisa-qualified plans rather than merely tiaa cref plans however based on the case law cited above holding that erisa’s anti-alienation provision does not bar federal tax collection we believe that the reasoning of lyons is equally applicable to erisa plans gl-609302-97 bankruptcy_estate jones recognized the unique position_of_the_united_states as a creditor in bankruptcy a tsp account becomes property of the estate only to the extent that the account is not beyond the reach of creditors outside bankruptcy accordingly as regards state-created statutory liens a tsp account would not be property of the estate and accordingly u s c sec_506 would be inapplicable to such liens footnote omitted nevertheless as this court has held on slightly different facts the tsp account would in effect have a split personality by remaining property of the estate for purposes of federal tax claims even though it is not property of the estate for the purposes of other creditors’ claims footnote omitted b r pincite we believe that the disparate treatment of the service and other creditors under sec_541 is entirely appropriate and as you noted in your memorandum occurs elsewhere in the bankruptcy code we agree with your conclusion that the treatment of property held by tenants by the entireties under sec_522 offers a good analogy to the treatment of erisa-qualified plans under sec_541 sec_522 refers to nonbankruptcy law and gives effect to the requirements of such law resulting in property being in the bankruptcy_estate for and to the benefit of certain creditors but not others similarly sec_541 draws on nonbankruptcy law that should be given effect in bankruptcy not following lyons leads to results that are straightforward erisa-qualified plans and similar interests are excluded from the bankruptcy_estate with respect to the service and all other creditors because they are not property of the estate they cannot be used in determining the value of the service’s secured claim on the other hand to the extent that the service has a lien that survives the bankruptcy it can pursue collection outside bankruptcy however given the statutory framework of sec_541 and sec_506 and the supreme court’s reasoning in patterson discussed above upon reconsideration we now believe that the holding in lyons is correct the wording of each section on its face supports the court’s reasoning in addition there is nothing in like erisa-qualified plans tsp accounts are generally protected from alienation provision funds held in the thrift_savings_fund may not be assigned or alienated and are not subject_to execution levy attachment garnishment or other legal process u s c e gl-609302-97 the legislative_history that would call for a different result similarly there is no case law contrary to lyons in your memorandum you stated that following lyons has advantages in chapter cases in fact there have not been many cases on this issue since lyons and jones were decided there is one case in re persky u s t c big_number that has distinguished jones the court in persky held that an interest in a spendthrift trust was not property of the bankruptcy_estate and therefore the service’s claim was not secured to the extent of the interest in the trust the debtors cited jones asserting that the service’s claim was secured under sec_506 to the extent of its prepetition lien on the trust the court found that the debtors’ reliance on jones was misplaced because unlike jones and lyons the parties stipulated that the interest was excluded from the bankruptcy_estate because of the parties’ stipulation the court did not have to address the sec_541 issue several other cases have concluded that the service’s claim is secured to the extent of the debtor’s interest in an erisa-qualified plan and therefore seemingly lend support to lyons however these cases are not particularly strong support for lyons because while they reach the same result regarding the determination of the service’s secured claim they unlike lyons did so after holding that erisa-qualified plans are excluded from the bankruptcy_estate gl-609302-97 because under lyons erisa-qualified plans are property of the bankruptcy_estate only for the purposes of the service’s claims we believe that the property should be abandoned by the trustee in a chapter case the trustee is required to collect liquidate and distribute the property of the bankruptcy_estate as expeditiously as is compatible with the best interests of parties_in_interest b c sec_704 in accordance with this obligation sec_554 provides for the abandonment of property if it is not needed by the estate and its retention serves no purpose in effectuating the goals of gl-609302-97 the bankruptcy code collier on bankruptcy see eg 151_br_103 e d mich chapter trustees have a duty not to administer property that will not generate funds for unsecured claimants in in re groves 120_br_956 bankr n d ill a pre-patterson case not involving the service the bankruptcy court found that the debtor’s interest in a state retirement_plan was property of the estate that could only be sold for the benefit of the creditors or abandoned in a post-patterson lyons world there is no benefit to the other creditors in selling the interest so it should be abandoned if you have questions or comments regarding the foregoing please contact branch at specifically sec_554 provides that the trustee after notice and a hearing may abandon property of the bankruptcy_estate that is burdensome to or of inconsequential value and benefit to the estate b c sec_554 alternatively a party in interest can request that the bankruptcy court on the same grounds order the trustee to abandon the property b c sec_554 the court in in re groves adopted the pre-patterson position that a number of courts had taken it concluded that the exception under sec_541 applied only to spendthrift trusts under state law b r pincite


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp b02-plr-109945-00 date date legend distributing controlled shareholder shareholder business a business b state x y z dear this letter responds to your letter dated date in which you requested on behalf of the above referenced taxpayer rulings under sec_355 of the internal_revenue_code additional information regarding your request has been submitted in letters dated june and date the material information submitted for consideration is summarized below plr-109945-00 distributing a state x subchapter_s_corporation files its federal_income_tax return on a calendar_year basis and uses the accrual_method of accounting distributing has only one class of outstanding common_stock shareholder owns y of the outstanding common_stock and shareholder owns z of the outstanding common_stock distributing is engaged directly in business a and in business b both business a and business b have been conducted for more than five years controlled will be a state x corporation and will be formed for the purpose of independently operating business b controlled intends to elect subchapter_s status on the first available date after consummation of the proposed transaction controlled will file its federal_income_tax returns on a calendar_year basis and will use the accrual_method of accounting the taxpayer has supplied financial information which indicates that distributing has been conducting business a and business b and that each has had gross_receipts and operating_expenses representative of the active_conduct of such business for each of the past five years in recent years the shareholders of distributing have differed on a number of business issues including diversification of the business inventory proper marketing strategy and expansion of the businesses in addition shareholder is predominantly interested in business a and shareholder is predominantly interested in business b due to the continuing shareholder disputes and their divergent interests shareholder and shareholder have proposed to separate the businesses of distributing accordingly distributing has proposed the following transaction first distributing will form controlled and will transfer all of the business b assets to controlled in exchange for all of the issued and outstanding_stock of controlled the assets transferred will constitute z of the assets of distributing distributing will then distribute all of the issued and outstanding_stock of controlled to shareholder in exchange for all of shareholder 2’s shares of distributing stock shareholder will be the sole remaining shareholder of distributing the following additional representations have been made in connection with the proposed transaction a b the fair_market_value of controlled stock and other consideration to be received by each shareholder of distributing will be approximately equal to the fair_market_value of distributing stock surrendered in the exchange no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of distributing plr-109945-00 c d e f g h i j k l the five years of financial information submitted on behalf of distributing is representative of its present operations and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted following the proposed transaction distributing and controlled will each continue the active_conduct of its respective business independently and with its separate employees the distribution of the stock of controlled is carried out for the following corporate business purposes i resolution of shareholder disputes and ii allowing the individual shareholders to separately manage their respective businesses the distribution of controlled stock is motivated in whole or substantial part by one or more of these corporate business purposes distributing is an s_corporation within the meaning of sec_1361 controlled will elect to be an s_corporation pursuant to sec_1362 on the first available date after the distribution and there is no plan or intent to revoke or otherwise terminate the s_corporation_election of either distributing or controlled there is no plan or intention on by the shareholders of distributing to sell exchange transfer by gift or otherwise dispose_of any of their stock in either distributing or controlled after the proposed transaction there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 distributing and controlled have no accumulated_earnings_and_profits at the beginning of their respective taxable years distributing and controlled will have no current_earnings_and_profits as of the date of the distribution no distribution_of_property by distributing immediately before the transaction would require recognition of gain resulting in current_earnings_and_profits for the taxable_year of the distribution distributing is not aware of nor is it planning or intending any event that will result in distributing or controlled having positive current or accumulated_earnings_and_profits after the distribution plr-109945-00 m there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of any of the assets of either corporation subsequent to the proposed transaction except in the ordinary course of business n o p q r s t u the total adjusted bases and the fair_market_value of the assets transferred to controlled by distributing each equals or exceeds the sum of the liabilities assumed by controlled plus any liabilities to which the transferred assets are subject the liabilities assumed in the transaction and the liabilities to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution of the controlled stock payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions determined by the parties bargaining at arm’s length no two parties to the transaction are investment companies as defined in sec_368 and iv no distributing shareholder will hold immediately after the distribution disqualified_stock within the meaning of sec_355 which constitutes a or greater interest in distributing or controlled the distribution is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing or more of the combined voting power of all classes of stock entitled to vote of either distributing or controlled or stock possessing or more of the total value of all classes of stock of either distributing or controlled based solely upon the information submitted and the representations made we rule as follows the transfer by distributing to controlled of a portion of the assets of its business solely in exchange for all of the issued and outstanding_stock of plr-109945-00 controlled followed by the distribution of all of the stock of controlled to shareholder in exchange for all of the distributing stock owned by shareholder will be a reorganization within the meaning of sec_368 of the code distributing and controlled will each be a_party_to_a_reorganization within the meaning of sec_368 distributing will recognize no gain_or_loss upon the transfer of assets to controlled in exchange for the stock of controlled sec_361 and sec_357 controlled will recognize no gain_or_loss upon the receipt of the assets from distributing in exchange for the stock of controlled sec_1032 the basis of the assets received by controlled in the transaction will be the same as the basis of such assets in the hands of distributing immediately prior to their transfer to controlled sec_362 the holding_period of the distributing assets received by controlled in the transaction will include the period during which such assets were held by distributing sec_1223 shareholder will recognize no gain_or_loss and no amount will be included in the income of shareholder upon the receipt of controlled stock in exchange for all of the distributing stock held by shareholder sec_355 distributing will recognize no gain_or_loss upon the distribution of the controlled stock to shareholder in exchange for shareholder 2's stock in distributing sec_361 the basis of the stock of controlled in the hands of shareholder will be the same as the basis of the distributing stock surrendered by shareholder in exchange therefor sec_358 the holding_period of the controlled stock received by shareholder will include the holding_period of the distributing stock surrendered in exchange therefor provided that the distributing stock is held as a capital_asset on the date of the exchange sec_1223 no opinion is expressed or implied about the tax treatment of the proposed 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 proposed transaction that are not specifically covered by the above rulings plr-109945-00 this ruling letter 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 a copy of this letter should be attached to the federal_income_tax return s of the taxpayer s involved for the taxable_year in which the transaction covered by this ruling letter is consummated in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely yours associate chief_counsel corporate by __________________________ lewis k brickates assistant to the chief branch corporate