t c memo united_states tax_court stephen p arnold petitioner v commissioner of internal revenue respondent docket no filed date stephen p arnold pro_se martha j weber for respondent memorandum findings_of_fact and opinion laro judge petitioner petitioned the court to redetermine respondent’s determination of a dollar_figure deficiency in his federal_income_tax and additions thereto of dollar_figure dollar_figure and dollar_figure under sec_6651 and and a respectively following concessions and respondent’s assertion in the answer that petitioner is liable for an additional_amount as to the addition_to_tax under sec_6651 we are left to decide whether petitioner may use the filing_status of married filing joint_return we hold that he may not whether petitioner realized losses on certain stock transactions we hold that he did not whether petitioner may deduct a loss of dollar_figure from an s_corporation named only kids inc only kids we hold that he may not whether petitioner may deduct certain itemized expenses in amounts greater than allowed by respondent we hold that he may not whether petitioner is liable for the additions to tax under sec_6651 and sec_6654 included in the notice_of_deficiency and for the increase in the addition_to_tax under sec_6651 asserted by respondent in answer we hold that petitioner is liable only for the amounts included in the notice_of_deficiency unless otherwise indicated section references are to the applicable versions of the internal_revenue_code rule references are to the tax_court rules_of_practice and procedure and dollar amounts are rounded to the nearest dollar findings_of_fact some facts were stipulated the stipulated facts and the accompanying exhibits are incorporated herein by this reference we find the stipulated facts accordingly petitioner was married throughout the subject year and resided in memphis tennessee when his petition was filed he has not filed a federal_income_tax return for through petitioner is the president chief_executive_officer and sole shareholder of only kids only kids was incorporated on date and it filed a form_1120s u s income_tax return for an s_corporation reporting a loss of dollar_figure that return also reported that only kids had been an s_corporation since the year of its incorporation and that as of the end of its taxable_year date its balance_sheet included capital stock additional paid-in-capital and a retained deficit in the amounts of dollar_figure dollar_figure and dollar_figure respectively that balance_sheet did not list any loans to only kids from petitioner only kids paid wages of dollar_figure to petitioner during petitioner also received during other items of gross_income first he received interest and dividends of dollar_figure and dollar_figure respectively second he received dollar_figure from donaldson lufkin arnold dla and dollar_figure from u s clearing usc for sales of stock the proceeds from dla were for sales in the respective amounts of dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure the proceeds from usc were for sales in the respective amounts of dollar_figure and dollar_figure as to the sales of dollar_figure dollar_figure dollar_figure and dollar_figure petitioner’s basis in the underlying stock was dollar_figure dollar_figure dollar_figure and dollar_figure respectively and his gain_or_loss on the sales was dollar_figure dollar_figure dollar_figure and dollar_figure respectively the record does not establish petitioner’s basis as to the stock underlying any of the other sales nor does the record establish petitioner’s holding_period as to any of the sales in the notice_of_deficiency respondent determined petitioner’s gross_income on the basis of income reported to respondent by petitioner’s payors that income included the amounts of wages interest dividends and stock proceeds stated above respondent also determined in the notice_of_deficiency that petitioner’s filing_status was married filing separate_return burden_of_proof opinion taxpayers generally must prove the commissioner’s determinations wrong in order to prevail rule a 290_us_111 as one exception to thi sec_2 as to the stock proceeds respondent gave petitioner credit for the bases mentioned above and treated the gains and losses as short-term_capital_gains and losses rule sec_7491 places upon the commissioner the burden_of_proof with respect to any factual issue if the taxpayer maintained adequate_records satisfied applicable substantiation requirements cooperated with the commissioner and introduced during the court_proceeding credible_evidence on the factual issue the legislative_history of sec_7491 clarifies that taxpayers must prove that they have satisfied the adequate_records substantiation and cooperation requirements before that section places the burden_of_proof upon the commissioner h conf rept pincite 1998_3_cb_747 the taxpayer has the burden of proving that it meets each of these conditions because they are necessary prerequisites to establishing that the burden_of_proof is on the secretary see also prince v commissioner tcmemo_2003_247 the text of the statute requires that the taxpayer satisfy the remaining credible_evidence requirement as a condition of placing the burden_of_proof upon the commissioner we do not find that petitioner maintained adequate_records satisfied applicable substantiation requirements or cooperated with respondent accordingly we hold that sec_7491 does not apply here to place the burden_of_proof upon respondent filing_status sec_1 allows married individuals to elect to compute their federal_income_tax liability on the basis of a joint_return we conclude that petitioner is not entitled to compute his federal_income_tax liability as such in that he has never filed a tax_return see 78_tc_558 although petitioner gave respondent’s counsel a copy of his purported joint_return for that return was not a joint_return in that it was signed by neither him nor his wife weber v commissioner tcmemo_1995_125 gudenschwager v commissioner tcmemo_1989_6 we sustain respondent’s determination that petitioner’s filing_status for is married filing separate_return stock sales a taxpayer such as petitioner must recognize gain_or_loss on each sale of stock in an amount equal to the difference between the amount_realized and his basis sec_1001 sec_1012 gain_or_loss on the sale of stock held for more than one year is considered long-term sec_1222 and gain_or_loss on all other sales of stock is considered short-term sec_1222 and taxpayers who fail to prove a basis in a sold asset are considered to have a zero basis in that asset garret v commissioner tcmemo_1997_231 see also reeve v commissioner a memorandum opinion of this court dated date petitioner argues that he is entitled to recognize losses on sales of stock not mentioned above we disagree the record does not establish that petitioner had any other such sales of stock during the relevant year in that petitioner has not disproved respondent’s determination that his stock proceeds are taxable in full with the exception of our findings above as to basis that those proceeds were the only sales proceeds received by petitioner during the subject year and that petitioner’s gains and losses from his stock sales were short-term_capital_gains and losses we sustain respondent’s determination as to this issue loss from only kids the pro_rata share of an s corporation’s loss passes through to its shareholders sec_1366 a shareholder may deduct such a loss to the extent that it does not exceed the shareholder’s adjusted_basis in the shareholder’s stock in the corporation plus any debt owed by the corporation to the shareholder sec_1366 a taxpayer such as petitioner must establish that he has acquired basis in the referenced stock and debt and to the extent that he does that his basis in those items was not reduced to zero because of losses claimed in years predating the subject year hogan v commissioner tcmemo_1999_365 taxpayers who fail to prove that they have any basis in an s_corporation are considered to have a zero basis in that corporation thomson v commissioner tcmemo_1983_279 affd without published opinion 731_f2d_899 11th cir petitioner argues that he is entitled to deduct an dollar_figure loss from only kids and that the form_1120s a single bank statement and his testimony establish his basis in only kids we disagree with petitioner when he asserts that he has established that he has a basis in only kids the form_1120s does not contain sufficient information for us to establish that he has any basis in only kids 94_tc_863 affd 954_f2d_653 11th cir nor does the bank statement which simply lists only kids’ deposits and other credits for date establish that petitioner had any such basis although petitioner observes correctly that the statement reports that funds of dollar_figure were wired into only kids’ bank account during date the statement does not indicate the source of those wire transfers in that petitioner testified vaguely and incoherently that the deposits were from his personal account and that the record does not otherwise support that testimony we decline to find the subject matter of that testimony as a fact we conclude that petitioner’s adjusted_basis in only kids was zero for and hence that he was not entitled to deduct the referenced loss we are mindful that petitioner as the only shareholder of only kids obviously had to have at least once invested in the corporation and that only kids’ form_1120s reported that only kids’ balance_sheet as of date listed capital stock and additional paid-in-capital of dollar_figure and dollar_figure respectively in that the record contains no credible_evidence continued itemized expenses petitioner argues that he is entitled to deduct certain itemized expenses ie medical_expenses real_estate_taxes and home mortgage interest in amounts greater than allowed by respondent in addition to his general burden_of_proof discussed above petitioner must prove his entitlement to any deduction eg by maintaining sufficient records to substantiate his claimed deductions 292_us_435 116_tc_374 see also sec_6001 sec_1_6001-1 income_tax regs petitioner has failed to carry his burden_of_proof the record does not establish that petitioner is entitled to deduct any itemized expense in an amount greater than allowed by respondent lobe v commissioner tcmemo_2001_204 and cases cited therein additions to tax a sec_6651 sec_6651 imposes an addition_to_tax for failing to file a return on or before the specified filing_date unless it i sec_3 continued to persuade us that the amounts listed on the balance_sheet are correct we decline to find those amounts as facts we also note that petitioner has never filed a tax_return for through and that the record does not establish his taxable_income for any of the nondocketed years petitioner therefore has failed to establish that any basis that he may have acquired in only kids’ stock and debt before the subject year was not reduced to zero because of losses claimed in those earlier years shown that this failure is due to reasonable_cause and not due to willful neglect reasonable_cause may exist if a taxpayer exercised ordinary business care and prudence and was nonetheless unable to file the return within the date prescribed by law sec_301_6651-1 proced admin regs willful neglect means a conscious intentional failure or reckless indifference 469_us_241 respondent bears the burden of production with respect to this addition_to_tax sec_7491 in order to meet this burden of production respondent must produce sufficient evidence establishing that it is appropriate to impose this addition_to_tax once respondent has done so the burden_of_proof is upon petitioner 116_tc_438 except for the increased portion of the addition_to_tax asserted by respondent in the answer respondent bears the burden_of_proof as to that portion of the addition_to_tax rule a petitioner’s burden_of_proof requires that he prove that his failure_to_file a timely tax_return was due to reasonable_cause and was not due to willful neglect sec_6651 united_states v boyle supra pincite respondent’s burden_of_proof requires that he prove the contrary ie that petitioner’s failure_to_file timely was not due to reasonable_cause or was due to willful neglect sec_6651 united_states v boyle supra pincite 6_bta_881 see also banks v commissioner tcmemo_2001_48 collins v commissioner tcmemo_1994_409 taylor v commissioner tcmemo_1989_201 mccanless v commissioner tcmemo_1987_573 respondent has satisfied his burden of production in that the record establishes that petitioner has never filed a tax_return petitioner must establish reasonable_cause in order to prevail as to the portion of the addition_to_tax for which he bears the burden_of_proof petitioner has failed to present any persuasive evidence establishing that his failure_to_file that return timely was due to reasonable_cause and was not due to willful neglect respondent in turn also has failed to introduce any evidence establishing to the contrary ie that petitioner’s failure_to_file timely was not due to reasonable_cause or was due to willful neglect we sustain respondent’s determination as to the addition_to_tax under sec_6651 included in the notice_of_deficiency but hold for petitioner as to the portion of that addition_to_tax asserted in the answer b sec_6654 sec_6654 imposes an addition_to_tax on an underpayment of estimated_tax this addition_to_tax is mandatory unless the taxpayer establishes that one of the exceptions listed in sec_6654 applies 91_tc_874 the record establishes that petitioner failed to pay the required amount of estimated_tax for we conclude that respondent has met his burden of production as to this issue given that the record does not establish that any of the referenced exceptions applies we conclude that petitioner has failed to meet his burden_of_proof and sustain respondent's determination as to this issue see motley v commissioner tcmemo_2001_257 ___________________________________ all arguments made by the parties and not discussed herein have been rejected as meritless decision will be entered under rule


department of the treasury internal_revenue_service washington d c o f f ic e o f c h ief c o u n sel number info release date uil date attention dear i am responding to your date inquiry on behalf of your constituent in which he expressed concerns about the application of the segment tax to on-demand air charter flights in a recent technical_advice_memorandum tam issued by the irs i hope that the following information will be helpful to you in responding to the air transportation excise_taxes are user fees and the amounts collected are paid into the airport_and_airway_trust_fund the trust fund the trust fund uses these funds to plan construct develop operate and maintain the united states’ airport and airway system in addition the trust fund covers the portion of the department of transportation’s budget dealing with air transportation and air safety this includes over one-half of the operating costs of the federal aviation administration prior to the taxpayer_relief_act_of_1997 vol c b the act air transportation providers calculated the excise_tax on domestic air transportation solely as a percentage of the amount_paid for that transportation in addition providers of international air transportation beginning or ending in the united_states calculated an international_travel_facilities_tax as a fixed amount applicable to any amount_paid for that air transportation under the act the congress enacted legislation to decrease this percentage and add a new tax on each segment of taxable_transportation the act states the segment tax is imposed on the amount_paid for each domestic_segment of taxable_transportation in the context of commercial air transportation the segment tax applies to each passenger who pays any amount for a segment the term domestic_segment is defined as one takeoff and one landing which is taxable_transportation described in sec_4262 of the internal_revenue_code sec_4261 of the code the international_travel_facilities_tax is similar to the segment tax because both are calculated not as a percentage of the amount_paid but as a fixed amount applicable to any amount_paid for the transportation revrul_72_309 1972_1_cb_348 shows how to calculate the international_travel_facilities_tax when the purchaser makes a single payment for a charter that revenue_ruling concluded that when an individual or organization pays a single amount for a charter implicit in the charter fee is an amount_paid for the transportation of each passenger actually on the flight the similar language in sec_4261 and sec_4261 supports the conclusion that the segment tax should apply in the same way as the international_travel_facilities_tax thus although the irs has not issued guidance on the segment tax specifically the guidance for the similar international_travel_facilities_tax clearly suggests the segment tax should also apply per passenger the per-passenger application means all users of the airport and airway system will share equally in the cost rather than commercial air passengers bearing a higher share of those costs than passengers in chartered aircraft the secretary_of_the_treasury can prescribe the extent if any to which any ruling applies without retroactive effect sec_7805 of the code the holding of a tam applies retroactively unless the secretary exercises this discretionary authority generally a tam will not apply retroactively where the irs has a contrary regulation or revenue_ruling on point or where the irs has issued an earlier tam or letter_ruling to the taxpayer about the same matter under consideration in the tam revenue_procedure 2001_1_irb_79 the irs has not issued any regulation or revenue_ruling on the segment tax thus because the irs had not issued a letter_ruling to the taxpayer before issuing the tam it would generally not be appropriate to apply the tam nonretroactively simply because the taxpayer disagreed with the position reached in that tam i recognize the application of the segment tax to each passenger may be the subject of disagreement however where taxpayers are unclear on the application of a particular tax they can request a letter_ruling rather than wait for published guidance from the irs the letter_ruling program provides guidance to taxpayers when they are unclear on the application of the code each year we announce the procedures for requesting a letter_ruling in the first revenue_procedure published in the internal_revenue_bulletin this year’s procedures are in revproc_2001_1 2001_1_irb_1 copy enclosed if you have any questions please contact me or sincerely associate chief_counsel passthroughs and special industries by richard a kocak chief branch enclosure


internal_revenue_service number release date index number -------------------- ------------------------------------------------------ --------------------------------------------------------------- ----- ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ----------------- telephone number --------------------- refer reply to cc corp br2 plr-108039-12 date date taxpayer -------------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------- acquiring ----------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------- - corporation date date --------------------------------------------- ---------------------- -------------------------------- company official ---------------------------------------------------------------------------------- ------------------------------------------------------ tax professional --------------------------------------------------- --------------------------- dear -------------- this letter responds to your request for a ruling submitted by your authorized representative dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election the extension is being requested for taxpayer to file an election under sec_1_1502-21 of the income_tax regulations the election to relinquish the entire carryback period with respect to a consolidated_net_operating_loss cnol of the consolidated_group of plr-108039-12 which taxpayer was the common parent for the short taxable_year ending date the material information is summarized below throughout this letter any reference to an action taken by taxpayer after date or required to be undertaken by taxpayer after date will be treated as a reference to an action by acquiring as successor-in-interest to taxpayer summary of facts on date taxpayer merged with acquiring in a transaction treated as a reorganization under sec_368 acquiring is a member of a consolidated_group of which corporation is the common parent prior to the merger transaction taxpayer was the common parent of its own consolidated_group as a result of the merger transaction taxpayer’s separate consolidated_group ceased to exist its taxable_year terminated on date and taxpayer became a member of corporation’s consolidated_group taxpayer filed a separate short_period consolidated_return for the period between date and date taxpayer intended to relinquish the carryback period for its consolidated group’s cnol on its tax_return for the taxable_year ending date for various reasons a valid election was not filed subsequent to taxpayer filing the return it was discovered that the election had not been filed thereafter taxpayer submitted this request under sec_301_9100-3 for an extension of time to file the election taxpayer has represented that it is not seeking to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 at the time taxpayer requested relief taking into account any qualified_amended_return filed within the meaning of sec_1_6664-2 and for which the return position requires or permits a regulatory election for which relief is requested taxpayer also represents that the consolidated_group of which it was the common parent for the taxable_year ending date has not and will not carry any portion of the cnol back to a prior consolidated_return_year of the taxpayer consolidated_group taxpayer also represents that no member of the consolidated_group of which taxpayer was the common parent for the taxable_year ending date had a separate_return_year within the meaning of sec_1_1502-1 at any time during the carryback period sec_1_1502-21 allows a group to make an irrevocable election under sec_172 to relinquish the entire carryback period with respect to a cnol for any consolidated_return_year the election is made in a separate statement entitled this is an election under sec_1_1502-21 to waive the entire carryback period pursuant to sec_172 for the insert consolidated_return_year cnols of the consolidated_group of which insert name and employer_identification_number of common parent is the common parent sec_1_1502-21 also provides that the statement must be filed with the group’s income_tax return for the consolidated_year in which the loss arises under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i plr-108039-12 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1 b i therefore the commissioner has discretionary authority under sec_301 to grant an extension of time for taxpayer to file the election provided that taxpayer shows it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by taxpayer company official and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that taxpayer reasonably relied on a qualified_tax professional who failed to make or advise taxpayer to make the election see b v based on the facts and information submitted including representations made we conclude that taxpayer has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly we grant an extension of time under sec_301_9100-3 until forty-five days from the date on this letter for taxpayer to file the election the above extension of time is conditioned on the taxpayer’s consolidated group’s tax_liability its members’ liability and the tax_liability of any consolidated_group of which a member of taxpayer’s consolidated_group becomes a member if any being not lower in the aggregate for all years to which the election applies and all subsequent years than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the amount of tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the federal_income_tax returns involved taxpayer should file the election in accordance with sec_1_1502-21 taxpayer’s consolidated group’s return for the taxable_year ending date must be amended to attach the election statement required by sec_1_1502-21 a copy of this letter should be attached to the election statement alternatively if taxpayer files its amended_return electronically taxpayer may satisfy this latter requirement by attaching to the return a statement that provides the date and control number plr-108039-12 of this ruling letter caveats plr-108039-12 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition we express no opinion as to the tax effects or any other tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by taxpayer company official and tax professional the appropriate service office however should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent 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 ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


t c summary opinion united_states tax_court jorge gallardo petitioner v commissioner of internal revenue respondent docket no 6229-03s filed date jorge gallardo pro_se fred e green for respondent couvillion special_trial_judge this case was heard pursuant to sec_7463 in effect when the petition was filed the decision to be entered in this case is not reviewable by any other court and this opinion should not be cited as authority respondent determined a deficiency in petitioner's federal_income_tax for the year in the amount of dollar_figure and an unless otherwise indicated section references hereafter are to the internal_revenue_code in effect for the year at issue addition_to_tax under sec_6651 in the amount of dollar_figure for the failure_to_file the income_tax return timely at trial respondent conceded the sec_6651 adjustment the issues for decision are whether petitioner is entitled to a dependency_exemption deduction under sec_151 whether petitioner is entitled to head-of-household filing_status under sec_2 whether petitioner is entitled to the earned_income_credit under sec_32 and whether petitioner is entitled to the child_care_credit under sec_21 an additional adjustment reducing the rate reduction credit claimed by petitioner under sec_6428 is a computational adjustment that is resolved by the court's holding on the contested issues some of the facts were stipulated those facts with the exhibits annexed thereto are so found and are made part hereof petitioner's legal residence at the time the petition was filed was las vegas nevada petitioner married bertha alicia tello mrs gallardo on date they had three children of their marriage jorge a gallardo born on date stacy gallardo born on date and richard gallardo born on date at trial petitioner was employed as a cage cashier at one of the casinos in las vegas nevada mrs gallardo was also employed at a casino during the year at issue on date petitioner and his wife separated she moved out of the marital premises along with the three children petitioner thereafter filed a complaint for divorce in the district_court family division clark county nevada against his spouse a decree of divorce was rendered on date in the divorce decree the primary physical custody of the three children was awarded to mrs gallardo visitation privileges for petitioner were provided the divorce decree further provided for payment of child_support by petitioner in the amount of dollar_figure per month and an additional_amount of dollar_figure per month for child care the decree further ordered petitioner to pay dollar_figure for back child_support payable at the rate of dollar_figure per month it appears from the record that the back child_support represented petitioner's obligation for child_support from the date the parties separated in date months at dollar_figure per month to the date of their divorce petitioner admitted at trial that he paid no support to his wife and children from the date mrs gallardo moved out of their matrimonial domicile in date until he was ordered to pay the evidence conflicts as to the date the complaint was filed the acknowledgment or affidavit accompanying the complaint is dated date however the complaint was filed with the court on date the different dates are not material to the issues in the case support in the divorce decree the divorce decree further required petitioner to maintain medical and dental insurance for his children no evidence was presented at trial as to whether petitioner fulfilled this portion of the decree petitioner filed a federal_income_tax return for claiming head-of-household filing_status and one dependency_exemption deduction for his youngest child richard gallardo he claimed an earned_income_credit of dollar_figure with his son richard gallardo as the qualifying_child a child_care_credit of dollar_figure and a rate reduction credit under sec_6428 in the amount of dollar_figure in the notice_of_deficiency respondent disallowed petitioner's head-of-household filing_status and determined he was married_filing_separately respondent also disallowed the claimed dependency_exemption deduction for richard gallardo disallowed the claimed earned_income and child care credits and made a computational adjustment reducing the sec_6428 rate reduction credit from dollar_figure to dollar_figure in his petition to this court petitioner challenges these adjustments sec_7491 in some instances places the burden_of_proof on respondent however under sec_7491 and b for the burden to shift the taxpayer must comply with the substantiation and record-keeping requirements of the internal_revenue_code petitioner presented no documentary_evidence to substantiate his claim for the dependency_exemption therefore the burden_of_proof did not shift to respondent with respect to the first issue whether petitioner is entitled to a dependency_exemption deduction sec_151 allows taxpayers to deduct an annual exemption_amount for each dependent as defined in sec_152 under sec_152 the term dependent means certain individuals over half of whose support was received from the taxpayer during the taxable_year in which such individuals are claimed as dependents eligible individuals who may be claimed as dependents include among others a son or stepson of the taxpayer sec_152 and sec_152 further provides an additional requirement pertinent to the facts of this case that when the parents are not divorced or legally_separated under a decree of divorce or separate_maintenance in order for the custodial_parent to be entitled to the dependency_exemption deduction the parents must have lived apart during the last months of the taxable_year sec_1_152-1 income_tax regs provides that in determining whether an individual received over half of his support from the taxpayer there shall be taken into account the amount of support received from the taxpayer as compared to the entire amount of support which the individual received from all sources including support which the individual himself supplied in 56_tc_512 this court held that in establishing that more than one- half of a dependent's support has been provided a prerequisite to such a showing is the demonstration by competent evidence of the total amount of the dependent's support from all sources for that year if the amount of total support is not established and cannot be reasonably inferred from competent evidence available to the court it is not possible to conclude that the taxpayer claiming the exemption provided more than one-half of the support of the claimed dependent the court is not satisfied from the evidence that petitioner provided more than half of the support for his son during the year at issue petitioner presented no evidence to show the total support that was provided to the child during and the amount he provided to establish that such amount met the one-half threshold required under sec_152 petitioner and his former wife were both employed during the year and it is logical to assume and it was not established otherwise that until petitioner and his former wife separated on date the support for the son came from petitioner as well as from the earnings_of his former wife after date the child no longer lived with petitioner petitioner admitted that he provided no support for the remainder of to his wife and three children he only resumed support for his children in the year when he was ordered to do so by the nevada divorce court the court holds that petitioner is not entitled to a dependency_exemption deduction for his son for the year with respect to the second issue sec_2 provides generally that an individual shall be considered a head-of- household if among other requisites not pertinent here the taxpayer is not married at the close of the taxable_year and such individual maintains as his home a household that constitutes for more than one-half of such taxable_year the principal_place_of_abode as a member of such household of an unmarried son or stepson of the taxpayer sec_2 however petitioner was married as of date under sec_7703 petitioner although not divorced as of that date could have qualified for head-of-household if among other requisites of sec_7703 not pertinent here his spouse had not been a member of petitioner's household during the last months of the tax_year at issue petitioner's former wife did not leave the marital household until date consequently his former spouse was a member of petitioner's household for a portion of the time in the last months of petitioner therefore was married as of the close of the taxable_year under sec_7703 and therefore does not qualify for head-of-household filing_status petitioner's sole argument on this issue is that he maintained his home as a household that constituted for more than one-half of taxable_year until date the principal_place_of_abode for his son while that assertion is correct petitioner was married and additionally under sec_7703 petitioner was considered married as of the end of the taxable_year because his former spouse was a member of petitioner's household during the last months of taxable_year respondent therefore is sustained on the head-of- household issue with respect to the third issue sec_32 provides for an earned_income_credit in the case of an eligible_individual sec_32 in pertinent part defines an eligible_individual as an individual who has a qualifying_child for the taxable_year sec_32 a qualifying_child is one who satisfies a relationship_test a residency test an age_test and an identification requirement sec_32 to satisfy the residency test the qualifying_child must have the same principal_place_of_abode as the taxpayer for more than one-half of the taxable_year in which the credit is claimed sec_32 however sec_32 provides that in the case of an individual who is married within the meaning of sec_7703 the earned_income_credit is allowed only if a joint_return is filed for the taxable_year in question as noted in the earlier discussion since petitioner's wife was a member of his household during the last months of petitioner was considered married as of date since petitioner did not file a joint federal_income_tax return with his wife for he is not entitled to the earned_income_credit the final issue is petitioner's claim to what is generally referred to as the child_care_credit sec_21 generally provides for a credit against the tax to an individual who maintains a household that includes as a member one or more qualifying individuals the term qualifying_individual under sec_21 includes a dependent of the taxpayer under age with respect to whom the taxpayer is entitled to a dependency_deduction under sec_151 the allowable credit under sec_21 generally is based upon employment-related_expenses that are incurred to enable the taxpayer to be gainfully_employed including expenses_incurred for the care of a qualifying_individual since petitioner is not entitled to the dependency_exemption deduction for his son he is not entitled to the child_care_credit reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent for the deficiency and for petitioner for the addition_to_tax


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 3-plr-123974-02 date date company trust a_trust b a b c date date date year year legend plr-123974-02 year year year dear this letter responds to a letter dated date submitted on behalf of company requesting inadvertent termination relief under sec_1362 of the internal_revenue_code facts company elected to be an s_corporation effective date year on date year trust a and trust b became shareholders of company it is represented that both trust a and trust b satisfy the requirements of a qualified_subchapter_s_trust qsst under sec_1361 and that they timely filed qsst elections a is the income_beneficiary of trust a and b is the income_beneficiary of trust b under each trust's governing instrument the trustees are not required to distribute annually all of the trust's income within the meaning of sec_643 to each trust's current income_beneficiary when preparing company’s year tax returns company’s new accountants discovered that the trustees had not distributed trust a’s or trust b’s income to a and b respectively for the taxable years ending year year year and year the trustees were unaware that the failure to distribute all the income of a qsst would result in a termination of company's s election upon discovery of the requirement the trustees immediately took corrective action by making the required distributions for year and reporting the distributions on the relevant parties’ year tax returns company and its shareholders trust a_trust b and c represent that they have filed their returns for year sec_2 through consistent with the treatment of company as an s_corporation it is further represented that a and b’s individual income_tax returns for year sec_2 through properly included all of their share of the s_corporation income that they should have received from trust a and trust b respectively because the trusts did not distribute their income in year sec_2 through some of the other income of the trusts was not reported by the income beneficiaries in those years however it is represented that this income was taxed at the higher trust rate for those tax years company and its shareholders agree to make any adjustments consistent with the treatment of company as an s_corporation as may be required by the secretary company requests that inadvertent termination relief be granted under sec_1362 plr-123974-02 law and analysis sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1361 provides that an s_corporation cannot have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder for purposes of sec_1361 sec_1361 provides that a qsst whose beneficiary makes an election under sec_1361 will be treated as a_trust described in sec_1361 sec_1361 defines a qsst as a_trust a the terms of which require that i during the life of the current income_beneficiary there shall be only one income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current beneficiary in the trust shall terminate on the earlier of the beneficiary's death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to that beneficiary and b all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or resident_of_the_united_states sec_1361 provides that if any qsst ceases to meet any requirement of sec_1361 but continues to meet the requirements of sec_1361 the provisions of sec_1361 shall not apply to the trust as of the first day of the first taxable_year beginning after the first taxable_year for which the trust failed to meet the requirements of sec_1361 sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect to be an s_corporation sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the first day of the first taxable_year for which a corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that if an election under sec_1362 by any corporation was terminated under paragraph or of sec_1362 the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such termination steps were taken so that the corporation is a small_business plr-123974-02 corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such termination the corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based on the facts submitted and the representations made we conclude that company's s_corporation_election terminated on date year because the trustees of trust a and trust b failed to distribute all of the trusts’ income for the taxable_year ending year we also conclude that the termination was inadvertent under sec_1362 therefore under sec_1362 company will be treated as continuing to be an s_corporation from date year and thereafter provided that company's s_corporation_election is valid and is not otherwise terminated under sec_1362 if company trust a_trust b or c fail to treat company as described above this ruling will be null and void moreover this ruling is contingent on company and all of its shareholders treating company as having been an s_corporation for the period date year and thereafter and on company and its shareholders making any adjustments necessary for the consistent treatment of company as an s_corporation except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code specifically we express or imply no opinion regarding whether company is otherwise qualified to be an s_corporation or whether trust a or trust b is a valid qsst in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to company’s authorized representative this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent enclosures copy of this letter copy for sec_6110 purposes sincerely christine ellison chief branch office of the associate chief_counsel passthroughs and special industries


internal_revenue_service number info release date index no date dear this responds to your letter of date requesting a determination_letter on whether charter boat operators engaged in for-hire sport fishing activities can claim a credit or refund of the tax imposed on the diesel_fuel or gasoline used in their vessels while so engaged a determination_letter is issued by a director a letter_ruling is a written_statement issued to a particular taxpayer by the national_office involving the application of the tax laws to a taxpayer’s specific set of facts the taxpayer to whom the letter_ruling is issued and only that taxpayer may rely on the letter_ruling the irs does not issue letter rulings to business trade or industrial associations or similar groups concerning the application of the tax laws to members of the group if a particular taxpayer that is a member of your association would like to request a letter_ruling involving the application of the tax laws to their specific set of facts the instructions are set forth in revproc_2001_1 i r b copy enclosed in the meantime we hope the following general information will be useful to you under sec_6427 use in a motorboat is a nontaxable_use of diesel_fuel therefore boat operators can use dyed_diesel_fuel on which no tax has been imposed or they can use undyed taxed diesel_fuel and claim a credit or refund of the tax with regard to gasoline sec_6421 provides that a credit or refund is available to the ultimate_purchaser of gasoline used in an off-highway_business_use sec_6421 provides that off-highway_business_use does not include any use in a motorboat with the exception of any use in a vessel employed in the fisheries or the whaling business revrul_65_134 1965_1_cb_492 holds vessels are employed in the fisheries or whaling business when used exclusively for the purpose of catching shrimp and other types of aquatic life for sale commercially as bait or on specific trips exclusively for catching fish all of which are sold commercially the congress referenced that holding to describe the only use of gasoline in a motorboat for which a credit or refund would be available see s rep no pincite in revrul_78_312 1978_2_cb_266 the irs held that the term vessels employed in the fisheries includes only watercraft used in taking catching processing or transporting fish shellfish or other aquatic life for commercial purposes such as selling or processing the catch on a specific trip basis the ruling holds that the term does not include watercraft used on a specific trip for both sport fishing and commercial fishing there has been no other guidance issued by the irs on the definition of vessels employed in the fisheries or whaling business if you have any questions or require further assistance please feel free to contact my office at the number listed above sincerely associate chief_counsel passthroughs and special industries by ruth hoffman senior technician reviewer branch enclosure


department of the treasury internal_revenue_service washington d c significant index nos dollar_figure date feb of 0-t sa contact person id number telephone number employer_identification_number legend a o h w o h i i a i o y o h x n u o g z z m m o i u v p d dear sir or madam this is in reference to a letter dated date submitted on behalf of x by its authorized representative requesting rulings with respect to the federal tax consequence of the proposed transactions described below the information provided indicates that x the charitable_lead_trust had its origins in z the trust the trust was formed in as a revocable_trust pursuant to an agreement between b as settlor and b and c as trustees the trust became irrevocable upon b's death in pursuant to article il of the trust agreement during the life of b all of the trust's net_income was paid to b and certain amounts of principal were payable to b and to his wife d in his will b bequeathed his residuary_estate to the trust included in that residuary_estate was an interest in m a limited_partnership which later merged into another limited_partnership n pursuant to the trust agreement at b's death certain assets were distributed outright and a_trust in the amount of b's dollar_figure exemption from generation skipping transfer_tax was established under article v of the trust agreement for the benefit of d during her life with the remainder to be held in further trust for b's descendants at d's death the remaining assets inciuding most of b's limited_partnership_interest in n were held in trust for the benefit of d under article vu of the trust agreement the article viii trust all of the net_income of the article vii trust and certain amounts of principal were payable to d during her life the executors of b’s estate made a qtip_election to qualify the articte viii trust for the marital_deduction under sec_2056 b of the internal_revenue_code the code d died in because of the marital_deduction allowed in b's estate the article viii trust is includible in d's gross_estate for federal estate_tax purposes under sec_2044 of the code article vim of the trust agreement provides that upon the death of d and after the payment of estate inheritance and other taxes and distribution of certain tangible_personal_property the trustees shall add to the charitable_lead_trust created under article ix of the trust agreement upon d's death the maximum amount of principal of the article vifi trust that can provide a charitable deduction from the value of the taxable_estate of d pursuant to article 1x of the trust agreement the charitable_lead_trust operates as follows in each taxable_year during a period designated the charitable term the trustees are required to pay out of the net fair_market_value of the assets of the charitable_lead_trust valued as of the first day of each such year the unitrust_amount to one or more organizations that are described in sec_170 c a and a of the code as selected by the trustees the charitable term commenced on the date of death of d and expires nine years from that date the unitrust_amount is to be paid from the income of the charitable_lead_trust and to the extent income is not sufficient from the principal of the charitable_lead_trust any excess income after payment of the unitrust_amount is to be added to principal upon expiration of the charitable term the then principal of the charitable_lead_trust is to be distributed to b's descendants per stirpes the trust agreement prohibits the trustees from engaging in any act of self-dealing acquiring or retaining any excess_business_holdings making any jeopardizing investments or making any taxable_expenditures that would subject the charitable_lead_trust to any_tax under sec_4941 sec_4943 sec_4944 or sec_4945 of the code the current trustees of the charitable_lead_trust aree b's daughter and f b's granddaughter distributions were made from the principal of the article vill trust to the charitable_lead_trust consisting of the limited_partnership_interest in n and certain rea property the charitable_lead_trust was fully funded on date as of date the latest date for which values of n partnership interests are available the value of the charitable lead trust's capital_account in n was about of the value of the total partnership interests in n it is expected that the charitable_lead_trust will liquidate the real_property it received from the article vill trust and invest the net_proceeds in n however it is anticipated that even if the charitable_lead_trust makes such additional investment in n the value of the charitable lead trust's interest in n will be less than of the value of the total partnership interests in n the purpose of n is to provide professional investment management and advisory services on a cost-efficient basis to the members of h's family the h family consisting of the descendants of h and their spouses and to related entities n maintains a diversified investment portfolio consisting of a variety of asset classes such as publicly_traded_securities hedge funds private company mezzanine and equity securities and limited_partnerships as the investment vehicle for the h family n together with p and r both of which are corporations discussed below provides a variety of services exclusively for the h family and related entities g who is a professional investment manager and is not a member of the h family is the president and chief_executive_officer of n and also of p n currently has one general_partner p the general_partner and timited partners together the partners p was created to function exclusively as the sole general_partner of n the limited partners in n consist of individuals trusts one estate and another limited_partnership ail of such individuals are descendants of h or are the spouses of such descendants and all of the trusts have been established for the benefit of one or more of such individuals b was a son of h and many of the limited partners are lineal_descendants of b or are trusts in which one or more of b's descendants have a beneficial_interest the gross_income of n is from dividends interest and realized and unrealized gains recognized in connection with n's investment activities pursuant to article vi of n's partnership_agreement the net_income and net losses of n are generally allocated among the partners in accordance with their respective capital percentages the capital percentage with respect to any partner equals the partner's capital as defined in n's partnership_agreement divided by the sum of all partners’ capital n charges its limited partners a fee for its investment services based upon n's expense ratio the expense ratio is floating and is n's actual overhead occupancy equipment salaries etc multiplied by each limited partner's capital percentage this overhead includes the compensation paid to g which includes salary and bonus based upon n's performance under sec_4 of the n agreement n reimburses its general_partner p for ail costs and expenses paid_by p on behalf of n and thus p is reimbursed at cost sec_4 prohibits any stockholder of p from being paid a salary or any other form of compensation_for services rendered that are reimbursable by n sec_4 of the n agreement limits the liability of limited partners by providing that no - limited_partner will be required to make additional capital contributions and that no limited_partner will be liable for any liabilities obligations expenses or losses of n in excess of such limited partner's interest in any undistributed_income profits or property of n section dollar_figure of the n agreement as amended as of date prohibits n from making any toans to or guaranteeing any indebtedness of any partners there were no such loans or guarantees outstanding as of the date of the amendment lineal_descendants of b and the estate of a lineal descendant of b own an aggregate of of the big_number issued and outstanding shares in shares are owned by related individuals who are not descendants of ie descendants of b's brother thus descendants of b own of the voting power of p p all of which have equal voting rights the remaining sec_3_1 of the n agreement states that unless otherwise provided the management operating policy and investment decisions of n are vested exclusively in the general_partner the general_partner has the power on behalf and in the name of n to carry out any and all of the purposes of n and to perform all acts and to enter and perform all contracts and other undertakings that the general_partner deems necessary or advisable among the specific powers of the general 2g partner listed in sec_3_1 are i to utilize the capital and assets of n in furtherance of n's purposes ii to receive buy sell exchange trade and otherwise deal in and with n's properties iii to employ or consult such persons as the general_partner deems advisable for the operation and management of n vi to possess transfer mortgage pledge or otherwise deal in and to exercise all rights powers privileges and other incidents_of_ownership or possession with respect to securities options or other_property held or owned by n v to enter into make and perform all contracts agreements and other undertakings as the general_partner may determine to be necessary advisable or incidental to the carrying out of n's purposes and v to execute all other instruments of any kind or character that the general_partner determines to be necessary or appropriate in connection with the business of n under sec_4 of the n agreement the responsibilities of the general_partner include managing n on a daily basis administering n's investments and providing reports to n's limited partners pursuant to sec_4 of the n agreement the general_partner is not permitted to engage in any trade business or occupation other than the business of n as already noted sec_4 of the n agreement provides that n will reimburse the general_partner for all costs and expenses paid_by the general_partner on behalf of n such costs and expenses include all routine and recurring costs and expenses_incurred with respect to the ordinary conduct of n's business such as clerical bookkeeping and administration_expenses payroll_taxes and employee costs rent telephone charges utility charges costs of office supplies postage and office equipment expenses n will reimburse the general_partner only for costs and expenses that are reasonable and necessary and that are not excessive r is a corporation that provides general accounting tax and clerical services to the individual members of and entities associated with the h family including the charitable_lead_trust and n individuals who are descendants of b and trusts for the benefit of descendants of b own an aggregate of of the voting power of r r is not a partner in n r operates on a cost-sharing basis without any built-in profit in addition to providing services r subleases office space to n pursuant to sec_4947 of the code and sec_53_4947-1 of the foundation and _ similar excise_taxes regulations sec_4941 regarding self dealing sec_4943 regarding excess_business_holdings and sec_4945 regarding taxable_expenditures apply to a split-interest trust as if under sec_501 not all of the unexpired interests in the trust are devoted to one or more of the purposes described in sec_170 c and the trust has amounts in trust for which a deduction was allowed under sec_170 sec_545 b c a ar it were a private_foundation if the trust is not exempt from federal income_taxation sec_4946 a - g of the code and sec_53_4946-1 a i - vii of the regulations define the term disqualified_person with respect to a private_foundation as a person who is a substantial_contributor to the foundation as defined in sec_507 a foundation_manager an owner of more than of the total combined voting power of a corporation profits interest of a partnership or beneficial_interest of a_trust or unincorporated enterprise which is a substantial_contributor to the foundation a member_of_the_family of any of the above or a corporation partnership trust or estate of which persons described above own more than of the voting power profits interest or beneficial_interest under sec_507 d and sec_1_507-6 a of the income_tax regulations a substantial_contributor is defined as a person who contributes more than dollar_figure to the private_foundation where such amount is more than two percent of the total contributions received by the eo fa foundation trust in the case of a_trust the term substantial_contributor also means the creator of the sec_4946 of the code and sec_53_4946-1 f of the regulations define the term foundation_manager as an officer director or trustee of a foundation or an individual having powers or responsibilities similar to those of officers directors or trustees of the foundation and with respect to any act or failure to act the employees of the foundation having authority or responsibility with respect to such act or failure to act sec_4946 of the code provides that for purposes of sec_4946 the family of any individual includes only his or her spouse ancestors children grandchildren great grandchildren and the spouses of children grandchildren and great grandchildren sec_4941 a of the code imposes a tax on each act of self-dealing between a disqualified_person and a private_foundation sec_4941 d a of the code and sec_53_4941_d_-2 of the regulations provide that the term self-dealing includes any direct or indirect sale exchange or leasing of property between a private_foundation and a disqualified_person sec_4941 d c of the code and sec_53 d -2 d of the regulations provide that the term self-dealing includes any direct or indirect furnishing of goods services or facilities between a private_foundation and a disqualified_person sec_4941 d d of the code and sec_53 d - e of the regulations provide that the term self-dealing includes any direct or indirect payment of compensation or payment or reimbursement of expenses by a private_foundation to a disqualified_person sec_4941 d e of the code and sec_4941 d -2 f of the regulations define self-dealing as any direct or indirect transfer to or use by or for the benefit of a disqualified sec_53 d -2 f further provides person of the income or assets of a private_foundation that the purchase of or sale of stock or other_securities by a private_foundation is an act of self- dealing if such purchase or sale is made in an attempt to manipulate the price of the stock or other_securities to the advantage of a disqualified_person pursuant to sec_53 d -2 f of the regulations the fact that a disqualified_person receives an incidental or tenuous benefit from the use by a foundation of the foundation's income or assets will not by itself make such use an act of self-dealing sec_4941 d e of the code and sec_53 d -3 c of the regulations provide that except in the case of a government_official the payment of compensation and the payment or reimbursement of expenses by a private_foundation to a disqualified_person for personal services that are reasonable and necessary to carrying out the exempt_purpose of the private_foundation is not an act of self-dealing if the compensation or payment or reimbursement is not excessive sec_53 d -3 c further provides that the term personal services includes the services of a broker serving as agent for the private_foundation and that this exception to self-dealing applies without regard to whether the person who receives the compensation or payment or reimbursement is an individual regulations for determining whether compensation is excessive_compensation payments are not excessive if they are reasonable and are in fact payments purely for sec_53_4941_d_-3 c refers to sec_1_162-7 of the under sec_1_162-7 services in exampie of sec_53 d -3 c of the regulations c is a manager of private_foundation x and an owner of an investment counseling business acting in his capacity as an investment counselor c manages x's investment portfolio for which he received an amount from x which is determined not to be excessive the payment of such compensation to c does not constitute an act of self-dealing sec_53 d -1 b of the regulations provides for purposes relative to acts of indirect if the foundation or one or self-dealing under sec_4941 of the code two basic tests for determining whether an organization is controlled by a private_foundation control exists i more of its foundation managers acting only in such capacity may only by aggregating their votes or positions of authority require the organization to engage in_a transaction which if engaged in - with the private_foundation would constitute self-dealing or ii in the case of a transaction between the organization and a disqualified_person if such disqualified_person together with one or more persons who are disqualified persons by reason of such person's relationship within the meaning of sec_4946 a c through g to such disqualified_person may only by aggregating their votes or positions of authority with that of the private_foundation require the organization to engage in such a transaction will be considered to be controtled by a private_foundation or by a private_foundation and disqualified persons if such persons are able in fact to control the organization even if their aggregate voting power is less than of the total voting power of the organization's governing body or if one or more of such persons has the right to exercise veto power over the actions of such organization relevant to any potential acts of self-dealing sec_53 d -1 b of the regulations also provides that an organization in revrul_76_158 1976_1_cb_354 a private_foundation owned of the voting_stock of a corporation a foundation_manager owned the remaining but did not hold a position of authority in the corporation by virtue of being a foundation_manager revrul_76_158 states that the corporation was not controlled by the private_foundation under the first test of sec_53 d -1 b of the regulations because the foundation_manager held no stock in his capacity as foundation_manager and did not occupy a position of authority in the corporation by virtue of being a foundation_manager and because the private_foundation did not either alone or with the foundation_manager acting only in such capacity contro the corporation states that the corporation was not controlled by the private_foundation under the second test of sec_53 d -1 b of the regulations through the foundation manager's ownership of of the voting_stock he could controi the corporation without aggregating his votes with those of the private_foundation moreover the private_foundation did not have the right to exercise veto power over the actions of the corporation revrul_76_158 also sec_4943 of the code provides for the imposition of a tax on the excess_business_holdings of any private_foundation in during the taxable_period a business_enterprise during any taxable_year which ends sec_4943 and sec_53_4943-3 of the regulations define the term excess_business_holdings with respect to the holdings of any private_foundation in any business_enterprise as the amount of stock or other interest in the enterprise which the foundation would have to dispose_of to a person other than a disqualified_person in order for the remaining holdings of the foundation in such enterprise to be permitted holdings under sec_4943 c a and a of the code and sec_53_4943-3 ch2 of the regulations the permitted holdings of a private_foundation in a partnership are generally of the 18u62 profits interest reduced by the percentage of the profits interest owned by all disqualified persons if the effective_control of the partnership is in one or more persons who are not disqualified persons with respect to the foundation then the prior sentence is applied by substituting for sec_4943 d b of the code and sec_53_4943-10 of the regulations provide that the term business_enterprise does not include a trade_or_business at least of the gross_income of which is derived from passive sources stock in a passive holding_company is not to be considered a holding in a business_enterprise even if the company is controlled by the foundation instead the foundation is treated as owning its proportionate share of any interests in a business_enterprise held by such company under sec_4943 sec_53_4943-10 of the regulations defines gross_income from passive sources as including the items exciuded by sec_512 b such as dividends interest and annuities and by sec_512 such as all gains and losses fram the sale exchange or other_disposition of property recognized in connection with the organization's investment activities income thus classified as passive does not ose its character as passive_income merely because sec_512 b or relating to debt-financed_income apply to such income in s rep no cong sess the senate_finance_committee stated the follawing regarding the meaning of business holding under sec_4943 of the code a passive holding_company is not to be the committee also provided that stock in considered a business holding even if the haiding company is controlled by the foundation instead the foundation is to be treated as owning its proportionate share of the underlying assets of the holding_company the committee also made it clear that passive investments generally are not to be considered business holdings for example the holding of a bond issue its not a business holding nor is the holding of stock of a company which itself derives income in the nature of a royalty to be treated as a business holding revrul_78_44 1978_1_cb_168 held that a c organization's leasing of heavy machinery under long-term_lease agreements requiring the lessee to provide insurance pay the applicable taxes and make and pay for most repairs with the functions of securing leases and processing rental payments performed for the organization without compensation was not excepted from the term unrelated_trade_or_business by reason of the volunteer labor exception under sec_513 a of the code once the organization found a lessee and leased the property the only remaining requirement generally was to receive record and deposit the rents the work in connection with finding a lessee negotiating a lease and processing the rental payments was performed for the organization without compensation the service reasoned that the rental of personal_property is a trade_or_business and that the volunteer labor exception applies only where the performance of services is a material_income-producing_factor in carrying on the business and there was no significant amount of labor regularly required or involved in the kind of business carried on by the organization sec_4945 a of the code imposes an excise_tax on each taxable_expenditure of a private_foundation sec_4945 d of the code and sec_53_4945-6 of the regulations state that the term taxable_expenditure means any amount_paid or incurred by a private_foundation for any _ purpose other than one specified in sec_170 c b bis sec_53_4945-6 i and ii of the regulations provide that expenditures to acquire investment_assets entered into for the purpose of obtaining income or funds to be used in furtherance of purposes described in sec_170o c b or reasonable expenses related thereto will not be treated as taxable_expenditures under sec_4945 d the limited partners in n currently include individuals trusts one estate and a limited_partnership under code sec_4946 a b and d of the individuals who are limited partners in n are disqualified persons with respect to the charitable_lead_trust because they are either i trustees of the charitable_lead_trust and thus foundation mangers or ti family members as defined in code sec_4946 of such trustees or of b the creator of the charitable_lead_trust in addition the limited_partnership that is a limited_partner in n is a disqualified_person because pursuant to code sec_4946 a f individuals who are disqualified persons as described above hold more than of the profits interest in such partnership further at least of the trusts that are limited partners in n are disqualified persons with respect to the charitable_lead_trust because pursuant to cade sec_4946 g individuals who are disqualified persons as described above hold more than of the beneficial_interest in such trusts n itself is a disqualified_person with respect to the charitable_lead_trust pursuant to cade sec_4946 f because n is a partnership in which persons that are disqualified persons as described above own more than of the profits interest p the corporate general_partner of n is a disqualified_person with respect to the charitable_lead_trust pursuant to code sec_4946 e because p is a corporation of which individuals and an estate which are disqualified persons as described above together own more than of the total combined voting power - r is a disqualified_person with respect to the charitable_lead_trust pursuant to code sec_4946 because r is a corporation of which individuals and a_trust which are disqualified persons as described above together own more than of the total combined voting power the charitable_lead_trust pays r a fee for general accounting tax and clerical services in addition the charitable_lead_trust as a limited_partner of n pays n a fee for investment management and advisory services and through n reimburses the general_partner p for the charitable lead trust's pro_rata share of general accounting tax and clerical services provided by r to n as described above n p and r are disqualified persons with respect to the charitable_lead_trust p was formed to serve exclusively as the general_partner of n and pursuant to sec_4 of the n agreement p is prohibited from engaging on any other trade business or occupation thus ail of the expenses of p are rejated to the provision of investment services to the partners and n teimburses p only for such expenses r provides its administrative and clerical services to the charitable_lead_trust and n on a cost- sharing basis without any built-in profit the charitable_lead_trust and n pay r only for such services that are reasonable and necessary to the operation of the charitable_lead_trust respectively the making of payments or reimbursements by a private_foundation to disqualified persons generally constitutes an act of self-dealing under code sec_4941 d d code sec_4941 d e however provides for an exception from self-dealing for the payment of compensation or the reimbursement of expenses by a private_foundation to a disqualified_person for personal services that are reasonable and necessary to carrying out the exempt_purpose of the private_foundation if the compensation or reimbursement is not excessive the term personal services includes the services of a broker serving as agent for the private_foundation reg d -3 c n provides investment management and advisory services to the charitable_lead_trust that are simitar to the services provided by a broker n is comparable to the investment counseling business owned by a disqualified_person in example of reg sec_3 d -3 c which managed the investment portfolio of a private_foundation the personal services rendered to the charitable_lead_trust directly by r and n and indirectly by p and r through n are reasonable and necessary for the charitable_lead_trust to carry out its charitable purpose of distributing funds to tax-exempt organizations the charitable_lead_trust as a limited_partner of n pays n a fee for investment management and advisory services in order to perform those services n needs office space which it subleases from r at cost both n and r are disqualified persons with respect to the charitable_lead_trust pursuant to code sec_4941 d a self-dealing includes any direct or indirect leasing of property between a private_foundation and a disqualified_person however the sublease of office space by n from r is not an act of indirect self-dealing between the charitable_lead_trust and r because n is not controlled by the charitable_lead_trust within the meaning of reg b d - further although disqualified persons with respect to the charitable_lead_trust are also limited partners in n and n trust and such disquatified persons do not involve a transfer to or use for the benefit of a disqualified_person of the income or assets of the charitable_lead_trust under code sec_4941 e itself is a disqualified_person co-investments by the charitable lead - code sec_4943 regarding excess_business_holdings applies only to such holdings in a business_enterprise and the term business_enterprise does not include a trade_or_business ate teast of the gross_income of which is derived from passive sources a strict reading of sec_53_4943-10 of the requiations would limit the term passive holding_company to organizations receiving at least of their gross_income exclusively from the passive sources listed in sec_4943 the term business_enterprise for purposes of sec_4943 however may not encompass certain partnerships that engage solely in investment activities to include investments in limited_partnerships furthermore the charitable_lead_trust represents that neither n nor any other disqualified_person with respect to the trust is or will be involved in managing any third-party investment_partnership in which n currently has an investment or may invest in the future because limited_partnership interests may represent passive investments comparable to stock_or_securities n based on the specific facts represented in this case will not be treated as a business_enterprise under sec_4943 the policies underlying sec_4943 support our conclusion the legislative_history of the tax reform act of p l made it clear that congress only sought to prevent private_foundations from engaging in active businesses specifically the senate_finance_committee stated that stock in a passive holding_company is not to be considered a business holding even if the -10- holding_company is controlled by the foundation instead the foundation is to be treated as owning its proportionate share of the underlying assets of the holding_company the committee also made it clear that passive investments generally are not to be considered business holdings see s rep no cong sess reprinted in u s code cong serv n will not engage directly in any sale_of_goods or performance of services but will merely hoid interests in other business enterprises the purpose of n is not to maintain family control of a business the operation of n may actually result in less business involvement or diversion of attention of foundation managers toward investment activities than would otherwise be the case a contrary conclusion in this case would prevent the charitable_lead_trust from indirectly investing in limited_partnership interests through n even though it could invest in such interests directly we emphasize that our ruling in this case applies solely to the facts as described and solely for purposes of sec_4943 of the code and not sec_513 or other code sections the charitable_lead_trust will pay unrelated_business_income_tax on their unrelated_business_taxable_income in accordance with sec_512 c we have not considered whether the charitable lead trust's proportionate share of any interests in a business_enterprise held by n constitutes excess_business_holdings the charitable lead trust's investment expenditures are made and its expenses incidental to its investment activities are incurred for the purpose of obtaining income to carry out the cartable purpose of the charitable_lead_trust ie to distribute funds to tax-exempt organizations addition the charitable lead trust's expenses incidental to its investment activities are exclusively on a cost_recovery basis and are reasonable thus the charitable lead trust's investment expenditures and its expenses incidental to its investment activities do not constitute taxable_expenditures under code sec_4945 in accordingly we rule as follows the charitable lead trust's retention of an interest and investment in n as described herein are not direct or indirect acts of self-dealing as defined in sec_4941 d of the codey from the date of commencement of the charitable_lead_trust payments by the charitable_lead_trust to r for general accounting tax and clerical services and to n i for investment management and advisory services ii for the reimbursement of p for costs and expenses paid as the general_partner of n and iii for the payment to r for general accounting tax and clerical services do not constitute direct or indirect acts of self-dealing by the charitable_lead_trust as defined in code sec_4941 d or taxable_expenditures as defined in code sec_4945 the sublease of office space by n from r does not constitute an indirect act of self-dealing by the charitable_lead_trust as defined in sec_4941 d the charitable lead trust's limited_partnership_interest in n does not constitute excess_business_holdings as defined in code sec_4943 this ruling is based on the understanding that there wiil be no material changes in the facts upon which it is based bos also this ruling is directed only to the organization that requested it sec_6110 of the code provides that this ruling may not be used or cited by others as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this fetter sincerely ce ae mete robert c harper jr manager exempt_organizations technical group


t c memo united_states tax_court tim w holliday petitioner v commissioner of internal revenue respondent docket no 13020-02l filed date tim w holliday pro_se laurel m costen for respondent memorandum opinion gale judge this case arises from a petition for review under sec_6330 d of respondent’s determination to proceed with a proposed levy to collect petitioner’s and federal_income_tax liabilities the unless otherwise noted section references are to the internal_revenue_code as amended issue for decision is whether respondent may proceed with the proposed levy we hold that he may background petitioner was a resident of american canyon california when his petition was filed petitioner timely filed a individual federal_income_tax return reporting tax due of dollar_figure after correcting the return for computational and clerical errors respondent assessed the tax due thereon of dollar_figure on date petitioner did not timely file a federal_income_tax return for or on date respondent prepared a substitute for return for each year and on date respondent assessed tax of dollar_figure for and dollar_figure for petitioner filed and individual federal_income_tax returns on september and respectively respondent subsequently abated the assessment for each year to reflect the tax reported on petitioner's returns after correcting for computational and clerical errors petitioner filed a individual federal_income_tax return on date an assessment of dollar_figure was made with respect to that return respondent concedes that notices of deficiency for these years were not received by petitioner petitioner did not timely file a federal_income_tax return for on date respondent prepared a substitute for return and days later petitioner submitted a return that was filed as an amended_return the return petitioner submitted reported dollar_figure of tax due which respondent assessed petitioner timely filed and individual federal_income_tax returns reporting tax due of dollar_figure and dollar_figure respectively which respondent assessed on date petitioner filed amended returns for and reporting the tax due on each amended_return as zero respondent treated these amended returns as claims for refund and denied them on date respondent issued a letter final notice notice_of_intent_to_levy and notice of your right to a hearing to petitioner for the unpaid balances of the aforementioned assessments for the tax years and on date petitioner submitted to respondent a form request for a collection_due_process_hearing in his request petitioner advised that he would have a stenographer present at the hearing by letter dated date the appeals officer advised petitioner that neither stenographic nor audio recording of the hearing would be permitted a hearing was held on date during which petitioner was not permitted to make an audio or stenographic recording the appeals officer also refused to consider petitioner's arguments related to the underlying tax_liabilities covered by the levy notice on date a notice_of_determination concerning collection action s under sec_6320 and or was mailed to petitioner in which the appeals officer recommended proceeding with the levy on date petitioner timely petitioned this court for review of the determination discussion 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 the secretary is authorized to collect such tax by levy upon property belonging to the taxpayer sec_6331 provides that the secretary is obliged to provide the taxpayer with notice including notice of the administrative appeals available to the taxpayer before proceeding with collection by levy sec_6330 generally provides that the secretary cannot proceed with the collection_of_taxes by way of a levy on a taxpayer's property until the taxpayer has been given notice of and the opportunity for an administrative review of the matter in the form of an appeals_office hearing and if dissatisfied with judicial review of the administrative determination see 115_tc_35 114_tc_176 sec_6330 specifies issues that the taxpayer may raise at the hearing the taxpayer may raise any relevant issue relating to the unpaid tax or the proposed levy including spousal defenses challenges to the appropriateness of collection actions and alternatives to collection sec_6330 the taxpayer also may challenge the underlying tax_liability if the taxpayer did not receive a statutory_notice_of_deficiency or did not otherwise have an opportunity to dispute the tax_liability sec_6330 sec_6330 provides that the determination of the appeals officer shall take into consideration inter alia the issues raised by the taxpayer we review the determination de novo when the underlying tax_liability is in dispute goza v commissioner supra pincite and under an abuse_of_discretion standard when it is not 114_tc_604 goza v commissioner supra pincite two of the principal arguments petitioner raises are that he did not receive the hearing to which he was entitled under sec_6330 because he was not permitted to record the hearing and that the appeals officer refused to consider arguments pertaining to the underlying tax_liabilities because petitioner reported those liabilities as due on his returns the hearing in this case was conducted and the determination issued before our opinions in 121_tc_8 and 122_tc_1 in which we held respectively that a taxpayer in a sec_6330 hearing is entitled to make an audio recording thereof and to dispute the underlying tax_liability even where the taxpayer reported the liability as due on his return at trial we afforded petitioner the opportunity to raise any issue he considered relevant to the proposed levy or the underlying tax_liabilities we consider those arguments below petitioner argues that the notice_of_determination was invalid and we therefore lack jurisdiction because the hearing he received was defective in several respects we disagree the defects in the hearing alleged by petitioner do not invalidate the notice and deprive us of jurisdiction see 117_tc_159 certain portions of the underlying tax_liabilities were attributable to adjustments respondent made pursuant to sec_6213 however we do not consider whether pursuant to sec_6213 petitioner previously had an opportunity to dispute these portions within the meaning of sec_6330 because in this proceeding petitioner has in any event raised only meritless arguments with respect to his underlying tax_liabilities in light of the fact that petitioner sought but was denied recordation of the hearing we resolve all doubts in petitioner’s favor treating any issue or argument he raised at trial or in any written submission as having been raised at his hearing petitioner next argues that his hearing was invalid and collection may not proceed because the appeals officer refused to provide him with verification and did not verify at the hearing that the requirements of any applicable law or administrative procedure were met as required under sec_6330 petitioner admitted in his petition and at trial that at the hearing the appeals officer would not allow petitioner to see the appeals officer’s copies of the transcripts of account on the basis of the foregoing we are satisfied that the appeals officer obtained verification at the hearing he was not required to provide any such verification to petitioner see 118_tc_162 petitioner next claims that he did not receive notice_and_demand for payment as required by sec_6303 with respect to the liabilities for any of the taxable years in question and that the appeals officer did not consider his contentions in this regard petitioner’s claim of nonreceipt is belied by the certified copies of forms certificate of assessments payments and other specified matters in evidence for each year which show that statutory notices of balance due were issued for each year absent some showing of irregularity in the forms which petitioner has not made those records serve as presumptive evidence that notice_and_demand pursuant to sec_6303 was mailed to petitioner see 7_f3d_137 9th cir 871_f2d_1015 11th cir 119_tc_252 respondent also relies on the notice_of_intent_to_levy issued in this case as satisfying sec_6303 see 953_f2d_531 9th cir standifird v commissioner tcmemo_2002_245 affd 72_fedappx_729 9th cir in light of the appeals officer’s review of the transcripts of account we are satisfied that he obtained sufficient verification that the requirements of applicable laws and procedures had been met petitioner also advanced a claim at trial that the period of limitations for collection of his liability had expired the period for collection following assessment is years sec_6502 if a hearing is requested under sec_6330 the running of the period of limitations for collection is suspended for the period during which the hearing and appeals therein are pending sec_6330 117_tc_127 further the period for collection shall not expire before the 90th day after the day on which there is a final_determination in the hearing sec_6330 petitioner's liability was assessed on date and petitioner requested a hearing under sec_6330 on date ie within the 10-year period following the date assessment accordingly the period of limitations for collection of petitioner's liability is suspended and has not expired further with respect to the underlying tax_liabilities petitioner contends that he asked the appeals officer to tell him which internal_revenue_code section makes him liable for tax and whether that section is within subtitle a petitioner further claims that he inquired as to what legislative_regulation makes him liable for interest in both instances the appeals officer apparently refused to consider these inquiries these are frivolous issues that the appeals officer might have responded to but was certainly not required to consider suffice it to say that petitioner reported wage income for each of the years in question and such income is taxable pursuant to sec_1 a - c a and see also 640_f2d_1014 9th cir as to petitioner's interest liability sec_6601 provides for the imposition of interest on unpaid tax_liabilities and sec_6601 provides for the assessment and collection of that interest see also sec_301_6601-1 proced admin regs in sum the challenges to the existence or amount of the underlying tax_liabilities that petitioner advanced either at his hearing or in the instant proceeding are meritless finally petitioner raised a frivolous argument to the effect that there had been no delegation of authority from the secretary to issue the notice concerning his hearing under sec_6330 or to conduct it and accordingly his hearing was null and void for want of notice from or its conduct by the secretary himself for the purposes presented here the secretary has delegated the authority to issue a final notice_of_intent_to_levy to certain irs employees see delegation_order rev effective date internal_revenue_manual sec_1 see also 119_tc_252 the statute itself provides that the hearing is to be conducted by an officer_or_employee of the irs office of appeals not the secretary sec_6330 having considered all of petitioner’s arguments and found them meritless we conclude that the appeals officer’s failure to permit petitioner to make an audio or other recording of his hearing was harmless error similarly since petitioner has raised only meritless arguments with respect to the underlying tax_liabilities the appeals officer’s refusal to consider arguments concerning the underlying tax_liabilities was also harmless error in these circumstances we do not believe it is either necessary or productive to remand this case for a recorded hearing where an appeals officer might consider petitioner’s meritless arguments concerning his underlying tax_liabilities see lunsford v commissioner t c pincite see also keene v commissioner t c pincite kemper v commissioner tcmemo_2003_195 as petitioner has not raised a spousal defense challenged the appropriateness of collection actions or offered collection alternatives and the arguments he has raised are meritless we sustain respondent’s determination to proceed with the levy at issue to reflect the foregoing decision will be entered for respondent