t c memo united_states tax_court john huntz leineweber petitioner v commissioner of internal revenue respondent docket no 12161-01l filed date john huntz leineweber pro_se daniel j parent for respondent memorandum findings_of_fact and opinion gerber judge petitioner under sec_6330 petitioned this court seeking a review of respondent’s determination to proceed with a proposed levy to collect unless otherwise indicated all section references are to the internal_revenue_code in effect for the year under consideration petitioner’s unpaid federal income taxes for the issues for our consideration are whether petitioner was granted an opportunity for a hearing within the meaning of sec_6330 and whether respondent’s determination to proceed with the proposed collection activity was an abuse_of_discretion a trial was held at san francisco california and petitioner provided testimony and argument findings of fact2 petitioner resided in sacramento california at the time he filed the petition in this case petitioner filed his federal_income_tax return on date on the return petitioner claimed an overpayment of dollar_figure respondent applied the claimed overpayment to petitioner’s unpaid tax_liability for respondent later discovered that petitioner had failed to report dollar_figure of interest_income for on date respondent mailed a statutory_notice_of_deficiency to petitioner with respect to his tax_year in the notice respondent determined a dollar_figure income_tax deficiency and a dollar_figure addition_to_tax under sec_6651 petitioner received the notice but did not file a petition with this court to contest respondent’s deficiency determination respondent assessed the additional tax penalty and interest on date the parties’ stipulation of facts is incorporated by this reference on date respondent issued a form_1058 final notice--notice of intent to levy and notice of your right to a hearing petitioner timely submitted form request for a collection_due_process_hearing administrative hearing petitioner did not dispute his liability for the tax_deficiency instead he disputed his responsibility to make payment because he believed that the overpayment should have been used to satisfy the income_tax deficiency rather than offset against his tax_liability specifically petitioner claimed respondent erred in applying the overpayment to his tax_liability petitioner mistakenly believed the collection_period for his liability had expired in date however the period did not in fact expire until date under this erroneous belief petitioner claimed the overpayment should have been applied to the tax_liability in addition to requesting a hearing petitioner requested the assistance of the taxpayer_advocate and his congressional representatives in resolving this matter the taxpayer_advocate conducted an investigation and determined the commissioner was correct in applying the credits to petitioner’s account the taxpayer_advocate verified that the collection_period expired on date and could see no reason to issue a refund from the account in response to petitioner’s request for an administrative hearing the appeals officer assigned to petitioner’s case contacted petitioner by telephone on date during this telephone conversation the appeals officer asked petitioner to schedule a conference date for a face-to-face in-person or telephone conference petitioner stated that he wanted his congressional liaison present at the meeting and the appeals officer expressed doubt as to the liaison’s attending as that was not the standard practice the appeals officer further explained that typically petitioner and the appeals officer were expected to attempt to resolve the case upon resolution the appeals officer would notify the congressional liaison of the resolution at this point petitioner took the appeals officer’s number and stated he would call him at a later time on date the appeals officer received a call from petitioner’s congressional liaison concerning petitioner’s case the appeals officer then telephoned petitioner and left a recorded message asking petitioner to call him to schedule an appointment no further communication occurred until date on date the appeals officer again telephoned petitioner and offered the date of date petitioner noted that september was the labor day holiday the appeals officer then offered alternative dates of september or petitioner stated he could not access his calendar on his computer and would have to get back to the appeals officer with a date after not hearing from petitioner the appeals officer telephoned him again on date during this conversation the appeals officer indicated that he was scheduling a conference for date petitioner stated that he refused to confirm that date petitioner did not give a reason for refusing to confirm nor did he offer alternative dates on this same day the appeals officer contacted the taxpayer_advocate who stated she would not attend any hearing and that appeals should proceed with the date hearing the taxpayer_advocate also contacted petitioner by telephone on date and told him that he needed to work with the appeals officer to resolve the dispute the appeals officer after consulting with his manager wrote a letter dated date to petitioner informing him that a conference was scheduled for a m on date in the letter the appeals officer indicated i reminded you of the date this morning and you said that you didn’t confirm it but didn’t offer an alternative date i will proceed with a correspondence hearing if you don’t appear for the hearing i have offered i will make my decision from the information in the administrative file upon receiving the appeals officer’s letter petitioner did not telephone the appeals officer but instead wrote a letter to the taxpayer_advocate dated date and sent a copy to the appeals officer the letter was essentially a record of petitioner’s contacts with the internal_revenue_service regarding his tax_liability at the end of this letter petitioner stated that the earliest he could meet with anyone would be date as he was seeking work and his schedule was full the appeals officer’s copy of petitioner’s date letter did not reach the appeals officer until the afternoon of date which was after the a m time scheduled for the hearing that day when petitioner did not appear for the scheduled hearing the appeals officer held a correspondence hearing as a result of this hearing the appeals officer determined the proposed levy was legally and procedurally correct that same day the appeals officer sent petitioner a letter dated date notifying him of the result of the hearing attached to this letter was a transcript of petitioner’s tax_liability the appeals officer also stated in the letter that petitioner had not proposed any collection alternatives so the appeals_office would be issuing a determination_letter and petitioner should call if he had any questions petitioner did not attempt to call the appeals_office or to schedule a conference in response to the date letter further petitioner did not attempt to raise any collection alternatives as a result on date respondent’s appeals_office issued a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination in which the proposed levy was determined to be appropriate to collect petitioner’s unpaid tax for petitioner timely appealed to this court for review of respondent’s determination opinion the issues we consider arise from respondent’s determination to proceed with collection under sec_6330 specifically we must decide whether petitioner was granted an opportunity for a hearing within the meaning of sec_6330 and whether respondent’s determination to proceed with the proposed collection activity was an abuse_of_discretion before the commissioner may proceed to levy on a taxpayer’s property or right to property the taxpayer must be notified in writing of the commissioner’s intent and of the taxpayer’s right to a hearing sec_6330 sec_6331 sec_6330 provides that upon request and in the circumstances described therein a taxpayer has a right to a hearing which consists of the following elements an impartial officer will conduct the hearing the conducting officer will receive verification from the secretary that the requirements of applicable law and administrative procedure have been met certain issues may be heard such as spousal defenses and offers-in-compromise and a challenge to the underlying liability may be raised if the taxpayer did not receive a statutory_notice_of_deficiency or otherwise receive an opportunity to dispute the liability sec_6330 petitioner received written notice of respondent’s intent to levy and petitioner’s right to a hearing in response petitioner timely filed his request for an administrative hearing an experienced appeals officer was assigned to petitioner’s case the appeals officer had no prior involvement with respect to petitioner’s unpaid tax this satisfies the first element of petitioner’s right to a hearing with an impartial officer the second through fourth elements are usually satisfied at the time of the hearing petitioner claims he was not afforded the opportunity for a hearing the record however indicates that respondent provided petitioner with ample opportunities but that petitioner declined such opportunities on several occasions petitioner was telephonically contacted by the appeals officer to schedule a conference petitioner would not agree to any suggested dates for a hearing and did not offer any alternative dates when the appeals officer decided to set a date petitioner refused to confirm that date and again did not offer an alternative date the appeals officer mailed and petitioner received written notice that a hearing was scheduled for date the notice informed petitioner that if he did not attend the hearing the hearing would proceed without him accordingly the determination would be based on information in the administrative file after receiving this letter petitioner did not attempt to contact the appeals officer or reschedule the hearing instead petitioner wrote a letter to the taxpayer_advocate relating a history of his contacts with the internal_revenue_service toward the end of the letter petitioner mentioned that he had a full schedule until date but did not propose an alternate date or time to meet petitioner sent a copy of this letter to the appeals officer however it did not reach the appeals officer until after the time of the scheduled hearing in determining whether petitioner received an opportunity for a hearing the administrative and procedural regulations are instructive they provide q-d7 if a taxpayer wants a face-to-face cdp hearing where will it be held a-d7 the taxpayer must be offered an opportunity for a hearing at the appeals_office closest to taxpayer’s residence if that is not satisfactory to the taxpayer the taxpayer will be given an opportunity for a hearing by correspondence or by telephone if that is not satisfactory to the taxpayer the appeals officer will review the taxpayer’s request for a cdp hearing the case file any other written communications from the taxpayer and any notes of any oral communications with the taxpayer or the taxpayer’s representative under such circumstances review of those documents will constitute the cdp hearing for the purposes of sec_6330 sec_301_6330-1 q-d7 a-d7 proced admin regs petitioner had requested a face-to-face hearing insisting that the taxpayer_advocate be present as well as his congressional liaison petitioner was offered a hearing on several occasions however none of the offers were satisfactory to petitioner it was not the responsibility of the appeals officer to arrange for petitioner’s congressional liaison and taxpayer_advocate to be present moreover the appeals officer could not make any arrangements without petitioner agreeing to a hearing date petitioner received notice that if he did not appear at the date hearing the appeals officer would make a determination based on the administrative file when petitioner refused to confirm a date and did not appear for the hearing it was appropriate for the appeals officer to presume that petitioner did not intend to have a face-to-face hearing of the type normally offered by the appeals_office petitioner has not shown that he is entitled to have the taxpayer_advocate and or his congressional liaison present at a hearing under sec_6330 accordingly it was not an abuse_of_discretion for the appeals officer to proceed with a hearing based on the administrative file and prior telephone conversations with petitioner under these circumstances the appeals officer’s review of these documents constituted the administrative hearing for purposes of sec_6330 sec_301_6330-1 a-d7 proced admin regs further we have held that a face-to-face meeting is not required 115_tc_329 recently we decided a factually similar case wherein a taxpayer claimed he was denied a hearing under sec_6330 mann v commissioner tcmemo_2002_48 in that case the appeals officer scheduled a hearing and provided the taxpayer with written notice of the hearing id the taxpayer received the notice but did not attend the hearing and did not attempt to reschedule the hearing id we held in that case that the taxpayer had been granted an opportunity for a hearing id the circumstances we consider here are less compelling for petitioner than those in mann v commissioner supra in that case the taxpayer was given one notice of the meeting and his failure to appear was not equated with a failure to give him an opportunity for a hearing here petitioner was given numerous opportunities to establish a date for a sec_6330 hearing and he declined on each occasion without offering an alternative date finally when a specific date was set petitioner failed to appear or provide the appeals_office with a reasonable or timely alternative accordingly we hold that petitioner was granted an opportunity for a hearing in accordance with sec_6330 concerning the tax_year under consideration petitioner received a statutory_notice_of_deficiency and had an opportunity to petition this court petitioner did not file a petition with respect to the notice_of_deficiency nor does petitioner dispute the existence or the amount of the underlying tax_liability rather petitioner argues that the collection_period for his liability had expired in date petitioner under this belief claims the overpayment was incorrectly applied to his tax_liability petitioner’s contention however is erroneous petitioner filed his federal_income_tax return in date within years of that date on date respondent assessed petitioner’s income_tax deficiency for see sec_6501 under sec_6502 a tax_liability may be collected by levy or proceedings begun within years after the assessment the taxpayer_advocate therefore was correct in determining that the collection_period did not expire until date accordingly using the overpayment as an offset to satisfy petitioner’s tax_liability was proper what remains for our decision is whether respondent’s determination to proceed with collection was an abuse_of_discretion sec_6330 the appeals officer considered petitioner’s argument that the overpayment should have been used to satisfy petitioner’s income_tax deficiency instead of its use as an offset to satisfy petitioner’s tax_liability sec_6402 allows the secretary to credit the amount of an overpayment against any liability in respect of an internal revenue tax on the part of the person who made the overpayment such offset does not preclude the internal_revenue_service from making a later determination or assessment with regard to the overpayment year 50_tc_577 158_f2d_851 6th cir the appeals officer verified that respondent had complied with all legal and procedural requirements pertaining to the proposed levy petitioner did not challenge the appropriateness of the intended method of collection or offer a collection alternative also petitioner did not raise any other defenses to collection consequently the appeals officer determined the proposed levy was legally and procedurally correct petitioner received the notice_of_determination with an attached transcript of his tax_liability accordingly we hold there was no abuse_of_discretion in respondent’s determination to proceed with collection of petitioner’s tax_liability we have considered all of petitioner’s arguments and to the extent that they are not mentioned herein we find them to be moot irrelevant or without merit to reflect the foregoing decision will be entered permitting respondent to proceed with collection


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi br 1-plr-105617-00 date date x country date this letter responds to your letter written on behalf of x submitted on date requesting an extension of time to elect to treat x as an entity that is disregarded as an entity separate from its owner for federal tax purposes facts x is a country entity that was organized on date x is an entity that is eligible to elect under sec_301 c of the procedure and administration regulations to be disregarded as an entity separate from its owner for federal_income_tax purposes however the form_8832 entity classification election was not timely filed law and analysis sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if a foreign eligible_entity has one owner it may elect to be taxable as an entity that is disregarded as an entity separate from its owner pursuant to the rules in sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed under sec_301_9100-1 the commissioner may 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 code except subtitles e g h and i if the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that plr-105617-00 granting the relief will not prejudice the interests of the government sec_301 b defines the term regulatory election as including an election whose deadline is prescribed by a notice published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic_extension of time for making certain elections but does not apply to elections under sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under section will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 conclusions based solely on the facts submitted and the representations made the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of sixty days from the date of this letter to make an election to treat x as an entity that is disregarded from its owner effective date x should make the election by filing a properly executed form_8832 and attaching a copy of this letter to the election a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer and the second listed authorized representative sincerely paul f kugler associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


id office uilc cca_2012062114582047 -------------- number release date from ----------------------- sent thursday date pm to -------------------- cc ----------------------------------------------------------- subject fw ------------------------ refund claims for fica for medical residnents you asked for guidance on an issue that has arisen in the context of refunds of overpaid fica_taxes in medical resident cases in these cases a hospital employer may have filed a claim_for_refund of overpaid fica tax for both its employer share and on behalf of consenting medical resident employees for their share under the fica refund scheme the employer acts as a fiduciary in bringing the refund claim on behalf of consenting employees but the refund is actually paid to the employer who is then supposed to give the entitled employees their share because the overpayment is issued in the name of the employer under the normal systemic processing of overpayments an overpayment applied to an employer's account would ordinarily be offset against any_tax liabilities for other periods in accordance with sec_6402 sec_6402 permits does not mandate the service to credit the amount of any overpayment against any_tax liability on the part of the person who made the overpayment and shall subject_to c - f refund the balance to such person thus sec_6402 only permits the employer share of the overpayment to be credited against that employer's tax_liability for other periods accordingly the irs does not have the legal authority to offset the employees' share of an overpayment against an employer's separate tax_liability should such an offset occur since the irs would not have the legal authority to make the offset the irs would need to reverse the overpayment credit with respect to the employees' share we have not found any direct authority addressing offsets of fica tax for these types of overpayments there is advice discussing the taxpayer advocate’s lack of authority to order reversal of a properly made overpayment credit so the irs could issue a refund to the taxpayer on grounds of hardship irs sca irs sca the taxpayer_advocate does not have this authority because once the credit is made there is no longer an existing overpayment which can be refunded in the case of an offset of employee overpayment against employer liability however the credit would not be proper with respect to the employees' share the ccas discuss the exception to the general prohibition on reversing offsets to correct a mathematical clerical_error and also discuss the irm provisions in which can be used to reverse override offsets -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------- please let me know if i can be of further assistance


department of the treasury int ernal revenue service washington d c date o f f i c e o f c h i e f c o u n s e l number release date cc tege eoeg et1 kaorsini wta-n-120972-00 uilc internal_revenue_service national_office field_service_advice memorandum for elizabeth henn deputy area_counsel baltimore cc tege nema bal from will e mcleod assistant chief employment_tax branch cc tege eoeg et1 subject employment_tax of residence employees this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be used or cited as precedent disclosure statement field_service_advice is chief_counsel_advice and is open to public inspection pursuant to the provisions of sec_6110 the provisions of sec_6110 require the service to remove taxpayer identifying information and provide the taxpayer with notice of intention to disclose before it is made available for public inspection sec_6110 and i sec_6110 also authorizes the service to delete information from field_service_advice that is protected from disclosure under u s c sec_552 b and c before the document is provided to the taxpayer with notice of intention to disclose only the national_office function issuing the field_service_advice is authorized to make such deletions and to make the redacted document available for public inspection accordingly the examination appeals or counsel recipient of this document may not provide a copy of this unredacted document to the taxpayer or their representative the recipient of this document may share this unredacted document only with those persons whose official tax_administration duties with respect to the case and the issues discussed in the document require inspection or disclosure of the field_service_advice wta-n-120972-00 legend x y country a regulations program date individual issue sec_1 whether the personal cook an united_states citizen who executed an employment contract with x in country a for domestic services and is paid with funds of y is the employee of x or y if x is the employer of the personal cook whether x is required to withhold and pay taxes under the federal_insurance_contributions_act fica and the federal_unemployment_tax_act futa conclusion sec_1 the personal cook who is hired to perform domestic services for x is the common_law_employee of x for the period of time that x meets the definition of american_employer under sec_3121 and sec_3306 x is liable for fica and futa taxes respectively facts x an employee of y in country a is given an allowance to hire personal household employees for x’s residence in country a x has a personal cook who is a u s citizen wta-n-120972-00 the regulations provide that under the program funds may be paid directly to the service provider or reimbursed to the individual designated to receive program funds for residence expenses such as domestic staff we assume that x in country a is a program-designated individual and the expense for the cook is payable from program funds the regulations state that domestic servants who work as domestic staff for y employees assigned overseas are not y employees they are employees of the individual in whose home they work the regulations also state that the lack of direct employee employer relationship with y should be clearly understood by all administrative staff members who deal with the domestic staff both when they enter on duty and periodically during their employment the regulations explicitly state that it is the responsibility of the individuals to provide comparable wages fringe_benefits terms of employment and working conditions for domestic staff in accordance with local custom it is also our understanding that y’s policy is that y personnel such as x should treat their domestic staff fairly and provide them the benefits such as social_security and health insurance that are afforded other u s citizens in the course of employment law and analysi sec_1 is the cook an employee of x or y an employee for purposes of fica and futa taxes is any individual who is an employee under the common_law rules applicable in determining the employer- employee relationship as provided in sec_3121 and sec_3306 respectively under the common_law principles an employer-employee relationship is established by the existence of control by one party over the other the cook is hired to provide domestic services for x we assume the cook is working only for x and not for other persons or residences the fact that x has discretion over hiring the individual and that x directs the daily activities of the cook are indicative of employer-employee relationship for example x has control_over what the cook serves as well as when and how it is served despite the fact that the cook may have some discretion as to the preparation of meals x controls the cook’s activity domestic servants like the cook are employees of x rather than y not because of the regulations but because of the common_law rules applicable to employer- employee relationships see nationwide mutual insurance co v darden u s wta-n-120972-00 even if y pays the cook directly x remains the common_law employer while y is considered a sec_3401 employer if x is the employer is x liable for fica and futa remuneration for services performed outside the united_states is not subject_to fica and futa unless the services are performed as an employee for an american_employer see sec_3121 c consequently x’s liability for fica and futa is contingent upon whether or not x qualifies as an american_employer under the respective code sections under sec_3121 and sec_3306 the term american_employer includes an individual who is a resident_of_the_united_states there is no specific definition of resident for this purpose however regulations under sec_7701 provide that unless the context indicates otherwise the sec_7701 regulations apply for purposes of determining whether an united_states citizen is also a resident_of_the_united_states sec_301 b - a an individual is a resident_of_the_united_states if the requirements of the substantial_presence_test are satisfied sec_7701 sec_301_7701_b_-1 the requirements of the substantial_presence_test are satisfied if i the individual is present in the united_states on days during the current calendar_year and ii the sum of the number of days on which the individual was present in the united_states during the current calendar_year and the two preceding calendar years when multiplied by the applicable multiplier equals or exceed sec_183 days sec_7701 sec_301_7701_b_-1 the applicable multiplier for the current calendar_year i sec_1 and the applicable multipliers for the first and second preceding calendar years are and respectively sec_7701 sec_301_7701_b_-1 even if an individual satisfies the substantial_presence_test for a calendar_year the individual will not be treated as an united_states_resident if the individual satisfies the closer_connection_exception the closer_connection_exception is satisfied if i the individual is present in the united_states on fewer than days during the calendar_year and ii the individual establishes that the individual has a tax_home in a foreign_country and a closer connection to such foreign_country than to the united_states sec_7701 sec_301_7701_b_-2 and for this purpose the term tax_home has the same meaning that it has for purposes of sec_162 relating to travel_expenses while away from home wta-n-120972-00 sec_301_7701_b_-2 thus the individual’s tax_home is considered to be located at the individual’s regular or principal if more than one regular place of business id an individual generally has a closer connection during the current_year to a single foreign_country in which the individual maintains a tax_home than to the united_states sec_301_7701_b_-2 an individual who claims the closer_connection_exception must file a fully completed form_8840 to explain the basis of the claim sec_301_7701_b_-8 and -8 b i it is possible x might satisfy the substantial_presence_test for one or more calendar years if x is physically present in the united_states for a sufficient number of days however we think it is likely that even if x satisfies the substantial_presence_test for a particular calendar_year i x would have been present in the united_states on fewer than days during that calendar_year and ii x would have a tax_home in country a and a closer connection to country a than to the united_states because x’s regular or principal_place_of_business would be in country a therefore we think it is likely the closer_connection_exception would apply and x would not be a resident_of_the_united_states or an american_employer provided x files a fully completed form_8840 in our view the years when x is most susceptible to being treated as an american_employer are the first and last years of x’s tour of duty when the x might be physically present in the united_states before the tour of duty commences or after the tour of duty concludes the residency termination_date for an individual who meets the substantial_presence_test is the last day during the calendar_year on which the individual is physically present in the united_states if the individual establishes that for the remainder of the calendar_year the individual’s tax_home was in a foreign_country and he or she maintained a closer connection to that foreign_country than to the united_states sec_301_7701_b_-4 thus during the first calendar_year of x’s tour of duty in country a it is likely x would cease to be a resident_of_the_united_states on the last day x is physically present in the united_states if x is not a resident_of_the_united_states for the remainder of the calendar_year x also will not be an american_employer for the remainder of the calendar_year the residency_starting_date for an individual meeting the substantial_presence_test for the current calendar_year is the first day during such calendar_year on which the individual is physically present in the united_states_code sec_7701 sec_301_7701_b_-4 thus during the last calendar_year of x’s employment in country a it is likely x would not become an united_states_resident before the first day x is physically present in the united_states if x is not a resident_of_the_united_states for the first part of the calendar_year x also will not be an american_employer for the first part of the calendar_year wta-n-120972-00 therefore if x qualifies as an united_states_resident and hence meets the definition of an american_employer as provided by the code and regulations x is liable for fica and futa taxes if y controls the payment of wages it is the sec_3401 employer whereas if x does not meet the definition of an american_employer x is not liable for fica and futa nor is y the sec_3401 employer we have enclosed for your information a copy of a letter we sent to y on date which discussed substantially the same question raised here if you have any questions please contact me or kyle orsini at will e mcleod


internal_revenue_service number release date index number 468a ------------------------- ----------------------------------------------------- ----------------------------------- ------------------------ -------------------------------------- in re transfer of assets of a qualified_fund under sec_468a department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------------ telephone number ---------------------- refer reply to cc psi b06 plr-126721-18 date june legend date seller parent seller unit buyer parent buyer buyer affiliate joint_venture partnership state state state state regulator date date date date date date a b dear --------------------- --------------------------- ---------------------------------------------------- ----------------------------------------------- -------------------------------------------------------- ---------------------------------------------------- ------------------------------------------------------------ ----------------------------------------------------------- ------------------------------------------------------------------------ ------------------- ---------- ----------------- ---------- -------------------------------------------- ------------------ ----------------------- ------------------- ------- ------- ------------------- ------------------- ------------------- this letter responds to your request for private_letter_ruling dated date you requested rulings regarding the tax consequences under sec_468a of the internal plr-126721-18 revenue code and sec_1_468a-6 of the treasury regulations to the transfer of assets of seller parent’s qualified nuclear decommissioning fund seller parent has represented that at the time that the private_letter_ruling was submitted the facts were as follows seller parent is incorporated in state and acts as a holding_company seller parent’s headquarters are in state seller parent and its subsidiaries and affiliates with which it files a consolidated federal_income_tax return operate on a calendar_year basis and use the accrual_method of accounting seller parent and its subsidiaries and affiliates engage in two business segments ----------------------and -------------------------------------------------------------------------- ------- seller parent engages in ------------------------------------------------------------------------- ---------------- among other assets seller owns unit which is located in state the unit is a nuclear electric generating station that consists of a reactor capable of generating electrical power the operating license for the unit is issued by regulator and expires on date the unit was scheduled to cease electricity production on date on date seller parent filed a report with regulator that detailed plans for decommissioning the unit seller parent selected a method of decommissioning with a planned license termination in date and site restoration on date seller parent maintains two separate nuclear decommissioning trust funds for the unit one that meets the requirements for a qualified_fund within the meaning of sec_468a and one that does not meet the requirements of sec_468a as of date the value of the qualified decommissioning fund was a buyer parent is a----------------------with headquarters in state buyer parent files its federal_income_tax return on a calendar_year basis using the accrual_method of accounting buyer parent is a -----------------------------------------company that with its affiliates specializes in -------------------------------------------------------------------------------------------------- ------------------ buyer seeks to acquire the unit and through its indirectly wholly-owned affiliate buyer affiliate and a joint_venture with joint_venture partnership decommission the unit buyer parent would use a different decommissioning method than the one seller parent used in its report to regulator and buyer parent’s method would accelerate the decommissioning time by approximately ----- years plr-126721-18 seller parent and buyer parent entered into an asset purchase and sale agreement dated date purchase agreement regarding the sale of the unit and transfer of the assets of the seller parent qualified and nonqualified funds in addition seller parent and buyer parent have entered into other ancillary agreements in relevant part seller parent agrees to transfer all rights title and interest in the unit and assets in the seller parent’s qualified and nonqualified decommissioning funds to buyer parent in exchange for b and buyer parent agrees to generally assume all liabilities with respect to the ownership of the unit including the decommissioning of the unit subsequent to the execution of the purchase agreement seller parent and buyer parent filed the application with the regulator in connection with this transaction seller parent and buyer parent represent that seller parent buyer and other relevant affiliates filed an application with regulator requesting approval for the transfer of the unit’s operating license from seller parent to buyer parent and for the transfer of assets from seller parent’s qualified and nonqualified decommissioning funds to buyer parent’s qualified and nonqualified decommissioning funds the application provided information with respect to the purpose of the transaction necessitating the license transfer and the technical and financial qualifications of buyer affiliate and buyer for being licensees under the license a regulator license may only be transferred with written consent of the regulator approval by the regulator is a condition to closing the transaction prior to the closing date of the transaction buyer parent represented that it will establish two separate nuclear decommissioning trust funds for the unit one that meets the requirements for a qualified_fund within the meaning of sec_468a and one that does not meet the requirements of sec_468a if approved seller parent represents that immediately before the closing of the transaction seller parent will have a qualifying interest in the unit within the meaning of sec_1_468a-1 seller parent will have maintained its qualified decommissioning fund as a_trust under applicable state law for the exclusive purpose of providing funds for decommissioning seller parent will have maintained its qualified decommissioning fund as a separate and the sole qualified_fund for the unit seller parent will not have made any contributions to its qualified decommissioning fund other than those for which a deduction will be allowed under sec_468a and the regulations thereunder the assets of the seller parent’s qualified decommissioning fund will have been used exclusively to a satisfy in whole or in part liability for decommissioning costs of the unit b pay administrative costs and other incidental_expenses of the seller parent’s qualified decommissioning fund plr-126721-18 and c make investments to the extent the assets of the seller parent’s qualified decommissioning fund were not needed to satisfy the purposes of a and b above the trust agreement for the seller parent’s qualified decommissioning fund provides that the assets in the seller parent’s qualified decommissioning fund must be used as authorized in sec_468a and the regulations thereunder including the prohibition against self-dealing and that the agreement cannot be amended to violate such provisions and seller parent’s qualified decommissioning fund did not engage in self-dealing provided regulator approves the transfer of the unit’s operating license and transfer of assets of the seller parent qualified and nonqualified decommissioning funds to the corresponding buyer parent qualified and nonqualified decommissioning funds buyer parent represents that immediately after the closing of the transaction buyer parent will maintain its qualified decommissioning fund as a_trust under applicable state law for the exclusive purpose of providing funds for decommissioning buyer parent will maintain its qualified decommissioning fund as a separate and the sole qualified_fund for the unit buyer parent will not make any contributions to its qualified decommissioning fund other than those for which a deduction is allowed under sec_468a and the regulations thereunder the assets of the buyer parent’s qualified decommissioning fund will be used exclusively to a satisfy in whole or in part liability for decommissioning costs of the unit b pay administrative costs and other incidental_expenses of the buyer parent’s qualified decommissioning fund and c make investments to the extent the assets of the buyer parent’s qualified decommissioning fund were not needed to satisfy the purposes of a and b above and the trust agreement for the buyer parent’s qualified decommissioning fund will provide that the assets in the buyer parent’s qualified decommissioning fund must be used as authorized in sec_468a and the regulations thereunder including the prohibition against self-dealing and that the agreement cannot be amended to violate such provisions requested rulings subject_to the approval from regulator seller parent and buyer parent request the following rulings effective as of the closing of the transaction whether buyer parent’s qualified decommissioning fund will be treated as a qualified_fund that satisfies the requirements of sec_468a and sec_1_468a-5 plr-126721-18 whether seller parent’s qualified decommissioning fund will be disqualified by reason of the transaction whether seller parent’s qualified decommissioning fund will recognize gain_or_loss or otherwise take any income_or_deduction into account as a result of the transfer of assets from seller parent’s qualified decommissioning fund to the buyer parent’s qualified decommissioning fund as part of the transaction whether buyer parent’s qualified decommissioning fund will recognize any gain_or_loss or otherwise take any income_or_deduction into account as a result of the transfer of assets from seller parent’s qualified decommissioning fund to the buyer parent’s qualified decommissioning fund as part of the transaction whether either seller parent or buyer parent will be required to recognize gain_or_loss or otherwise take any income_or_deduction into account as a result of the transfer of assets from seller parent’s qualified decommissioning fund to the buyer parent’s qualified decommissioning fund as part of the transaction and whether pursuant to sec_1_468a-6 after the transaction buyer parent’s qualified decommissioning fund will have a tax basis in each of the assets transferred that is the same as seller parent’s qualified decommissioning fund’s tax basis in those assets immediately prior to the transaction law and analysis sec_468a of the code provides that a taxpayer may elect to deduct payments made to a nuclear decommissioning reserve fund that meets the requirements of sec_468a ie a fund that is a qualified nuclear decommissioning fund or a qualified_fund sec_468a authorizes the treasury_department to prescribe regulations regarding the disposition of an interest in a nuclear power plant and the tax treatment of the transfer of the assets of the related qualified_fund sec_468a requires each taxpayer who elects the application of sec_468a to establish a nuclear decommissioning reserve fund for each nuclear power plant to which that election applies sec_1_468a-1 defines the term eligible_taxpayer as a taxpayer that possesses a qualifying interest in a nuclear power plant sec_1_468a-1 provides that a qualifying interest means a a direct ownership_interest and b a leasehold interest in any portion of a nuclear power plant if the holder of the leasehold interest is primarily liable under federal or state law for decommissioning such portion of the power plant and no other person establishes a qualified_fund with respect to such portion of the nuclear power plant plr-126721-18 sec_1_468a-1 proves that a direct ownership_interest of a nuclear power plant does not include ownership of stock of a corporation that owns a nuclear power plant or ownership of an interest in a partnership that owns a nuclear power plant sec_1_468a-1 defines the terms nuclear decommissioning fund and qualified nuclear decommissioning fund as a fund that satisfies the requirements of sec_1_468a-5 the term nonqualified_fund means a fund that does not satisfy those requirements sec_1_468a-5 sets out the qualification requirements for nuclear decommissioning funds it provides in part that a qualified nuclear decommissioning fund must be established and maintained pursuant to an arrangement that qualifies as a_trust under state law sec_1_468a-5 provides that a qualified nuclear decommissioning fund must be established exclusively for the purpose of funding the costs associated with decommissioning one or more nuclear facilities under this provision a single trust agreement may establish multiple funds for the exclusive purpose of providing funds for the decommissioning of a nuclear power plant thus for example a fund to be used for decommissioning that does not qualify as a nuclear decommissioning fund under sec_1_468a-5 may be established and maintained under a_trust agreement that governs a nuclear decommissioning fund sec_1_468a-5 provides that an electing taxpayer can establish and maintain only one qualified nuclear decommissioning fund for each nuclear power plant if a nuclear power plant is subject_to the ratemaking jurisdiction of two or more public_utility commissions and any such public_utility commission requires a separate fund to be maintained for the benefit of ratepayers whose rates are established or approved by the public_utility commission the separate funds maintained for such plant whether or not established and maintained pursuant to a single trust agreement shall be considered a single nuclear decommissioning fund sec_1_468a-5 provides that except as otherwise provided in sec_1_468a-8 relating to special transfers under sec_468a a qualified nuclear decommissioning fund is not permitted to accept any contributions in cash or property other than cash payments with respect to which a deduction is allowed under sec_468a and sec_1 468a- a sec_1_468a-5 provides that the assets of a qualified nuclear decommissioning fund are to be used exclusively a to satisfy in whole or in part the liability of the electing taxpayer for decommissioning costs of the nuclear plant to which the fund relates b to pay administrative and other incidental costs of the fund and c to the extent not currently required for the purposes described in a and b above to plr-126721-18 make investments sec_1_468a-5 provides that except as otherwise provided in sec_1_468a-5 the service may in its discretion disqualify all or any portion of a nuclear decommissioning fund if at any time during its tax_year a the fund does not satisfy the requirements of sec_1_468a-5 or b the fund and a disqualified_person engages in an act of self-dealing as defined in sec_1_468a-5 sec_1_468a-6 provides rules applicable to the transfer of all or a portion of a taxpayer’s qualifying interest in a nuclear power plant and transfer of the qualified nuclear decommissioning fund including a plant that has permanently ceased to produce electricity where certain requirements are met specifically sec_1_468a-6 provides that sec_1_468a-6 applies if - immediately before the disposition the transferor maintained a qualified nuclear decommissioning fund with respect to the interest disposed of and immediately after the disposition- i the transferee maintains a qualified nuclear decommissioning fund with respect to the interest acquired and ii the interest acquired is a qualifying interest of the transferee in the nuclear power plant in connection with the disposition either - i the transferee acquires part or all of the transferor's qualifying interest in the nuclear power plant and a proportionate amount of the assets of the transferor's fund all such assets if the transferee acquires the transferor's entire qualifying interest in the plant is transferred to a fund of the transferee or ii the transferee acquires the transferor's entire qualifying interest in the plant and the transferor's entire fund is transferred to the transferee and the transferee continues to satisfy the requirements of sec_1 468a- a iii which permits an electing taxpayer to maintain only one qualified nuclear decommissioning fund for each plant sec_1_468a-6 provides that a disposition that satisfies the requirements of sec_1_468a-6 will have the following tax consequences at the time it occurs i neither the transferor nor the transferor's qualified nuclear decommissioning fund will recognize gain_or_loss or otherwise take any income into account by reason of the transfer of a plr-126721-18 proportionate amount of the assets of the transferor's qualified nuclear decommissioning fund to the transferee's qualified nuclear decommissioning fund or by reason of the transfer of the transferor's entire qualified nuclear decommissioning fund to the transferee for purposes of the regulations under sec_468a this transfer or the transfer of the transferor's qualified nuclear decommissioning fund will not be considered a distribution of assets by the transferor's qualified nuclear decommissioning fund ii notwithstanding sec_1_468a-6 if the transferor has made a special transfer under sec_1_468a-8 prior to the transfer of the fund or fund assets any deduction with respect to that special transfer allowable under sec_468a for a taxable_year ending after the date of the transfer of the fund or fund assets is allowed under sec_468a for the taxable_year that includes the date of the transfer of the fund or fund assets neither the transferee nor the transferee's qualified nuclear decommissioning fund will recognize gain_or_loss or otherwise take any income into account by reason of the transfer of a proportionate amount of the assets of the transferor's qualified nuclear decommissioning fund to the transferee's qualified nuclear decommissioning fund or by reason of the transfer of the transferor's entire qualified nuclear decommissioning fund to the transferee for purposes of the regulations under sec_468a this transfer or the transfer of the transferor's qualified nuclear decommissioning fund will not constitute a payment or a contribution of assets by the transferee to its qualified nuclear decommissioning fund transfers of assets of a qualified nuclear decommissioning fund to which this section applies do not affect basis thus the transferee's qualified nuclear decommissioning fund will have a basis in the assets received from the transferor's qualified nuclear decommissioning fund that is the same as the basis of those assets in the transferor's qualified nuclear decommissioning fund immediately before the distribution under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a conclusions based on the information submitted by seller parent and buyer parent we reach the following conclusions plr-126721-18 the buyer parent’s qualified decommissioning fund will be treated as a qualified_fund that satisfies the requirements of sec_468a and sec_1_468a-5 the seller parent’s qualified decommissioning fund will not be disqualified by reason of the transaction the seller parent’s qualified decommissioning fund will not recognize gain_or_loss or otherwise take any income_or_deduction into account as a result of the transfer of assets from seller parent’s qualified decommissioning fund to the buyer parent’s qualified decommissioning fund as part of the transaction the buyer parent’s qualified decommissioning fund will not recognize any gain_or_loss or otherwise take any income_or_deduction into account as a result of the transfer of assets from seller parent’s qualified decommissioning fund to the buyer parent’s qualified decommissioning fund as part of the transaction neither seller parent nor buyer parent will be required to recognize gain_or_loss or otherwise take any income_or_deduction into account as a result of the transfer of assets from seller parent’s qualified decommissioning fund to the buyer parent’s qualified decommissioning fund as part of the transaction after the transaction buyer parent’s qualified decommissioning fund will have a tax basis in each of the assets transferred that is the same as seller parent’s qualified decommissioning fund’s tax basis in those assets immediately prior to the transaction except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above the ruling contained in this letter is based upon information and representations submitted by 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 this ruling is specifically conditioned on the approval of the transaction by a regulatory body having jurisdiction over such transaction this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives we are also sending a copy of this letter to the appropriate industry director lb_i a copy of this ruling must be attached to any federal income plr-126721-18 tax_return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs special industries cc


t c summary opinion united_states tax_court edward collins petitioner v commissioner of internal revenue respondent docket no 16245-15s filed date edward collins pro_se kathleen k raup for respondent summary opinion halpern judge this case was heard pursuant to the provisions of section of the internal_revenue_code in effect when the petition was filed 1unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended and in effect for and all rule references are to the tax_court rules_of_practice and procedure pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case respondent determined a deficiency in petitioner' sec_2012 federal_income_tax of dollar_figure the only issue for decision is whether dollar_figure received by petitioner during in settlement of a lawsuit and described in a settlement term sheet as payable for emotional distress is excludable from hi sec_2012 gross_income we conclude that it is not petitioner bears the burden_of_proof see rule a background petitioner resided in new jersey when he filed the petition the parties have stipulated certain facts and the authenticity of certain documents the facts stipulated are so found and documents stipulated are accepted as authentic petitioner began working at public service electric gas pse g in in date petitioner was transferred to work out of pse g's office in audubon n j and was subjected to a racially hostile work environment in date petitioner's doctor diagnosed him with depression general anxiety 2petitioner has not raised the applicability of sec_7491 which shifts the burden_of_proof to the commissioner in certain situations we conclude that sec_7491 does not apply here because petitioner has not produced any evidence that he has satisfied the preconditions for its application disorder hypertension blood clots and muscle spasms petitioner left work on disability leave in date he brought suit against pse g in new jersey state court he set forth three counts pse g had subjected him to a racially hostile work environment it had discriminated against him on account of his race and it had retaliated against him on account of his complaints of discrimination in support of the first two counts petitioner averred among other things that his pse g supervisor had required him to perform work in a more burdensome manner than that required of white individuals in comparable positions by for instance giving him more meter-reading stops on saturdays than were given to white employees in each count in addition to alleging that as a result of pse g's actions he had suffered a financial loss petitioner alleged that as a result of pse g's action he had suffered severe emotional distress and anxiety with physical manifestations including high blood pressure also as part of each count he alleged that pse g's harassment and discrimination against him had caused him to begin talking sic anti-depressant medication and to be treated by both a therapist and psychiatrist among petitioner's demands for relief were demands for lost wages benefits insurance and pension coverage and fringe_benefits separately petitioner also demanded that the court order pse g to compensate him for the severe emotional distress humiliation and anguish he has suffered on account of defendant's unlawful conduct petitioner demanded no compensation_for any physical injury or physical sickness in date petitioner through his attorneys and pse g settled the lawsuit and each party acting at arm's length and in good_faith executed a settlement term sheet term sheet to memorialize the terms of settlement the term sheet referring only to the matter and without reference to the individual counts stated that pse g would pay petitioner the sum of dollar_figure as follows dollar_figure payable to petitioner's attorneys dollar_figure to petitioner for reimbursement of his unpaid medical_expenses dollar_figure to petitioner for emotional distress and dollar_figure to petitioner less federal and state withholding taxes pse g paid the amounts called for by the term sheet petitioner made a timely return of federal_income_tax for on form_1040 u s individual_income_tax_return on line of the form_1040 petitioner reported as other income the dollar_figure received from pse g for emotional distress on line of the form_1040 a computational line not calling for the inclusion or deduction of any amount petitioner claimed a deduction of dollar_figure the deduction apparently results from petitioner's contention that the dollar_figure received for emotional distress and reported on line is not taxable the deficiency in tax at issue here results principally from respondent's disallowance of the dollar_figure deduction petitioner claimed on line of hi sec_2012 form_1040 i introduction discussion as stated we must determine whether the dollar_figure that petitioner received for emotional distress from pse g pursuant to the term sheet disputed dollar_figure is excludable from his gross_income the parties have submitted legal memoranda concerning that issue damages other than punitive_damages received on account of personal physical injuries or physical sickness may generally be excluded from gross_income sec_104 emotional distress is not treated as a personal physical injury or physical sickness sec_104 flush language however damages for 3although technically respondent adjusted petitioner' sec_2012 income by disallowing a deduction the parties seem to agree and we will treat it as such that the question for decision is one of whether the disputed dollar_figure is excludable from gross_income 4petitioner has attached exhibits to his memorandum attachments to briefs or to legal memoranda filed in lieu of a brief are not evidence and we may not consider them e g kanofsky v commissioner tcmemo_2006_79 aff'd 271_fedappx_146 3d cir see rule c we will disregard those attachments emotional distress attributable to a physical injury or physical sickness are excluded from gross_income under sec_104 sec_1_104-1 income_tax regs also damages not in excess of the amount_paid for medical_care attributable to emotional distress are excluded from gross_income sec_104 flush language petitioner argues that the disputed dollar_figure was mischaracterized in the term sheet as payable to him for emotional distress when more accurately it should have been shown as for physical injury and physical sickness viz including high blood pressure as outlined in the complaint respondent argues that the term sheet clearly states that the disputed dollar_figure was paid for emotional distress and e ven if the settlement term sheet were silent it would be clear that the payment was not for physical injuries there was no allegation in the complaint that petitioner suffered physical injuries or was seeking damages for physical injuries or sickness ii analysis when damages are received pursuant to a settlement agreement the nature of the claim underlying the settlement agreement controls whether a payment is excludable under sec_104 504_us_229 141_tc_331 aff'd 668_fedappx_241 9th cir an express allocation in the settlement agreement is generally binding for tax purposes provided the agreement was entered into by adversarial parties acting at arm's length and in good_faith 105_tc_396 aff'd 121_f3d_393 8th cir the intent of the payor and not the recipient is critical in determining the validity of an express allocation in a settlement agreement e g gutierrez v commissioner tcmemo_2011_263 wl at certainly the term sheet does state that the disputed dollar_figure is to be paid to petitioner for emotional distress and not for any physical injury or physical sickness and while in the complaint petitioner avers that he was required to make more meter-reading stops on saturdays than white workers he does not aver that he suffered physical injury or sickness from the extra work the complaint states in the three counts that he suffered severe emotional distress and anxiety with physical manifestations as the result of the company's racially hostile work environment discrimination and retaliation not as the result of any physical injury or physical sickness the complaint likewise claims that his depression was due to pse g's harassment and discrimination and not due to physical injury or physical sickness petitioner's demands for relief contain a specific demand that pse g compensate him for severe emotional distress humiliation and anguish but no demand for compensation_for any physical injury or physical sickness the parties have stipulated that petitioner and pse g executed the term sheet at arm's length and in good_faith each being represented by counsel petitioner has offered no persuasive evidence that the reason stated in the term sheet for the payment to him of the disputed dollar_figure-- payable to plaintiff ed collins for emotional distress --inaccurately describes pse g's intent in agreeing to the payment and while there may be some ambiguity as to what the parties to the term sheet intended to encompass within the meaning of the term emotional distress petitioner has failed to persuade us that the physical manifestations including high blood pressure that he may have suffered amount to physical injuries or physical sickness within the meaning of sec_104 the legislative_history of sec_104 states it is intended that the term emotional distress includes symptoms eg insomnia headaches stomach disorders which may result from such emotional distress h_r conf rept no pincite ndollar_figure 1996_3_cb_741 therefore the fact that a taxpayer suffers physical symptoms from emotional distress does not mean that damages received on account of the emotional distress qualify for exclusion_from_gross_income under sec_104 see eg sanford v commissioner tcmemo_2008_158 no exclusion for damages for emotional distress manifest by physical symptoms including depression skin irritation appetite loss asthma sleep deprivation and severe headaches in lindsey v commissioner tcmemo_2004_113 wl at aff’d 422_f3d_684 8th cir while observing that untreated hypertension high blood pressure might lead to strokes heart attacks and kidney disease we classified hypertension as the type of injury or sickness that congress intended to be encompassed within the definition of emotional distress see also lindsey v commissioner f 3d pincite agreeing with the tax_court that hypertension relates to emotional distress and not to physical sickness at trial petitioner invited our attention to parkinson v commissioner tcmemo_2010_142 wl at a case in which in his complaint against his employer the taxpayer alleged that he had suffered severe emotional distress manifested by permanent irreparable physical harm in the form of a second heart attack and its sequelae the taxpayer and his employer had negotiated a settlement agreement in which among other things the employer agree to pay him a sum as noneconomic damages and not as wages or other income id because the settlement agreement lacked specificity in describing those damages we felt free to consider facts that revealed the payor's intent in making the payment id at we found it self-evident that a heart attack and its physical aftereffects constitute physical injury or sickness rather than mere subjective sensations or symptoms of emotional distress id at we had no doubt that those physical injuries figured prominently among the 'noneconomic damages' for which the settlement payment was made id at we found that one-half of the sum received as noneconomic damages was received on account of physical injury or physical sickness and was as a result excludable from the taxpayer's gross_income under sec_104 id at parkinson is distinguishable because petitioner has failed to prove that any portion of the disputed dollar_figure was paid to him for physical injury or physical sickness iii conclusion we sustain respondent's adjustment including the disputed dollar_figure in petitioner' sec_2012 gross_income petitioner did not receive the disputed dollar_figure as damages on account of personal physical injuries or personal sickness as those terms are used in sec_104 decision will be entered for respondent


t c memo united_states tax_court shane l appling and marina l appling petitioners v commissioner of internal revenue respondent docket no filed date shane l appling pro_se gerald l brantley for respondent memorandum opinion foley judge respondent determined the following deficiencies and accuracy-related_penalties relating to petitioners' federal income taxes year penalty deficiency sec_6662 dollar_figure dollar_figure big_number big_number big_number unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure after concessions the issues for decision are whether petitioners are entitled to deduct certain unreimbursed employee_expenses whether petitioners are entitled to schedule c losses and whether petitioners are liable for accuracy-related_penalties pursuant to sec_6662 at the time shane and marina appling filed their petition they resided in el paso texas where mr appling was employed as a civil engineer for silverton construction co silverton on their and federal_income_tax returns petitioners deducted dollar_figure dollar_figure and dollar_figure respectively for unreimbursed employee_expenses relating to mr appling's job with silverton respondent determined that petitioners were only entitled to deduct dollar_figure dollar_figure and dollar_figure respectively of such expenses generally an employee may deduct unreimbursed employee_expenses pursuant to sec_162 an employee may not deduct such expenses however if the expenses are not substantiated or if the employee has a right to but fails to seek reimbursement from the employer 56_tc_936 affd without published opinion 456_f2d_1335 2d cir petitioners did not satisfy their burden of substantiating their expenses in addition they failed to establish that silverton would not have reimbursed mr appling for the expenses at issue accordingly petitioners are not entitled to deduct the unreimbursed employee_expenses at issue for and on their federal_income_tax return petitioners also claimed a dollar_figure schedule c loss dollar_figure of gross_receipts minus dollar_figure of expenses relating to a business which marketed a car wash product called dri wash 'n guard respondent determined that petitioners were not entitled to deduct any losses attributable to this activity respondent concedes however that petitioners purchased dollar_figure of the car wash product based on concessions testimony reconstructed records and executed checks we conclude that petitioners had expenses totaling dollar_figure accordingly petitioners are entitled to a dollar_figure schedule c loss for on their and federal_income_tax returns petitioners also claimed schedule c losses of dollar_figure and dollar_figure respectively for a mining business petitioners have failed however to prove that they sustained such losses accordingly petitioners are not entitled to schedule c losses for and respondent determined that petitioners are liable for accuracy-related_penalties pursuant to sec_6662 the penalty applies to any underpayment due to negligence or intentional disregard of rules or regulations petitioners did not maintain adequate books_and_records sec_6001 in addition they failed to exercise due care in reporting their income accordingly petitioners are liable for the sec_6662 accuracy-related_penalties to reflect the foregoing decision will be entered pursuant to rule