acknowledged significant advice may be disseminated office_of_chief_counsel internal_revenue_service memorandum cc dom it a cgabrysh tl-n-5179-97 date date sca released to district_counsel brooklyn cc ner brk attn patricia riegger from assistant chief_counsel cc dom it a income_tax and accounting __________________________________________________________________________ subject significant service_center advice - fraud_penalty based on earned_income_credit this responds to your undated request for significant advice forwarded by an electronic mail message dated date in connection with questions posed by the civil_fraud coordinator examination_division of the brookhaven service_center as explained below we agree with the conclusions reached in your request for significant advice disclosure statement unless specifically marked acknowledged significant advice may be disseminated above this memorandum is not to be circulated or disseminated except as provided in ccdm d and e this document may contain confidential information subject_to the attorney-client and deliberative_process privileges therefore this document shall not be disclosed beyond the office or individual s who originated the questions discussed herein and are working the matter with the requisite need to know in no event shall it be disclosed to taxpayers or their representatives issue sec_1 does the disallowance of an earned_income_credit eic under sec_32 of the internal_revenue_code result in a statutory deficiency may the civil_fraud penalty under sec_6663 of the code be asserted when a fraudulent eic claim is made assuming the civil_fraud penalty under sec_6663 can be asserted when a fraudulent eic claim is made how is the amount of the underpayment determined when the correct_tax is zero and the service has not issued a refund of the falsely claimed eic how is the amount of the underpayment determined when the service has issued a refund conclusion sec_1 based on the facts described below the disallowance of an eic results in a statutory deficiency based on the facts described below the civil_fraud penalty under sec_6663 may be asserted when a fraudulent eic claim is made if there is an underpayment_of_tax attributable to fraud based on the facts described below the underpayment_of_tax for purposes of calculating the civil_fraud penalty is determined under the formula prescribed in sec_6664 and the regulations thereunder under that formula the eic under sec_32 should be treated in the same manner as the sec_31 and sec_33 credits the amount of the underpayment will be affected by whether or not the service has issued a refund for the falsely claimed eic facts the service_center has received numerous form_1040 series returns that appear to have a pattern of falsely claimed items of income and deductions in order to falsely obtain refunds of the eic in a typical scenario a taxpayer previously a non-filer files a timely return and delinquent returns for and on each return the taxpayer falsely reports earned_income that is reduced by the standard_deduction and sufficient exemptions to eliminate any_tax due sometimes a taxpayer will report self-employment_tax with respect to the earned_income attributable to self-employment_income the taxpayer also falsely claims the eic the taxpayer does not claim any credits for withholding or estimated_tax payments it appears that the correct_tax is zero including self-employment_tax and the correct eic is zero discussion does the disallowance of an eic under sec_32 of the code result in a statutory deficiency sec_32 provides for the eic sec_6211 defines a deficiency as follows a in general --for purposes of this title in the case of income estate_and_gift_taxes imposed by subtitles a and b and excise_taxes imposed by chapter sec_41 sec_42 sec_43 and sec_44 the term deficiency means the amount by which the tax imposed by subtitle a or b or chapter or exceeds the excess of-- the sum of a the amount shown as the tax by the taxpayer upon his return if a return was made by the taxpayer and an amount was shown as the tax by the taxpayer thereon plus b the amounts previously assessed or collected without assessment as a deficiency over-- the amount of rebates as defined in subsection b made for purposes of determining the amount of a deficiency sec_6211 provides that the eic is treated as a negative tax sec_6211 states for purposes of subsection a -- a any excess of the sum of the credits allowable under sec_32 and sec_34 over the tax imposed by subtitle a determined without regard to such credits and b any excess of the sum of such credits as shown by the taxpayer on his return over the amount shown as the tax by the taxpayer on such return determined without regard to such credits shall be taken into account as negative amounts of tax the statutory requirements can be summarized by the following formulas a tax shown less eic shown tax on return b correct_tax less correct eic tax imposed c tax imposed less tax on return deficiency within your request for significant advice you provided two examples that are correct applications of sec_6211 in the first general example the correct_tax is dollar_figure the correct eic is zero the taxpayer shows no tax on the return and the taxpayer claims a dollar_figure eic a deficiency is computed using the formulas as follows a tax shown less eic shown tax shown on return b correct_tax big_number less correct eic tax imposed big_number c tax imposed big_number less tax on return deficiency big_number in the second example applicable to the cases under consideration the correct_tax is zero including self- employment_tax the correct eic is zero the taxpayer shows no tax on the return including self-employment_tax and the taxpayer falsely claims a dollar_figure refund solely attributable to the eic the deficiency would be computed as follows a tax shown less eic shown tax shown on return b correct_tax less correct eic tax imposed c tax imposed less tax on return deficiency we note that sec_6213 provides exceptions to the restrictions on making assessments one of which is for assessments arising out of mathematical or clerical errors with respect to taxpayers who do not report self-employment_tax with respect to the earned_income attributable to self-employment_income you should be aware that sec_6213 provides that a mathematical_or_clerical_error includes an entry on a return claiming the credit under sec_32 with respect to net_earnings_from_self-employment described in sec_32 to the extent the tax imposed by sec_1401 relating to self-employment_tax on such net_earnings has not been paid this provision applies with respect to returns the due_date for which without regard to extensions is more than days after date may the civil_fraud penalty under sec_6663 of the code be asserted when a fraudulent eic claim is made sec_6663 provides that if any part of any underpayment_of_tax required to be shown on a return is due to fraud there shall be added to the tax an amount equal to percent of the portion of the underpayment which is attributable to fraud we see no reason why the civil_fraud penalty under sec_6663 should not apply to a falsely claimed eic if it causes an underpayment as defined in sec_6664 or the formula prescribed in sec_1_6664-2 of the income_tax regulations assuming the civil_fraud penalty under sec_6663 can be asserted when a fraudulent eic claim is made how is the amount of the underpayment determined when the correct_tax is zero and the service has not issued a refund of the falsely claimed eic how is the amount of the underpayment determined when the service has issued a refund sec_6664 provides that for purposes of this part which includes sec_6663 the term underpayment means the amount by which any_tax imposed by this title title 26-internal revenue code exceeds the excess of a the amount shown as the tax by the taxpayer on his the sum of-- return plus b amounts not so shown previously assessed or collected without assessment over the amount of rebates made for purposes of paragraph the term rebate means so much of an abatement credit refund or other repayment as was made on the ground that the tax imposed was less than the excess of the amount specified in paragraph over the rebates previously made sec_1_6664-2 provides in part that an underpayment for purposes of sec_6663 means the amount by which any income_tax imposed under subtitle a as defined in sec_1_6664-2 exceeds the excess of the sum of-- i the amount shown as the tax by the taxpayer on his return as defined in sec_1_6664-2 plus ii amounts not so shown previously assessed or collected without assessment as defined in sec_1_6664-2 over the amount of rebates made as defined in sec_1 e the regulations also provide that the definition of underpayment also may be expressed by the following equation underpayment w - x y - z w the amount of income_tax imposed x the amount shown as the tax by the taxpayer on his return y amounts not so shown previously assessed or collected without assessment z the amount of rebates made sec_1_6664-2 provides that the amount of income_tax imposed is the amount of tax imposed on the taxpayer under subtitle a for the taxable_year determined without regard to the credits for tax withheld under sec_31 relating to tax withheld on wages and relating to tax withheld at source on nonresident_aliens and foreign_corporations payments of tax or estimated_tax by the taxpayer any credit resulting from the collection of amounts assessed under sec_6851 as the result of a termination_assessment or sec_6861 as the result of a jeopardy_assessment and any_tax that the taxpayer is not required to assess on the return such as the tax imposed by sec_531 on the accumulated_taxable_income of a corporation sec_1_6664-2 defines the amount shown as the tax by the taxpayer on his return as the tax_liability shown by the taxpayer on his return determined without regard to the items listed in sec_1_6664-2 and except that it is reduced by the excess of i the amounts shown by the taxpayer on his return as credits for tax withheld under sec_31 relating to tax withheld on wages and sec_33 relating to tax withheld at source on nonresident_aliens and foreign_corporations as payments of estimated_tax or as any other_payments made by the taxpayer with respect to a taxable_year before filing the return for such taxable_year over ii the amounts actually withheld actually paid as estimated_tax or actually paid with respect to a taxable_year before the return is filed for such taxable_year sec_1_6664-2 provides that amounts not so shown previously assessed means only amounts assessed before the return is filed that were not shown on the return such as termination assessments under sec_6851 and jeopardy assessments under sec_6861 made prior to the filing of the return for the taxable_year the amount collected without assessment is the amount by which the total of the credits allowable under sec_31 relating to tax withheld on wages and sec_33 relating to tax withheld at source on nonresident_aliens and foreign_corporations estimated_tax payments and other_payments in satisfaction of tax_liability made before the return is filed exceed the tax_shown_on_the_return provided such excess has not been refunded or allowed as a credit to the taxpayer sec_1_6664-2 defines rebate as so much of an abatement credit refund or other repayment as was made on the ground that the tax imposed was less than the excess of the sum of-- return plus i the amount shown as the tax by the taxpayer on his ii amounts not so shown previously assessed or collected without assessment over rebates previously made example of sec_1_6664-2 shows how to calculate the amount of underpayment in a situation involving overstated estimated_tax payments on form_1040 filed for tax_year taxpayer correctly reported a tax_liability of dollar_figure and incorrectly reported estimated_tax payments of dollar_figure taxpayer received a refund of dollar_figure the correct amount of estimated_tax payments was only dollar_figure for purposes of determining the amount of the underpayment subject_to a penalty under sec_6662 or sec_6663 the tax_shown_on_the_return is dollar_figure reported tax_liability of dollar_figure reduced by the overstated estimated_tax of dollar_figure dollar_figure minus dollar_figure the underpayment is dollar_figure determined as follows tax imposed under subtitle a tax shown on return tax previously assessed or collected without assessment none amount of rebates made none balance dollar_figure underpayment dollar_figure dollar_figure dollar_figure if the facts of example were the same except that no refund was made the underpayment would be dollar_figure determined as follows tax imposed under subtitle a tax shown on return tax previously assessed or collected without assessment dollar_figure amount of rebates made none balance dollar_figure underpayment dollar_figure dollar_figure dollar_figure in this situation the amount collected without assessment is dollar_figure dollar_figure minus dollar_figure the amount of the total of the credits allowable under sec_31 and sec_33 estimated_tax payments and other_payments in satisfaction of tax_liability made before the return is filed is dollar_figure the tax_shown_on_the_return is dollar_figure sec_1_6664-2 does not specifically address the effect of sec_32 credits on the calculation of an underpayment nevertheless we believe the sec_32 credit should be treated in the same manner as the sec_31 and sec_33 credits within the formula prescribed in sec_1_6664-2 sec_32 is one of the refundable credits contained in subpart c part iv subchapter_a chapter of subtitle a of the code other credits contained in that subpart include sec_31 tax withheld on wages and sec_33 tax withheld at source on nonresident_aliens and foreign_corporations accordingly in sec_1_6664-2 the amount of income_tax imposed should be determined without regard to the sec_32 credit the amount shown as the tax by the taxpayer on his return should be determined without regard to the sec_32 credit except that it should be reduced by the excess of the amount shown by the taxpayer as a sec_32 credit over the actual amount of the sec_32 credit the amount collected without assessment should include the amount by which the allowable sec_32 credit exceeds the tax_shown_on_the_return provided such excess has not been refunded or allowed as a credit to the taxpayer within your request for significant advice you provided two examples that demonstrate how the status of a refund may affect the calculation of an underpayment as discussed above the formula for computing an underpayment is underpayment w - x y - z w the amount of income_tax imposed x the amount shown as the tax by the taxpayer on his return y amounts not so shown previously assessed or collected without assessment z the amount of rebates made in the following examples the correct_tax is zero including self-employment_tax the correct eic is zero the taxpayer shows no tax on the return including self-employment_tax and the taxpayer falsely claims a dollar_figure refund solely attributable to the eic in the first example the refund was not made to the taxpayer in the second example the refund was made to the taxpayer example underpayment when refund not made underpayment w - x y - z w x dollar_figure y dollar_figure z underpayment - dollar_figure dollar_figure - underpayment example underpayment when refund made underpayment w - x y - z w x dollar_figure y z underpayment - dollar_figure - underpayment dollar_figure in example where the service has not issued a refund there is no underpayment_of_tax therefore the service may not impose a civil_fraud penalty we note that this memorandum does not address the application of criminal penalties to the facts of example see eg sec_7206 and sec_7207 in example where the service has issued a refund there is an underpayment and the service may impose the civil_fraud penalty if the underpayment is due to fraud if you have any questions concerning issue please contact peter cohn at if you have any questions concerning issue sec_2 and please contact celia gabrysh at assistant chief_counsel income_tax and accounting by s robert j basso acting senior technician reviewer branch


t c summary opinion united_states tax_court michael jay garcia petitioner and pamela g buzby intervenor v commissioner of internal revenue respondent docket no 24587-07s filed date michael jay garcia pro_se pamela g buzby pro_se susan m fenner for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed 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 unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure petitioner contests the denial of relief from joint_and_several_liability under sec_6015 for and intervenor who was relieved of liability for the additions to tax under sec_6651 and sec_6654 has paid the underlying tax_liabilities respondent and petitioner now agree that petitioner is entitled to relief under sec_6015 from liability for the additions to tax intervenor opposes petitioner’s relief from liability for the additions to tax the issue for decision is whether petitioner is entitled to relief from liability for the additions to tax under sec_6015 background the stipulations of fact and the exhibits received into evidence are incorporated herein by reference at the time the petition was filed petitioner resided in texas petitioner and intervenor filed their federal_income_tax return for showing a tax due of dollar_figure petitioner’s business was land maintenance and intervenor was a management consultant the return included a schedule c profit or lo sec_1petitioner and intervenor were married on date and divorced on date from business for petitioner showing a loss of dollar_figure and a schedule c for intervenor showing a net profit of dollar_figure the return for showed a tax due of dollar_figure petitioner’s lawn maintenance schedule c reported a net_loss of dollar_figure petitioner’s delivery service schedule c reported a net profit of dollar_figure intervenor reported schedule c records consulting net_income of dollar_figure the return also reported wages of dollar_figure intervenor filed a request for relief from joint liability on the form questionnaire for requesting spouse that intervenor provided to respondent she stated that she prepared the tax returns and that both her income and petitioner’s were deposited into their joint bank accounts according to intervenor all bills were paid from the joint accounts to which she had full access intervenor who attended college for years stated that she also balanced the checkbook petitioner also filed a request for relief from joint liability petitioner was notified in a letter dated date that his request for relief from joint liability was denied because you did not respond to our request for additional information after the petition and the answer were filed however respondent moved for a continuance in order to further consider petitioner’s request for relief the court granted the motion and respondent’s appeals_office after review granted petitioner relief from joint_and_several_liability discussion generally married taxpayers may elect to file a joint federal_income_tax return sec_6013 the determination of the marital status of taxpayers is made as of the close of the taxable_year sec_6013 because petitioners were not married until date they were not as of the close of husband and wife and were not entitled to file a joint_return petitioner a single_person incurring a net_loss for the year was not required to file a federal_income_tax return for see sec_6012 petitioner is not liable for the additions to tax under sec_6651 and sec_6654 for because the return was not a valid joint_return on which he was either jointly or severally liable where however a husband and wife have made a valid election to file a joint federal_income_tax return each spouse is jointly and severally liable for the entire tax due sec_6013 a spouse may seek relief from joint_and_several_liability under sec_6015 or if eligible may seek allocation of liability for the item giving rise to the deficiency under sec_6015 where an individual elects to have sec_6015 or c apply or in the case of an individual who requests equitable relief under sec_6015 sec_6015 gives jurisdiction to the court to determine the appropriate relief available to the individual under this section the court will apply a de novo scope and standard of review porter v commissioner t c ___ except as otherwise provided in sec_6015 the taxpayer bears the burden of proving entitlement to relief rule a 119_tc_306 affd 101_fedappx_34 6th cir where relief is not available under sec_6015 or c sec_6015 grants the commissioner discretion to relieve an individual from joint liability if taking into account all the facts and circumstances it is inequitable to hold the individual liable for any unpaid tax or deficiency as contemplated by sec_6015 the commissioner has prescribed guidelines in revproc_2003_61 2003_2_cb_296 to be used in determining whether an individual qualifies for relief 2the tax relief and health care act of publaw_109_ div c sec_408 120_stat_3061 amended sec_6015 to provide that this court may review the commissioner’s denial of relief under sec_6015 in any case where an individual requested relief under sec_6015 the amendment applies with respect to liability for taxes arising or remaining unpaid on or after the date of the enactment of this act date id sec_408 120_stat_3062 under that section revproc_2003_61 sec_4 c b pincite sets forth seven threshold conditions that must be satisfied before the commissioner will consider a request for equitable relief under sec_6015 respondent determined that petitioner satisfied all of the threshold conditions where the threshold conditions have been met revproc_2003_61 sec_4 c b pincite states that relief will ordinarily be granted with respect to underpayments of tax if all of the three so-called tier factors are satisfied respondent determined that petitioner failed to satisfy all of the tier factors see id where the requesting spouse has satisfied the threshold conditions of section dollar_figure but does not qualify for relief under sec_4 a determination may nevertheless be made under section dollar_figure to grant relief revproc_2003_61 sec_4 c b pincite contains a nonexhaustive list of factors so- called tier factors that the irs will consider and weigh when determining whether to grant equitable relief under sec_6015 respondent after considering the tier factors found that those favoring relief outweighed those disfavoring relief 3rev proc 2003_2_cb_296 supersedes revproc_2000_15 2000_1_cb_447 the guidelines set forth in revproc_2003_61 supra are effective for requests for relief filed on or after date and for requests for relief pending as of date for which no preliminary determination_letter has been issued as of date id sec c b pincite the factual issues to which intervenor’s argument testimony and other evidence were directed--whether petitioner worked in used their atm check card and signed the returns--do not bear directly on any of the factors respondent considered in making his decision to grant relief to petitioner the court has reviewed the factors on which respondent based his determination and comes to the same conclusion as does respondent petitioner is entitled to relief under sec_6015 from the additions to tax under sec_6651 and sec_6654 for to reflect the foregoing decision will be entered for petitioner 4intervenor however prepared the return and testified that the income shown on the forms 1099-misc miscellaneous income was reported on the federal_income_tax return she presses this point apparently to suggest that petitioner made a misstatement on his request for relief from joint liability


t c memo united_states tax_court ahsan mohiuddin petitioner v commissioner of internal revenue respondent docket nos filed date ahsan mohiuddin pro_se charles pillitteri and robert w west for respondent memorandum findings_of_fact and opinion scott judge respondent determined deficiencies in petitioner's federal income taxes and accuracy-related_penalties for the calendar years and as follows year deficiency sec_6662 a accuracy-related_penalty dollar_figure big_number big_number dollar_figure big_number some of the issues raised by the pleadings have been disposed of by agreement of the parties leaving for decision whether petitioner is entitled to use the filing_status of head_of_household for the taxable years and and whether petitioner is entitled to use the filing_status of single for the taxable_year whether petitioner is entitled to a dependency_exemption for his mother for each of the taxable years and whether petitioner is entitled to deduct on schedule a the amounts of dollar_figure dollar_figure and dollar_figure or any part thereof for the taxable years and respectively whether petitioner is entitled to schedule c business_expense deductions in the amounts of dollar_figure and dollar_figure for the taxable years and respectively and whether petitioner is liable for an accuracy-related_penalty pursuant to sec_6662 for each of the taxable years at issue 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 unless otherwise indicated in her answer to amended petition respondent alleged that petitioner was liable for an addition_to_tax pursuant to sec_6651 for failure to timely file petitioner's federal_income_tax return for the taxable_year in her trial continued - -3 findings_of_fact some of the facts have been stipulated and are found accordingly at the time of the filing of the petition in this case petitioner maintained a legal residence in huntsville alabama petitioner filed his federal_income_tax returns for the taxable years and with the internal_revenue_service center in memphis tennessee petitioner was married at all times during the taxable years at issue although petitioner and his wife had lived apart for some years they are not and never have been divorced petitioner did not maintain as his home a household that constituted the principal_place_of_abode of an individual who was a son stepson daughter or stepdaughter of petitioner during any part of any of the year or in petitioner's mother and father immigrated from india to the u s at that time petitioner's mother received a resident_alien card in the fall of petitioner's mother and father applied for government-assisted housing and were furnished a subsidized-rent duplex in huntsville alabama in which to live in date petitioner's mother began receiving supplemental income payments from the social_security continued memorandum respondent conceded this issue - -4 administration for october and date she received dollar_figure per month in such payments beginning in date she received dollar_figure per month as supplemental income payments from the social_security administration petitioner's father began receiving assistance from the government in the middle of petitioner's father received supplemental income payments from the social_security administration in october and date in the amount of dollar_figure per month beginning in date he received dollar_figure per month as such payments in date petitioner's sister and her husband moved into petitioner's house pincite karter street huntsville alabama the karter street house and lived there throughout and petitioner's mother lived for at least part of each of the years and in the karter street house petitioner's sister and her husband took care of petitioner's mother while she lived in the karter street house in late or early petitioner's sister and her husband moved to little rock arkansas and petitioner's mother moved with them petitioner was unemployed during until november when he obtained employment in melbourne florida with avionics research corp of florida avionics petitioner moved to florida in date and lived there throughout petitioner worked for avionics from date until date when his employment was terminated petitioner remained in florida - -5 receiving unemployment_compensation until date when he was no longer eligible to receive unemployment_compensation beginning in date petitioner rented the karter street house with an option to buy in petitioner decided to exercise his option to buy and between date and date petitioner paid the owner of the karter street house dollar_figure which amount represented the owner's equity in the house in date petitioner assumed the mortgage with amsouth mortgage co amsouth which was on the karter street house and began making mortgage payments to amsouth in date petitioner moved back to huntsville in date he obtained employment in huntsville but in date his employment was terminated petitioner deducted the following amounts on schedule a of his federal_income_tax return for the taxable_year deduction medical and dental expenses gifts to charity casualty or theft_loss moving_expenses total amount dollar_figure big_number big_number respondent determined that petitioner was entitled to no itemized_deductions for since his tax computed using the standard_deduction for was less than his tax computed using the proper amount of itemized_deductions - -6 the casualty_loss in the amount of dollar_figure claimed by petitioner for was for damage to a ford pinto automobile the automobile sometime around the end of petitioner took the automobile to mayhall texaco in huntsville alabama for repair of a transmission problem in date it was discovered that the automobile's engine had cracked due to an insufficient amount of antifreeze in the automobile on his federal_income_tax return for the taxable_year petitioner deducted on schedule a the following items in the amounts shown deduction real_estate_taxes other taxes home mortgage interest points gifts to charity moving_expenses miscellaneous_itemized_deductions unreimbursed employee_expenses legal fees to collect taxable_income repayment under claim of right total le sec_2 percent floor big_number big_number big_number big_number big_number total amount dollar_figure big_number big_number big_number sic dollar_figure respondent in the notice_of_deficiency disallowed dollar_figure of these claimed deductions the following itemized_deductions for were not disallowed by respondent - -7 deduction real_estate_taxes personal_property_taxes home mortgage interest points total amount dollar_figure big_number big_number included in the deduction claimed by petitioner for other taxes for the taxable_year was a deduction for personal_property_taxes the dollar_figure allowed by respondent as a deduction for personal_property_taxes was for petitioner's car registration the dollar_figure deduction claimed by petitioner in as employee business_expenses was in connection with petitioner's employment by avionics avionics contracted out petitioner's work to northrup grumman in melbourne florida northrup grumman petitioner received reimbursement from northrup grumman for his employee business_expenses related to a business trip to los angeles the policy of northrup grumman was to reimburse persons doing contract labor for any business travel_expenses they incurred to the extent petitioner was not reimbursed for his business travel_expenses it was because he did not follow the procedure required to receive reimbursement had he followed the required procedure he would have received reimbursement among the itemized_deductions claimed by petitioner on schedule a of his federal_income_tax return for the taxable_year was a deduction in the amount of dollar_figure for repayment - -8 under a claim of right petitioner's claimed deduction in of dollar_figure for repayment under a claim of right related to litigation which was resolved in over child_support for petitioner's daughter in resolution of the litigation petitioner claimed to have paid approximately dollar_figure in child_support and the remaining dollar_figure was claimed to have been paid for attorney's_fees and expenses of litigation the dollar_figure petitioner deducted in for expenses legal fees to collect taxable_income related to litigation instituted by petitioner regarding the denial to him of unemployment_compensation by the state of alabama petitioner's claimed deduction is stated by petitioner to consist of legal fees reporters' transcripts depositions court fees federal express mailing and administrative costs petitioner was unsuccessful at all stages of the unemployment_compensation litigation on schedule a of his federal_income_tax return for the taxable_year petitioner claimed itemized_deductions as follows deduction amount state_and_local_income_taxes real_estate_taxes auto registration tax_home mortgage interest gifts to charity casualty theft_loss moving_expenses total dollar_figure big_number big_number big_number - -9 respondent in the notice_of_deficiency disallowed dollar_figure of the itemized_deductions claimed by petitioner for the itemized_deductions claimed by petitioner for which were not disallowed were deduction real_estate_taxes personal_property_taxes charitable_contributions home mortgage interest total amount dollar_figure big_number big_number petitioner filed a schedule c with his return for the taxable_year using the business name a m techservices petitioner reported the address of this business as s oak st room melbourne fl on the schedule c petitioner claimed business_expense deductions as follows expense advertising insurance interest legal professional services office expense equipment lease repairs and maintenance supplies travel meals and entertainment utilities business start-up total amount dollar_figure big_number big_number big_number big_number big_number petitioner stated on the form_2106 attached to his return that his business was engineering consulting petitioner was seeking to contract out his services as an independent - -10 contractor during petitioner did not contract out his services during the taxable_year he reported no income on the schedule c filed with his return for respondent in the notice_of_deficiency to petitioner disallowed the entire amount of the dollar_figure business_expense deduction claimed by petitioner on the schedule c petitioner filed a schedule c with his return for the taxable_year using the same business name as in during that year petitioner listed on his tax_return that his principal business was personal and financial services collection agency petitioner reported no income on the schedule c for but he earned between dollar_figure and dollar_figure during the year from his collection business that he did not report on his tax_return on schedule c of his federal_income_tax return for the taxable_year petitioner claimed business_expense deductions totaling dollar_figure respondent in the notice_of_deficiency disallowed dollar_figure of the business_expense deductions claimed by petitioner for the claimed schedule c business_expense deductions not disallowed by respondent were petitioner testified to these facts but gave no explanation for his failure to report the income received - -11 expense advertising legal and professional services office expense rent repairs and maintenance supplies depreciation total amount dollar_figure big_number big_number on his federal_income_tax returns for the taxable years and petitioner claimed a filing_status of head_of_household he claimed a dependency_exemption for his mother in the amount of dollar_figure for the taxable_year and in the amount of dollar_figure for the taxable_year in the notice_of_deficiency for the taxable years and respondent changed petitioner's filing_status to single and disallowed the dependency_exemption he claimed for his mother on his federal_income_tax return for the taxable_year petitioner claimed single filing_status in her answer to amended petition for the years and respondent alleged that petitioner's correct filing_status for the taxable years and is married filing separate and also alleged that the exemption claimed by petitioner which was not disallowed should be reduced in accordance with sec_151 since the threshold_amount for reduction of exemptions for married filing separate is less than for single in her answer for the year respondent alleged that petitioner's correct filing_status for the taxable_year is married - -12 filing separate opinion petitioner contends that he was head of a household during and when his mother lived in his house and therefore is entitled to compute his tax on that basis in the notice_of_deficiency respondent determined that petitioner should have filed as single in her answer to amended petition respondent alleged that petitioner was required to file as married filing separate as a general_rule married individuals must file their federal_income_tax returns using either married filing separate or married filing joint pursuant to sec_2 an unmarried individual may file a return as head_of_household if that individual maintains as his home a household which constitutes for more than one-half of his taxable_year the principal_place_of_abode as a member of such household of an unmarried son or daughter or stepson or stepdaughter or of any person who is a dependent of the taxpayer if the taxpayer is entitled to a dependency_exemption for that person or maintains a household which constitutes for such taxable_year the principal_place_of_abode of the father or mother of the taxpayer if the taxpayer is entitled to a dependency_exemption for that parent - -13 under sec_7703 certain married individuals living apart are considered to be unmarried for the purpose of determining their eligibility to file as head_of_household under sec_2 petitioner argues that he is entitled to head_of_household status due to the support he provided to his mother during and petitioner testified at trial that he was married during and however he argues that since his wife was declared incompetent by a state court during those years he was entitled to head_of_household status for the care of his mother even if petitioner had offered sec_7703 determination of marital status b certain married individuals living apart --for purposes of those provisions of this title which refer to this subsection if-- an individual who is married within the meaning of subsection a and who files a separate_return maintains as his home a household which constitutes for more than one-half of the taxable_year the principal_place_of_abode of a child with respect to whom such individual is entitled to a deduction for the taxable_year under sec_151 or would be so entitled but for paragraph or of sec_152 such individual furnishes over one-half of the cost of maintaining such household during the taxable_year and during the last months of the taxable_year such individual's spouse is not a member of such household such individual shall not be considered as married - -14 sufficient evidence to establish his claim that his wife was incompetent in and he would not meet the requirements of sec_7703 for persons who are married to file as head_of_household one of the requirements of the statute is that a married taxpayer support either a son stepson daughter or stepdaughter to file as head_of_household petitioner makes no claim that he supported a son or daughter but claims that he was head_of_household because his mother was a member of his household since petitioner testified that he was married in and we hold that petitioner's correct filing_status in each of these years is married filing separate it follows that in computing petitioner's income_tax the threshold_amount of married filing separate should be used to determine the amount of any exemption to which petitioner is entitled petitioner argues that in any event he is entitled to a dependency_exemption for his mother in and under sec_151 a taxpayer is allowed an exemption for himself and an exemption for each dependent as defined in sec_152 whose gross_income for the calendar_year in which the taxable_year of the taxpayer begins is less than the exemption_amount or who is a child of the taxpayer and who has not attained the age of at the close of the calendar_year in which the taxable_year of the taxpayer begins or is a student sec_152 and c under sec_152 a dependent includes the father or mother of the taxpayer if the father or mother - -15 received from the taxpayer over half of his or her support for the calendar_year in which the taxable_year of the taxpayer begins petitioner submitted checks made payable to amsouth representing mortgage payments for the karter street house for the taxable_year totaling dollar_figure in support of the claimed dependency_exemption for his mother according to petitioner's tax returns his mother lived with him months in and months in petitioner's sister and her husband also lived in the karter street house during those years the record further indicates that petitioner's mother received government assistance during and including supplemental social_security income payments in october and date in the amount of dollar_figure per month and in the amount of dollar_figure per month thereafter petitioner's father was also receiving supplemental social_security income payments in october and date in the amount of dollar_figure per month and beginning in date he received dollar_figure per month the record does not show whether petitioner's sister and her husband provided support during and for petitioner's mother and father it does show that both petitioner's mother and petitioner's sister lived in petitioner's house during part of each of the years and the mortgage documents are the only documents petitioner has provided to establish any expenditures relating to the support of his mother these checks merely - -16 establish that petitioner made mortgage payments and do not prove that petitioner provided over half the support for his mother during the years and the mortgage documents fail to satisfy petitioner's burden of proving that his mother was his dependent during the years and we sustain respondent's disallowance of petitioner's claimed dependency_exemption for his mother in both and the only documents offered by petitioner for the taxable_year in support of his claimed schedule a itemized_deductions relate to his claimed casualty_loss and his claimed moving expense deductions as evidence of his claimed casualty_loss petitioner has submitted an affidavit as evidence of his claimed moving_expenses petitioner has submitted car rental agreements and a hotel receipt sec_165 provides limits set forth therein for the deduction of personal casualty losses under sec_1 b income_tax regs the amount of loss to be taken into account shall be the lesser_of the amount that is equal to at the conclusion of the trial the court requested that respondent construct a list of each item which petitioner introduced into evidence in this case and state whether respondent agreed that the item represented an allowable deduction and whether that item corresponded to petitioner's schedule a or c claimed deductions for that particular year the court also instructed petitioner to list the exhibits in the record and indicate specifically what each item is alleged to prove while respondent followed the court's instructions in this regard petitioner has failed to assist the court in this matter - -17 the fair_market_value of the property immediately before the casualty reduced by the fair_market_value of the property immediately after the casualty or the amount of the adjusted_basis for determining the loss from the sale_or_other_disposition of the property involved a casualty is an event due to some sudden unexpected or unusual cause such as a fire storm or shipwreck 3_tc_1 the only evidence petitioner offered regarding the casualty_loss deduction claimed in was an affidavit of tex mayhall in which mr mayhall states that the damage to petitioner's automobile occurred due to an absence or an insufficient amount of antifreeze in the automobile the affidavit further states that mr mayhall salvaged the automobile for dollar_figure and notified petitioner about the salvage approximately months later when petitioner called to ask about the automobile we have long held that in order for an event to constitute a casualty the event must involve the application of a destructive force which must be the proximate cause of the loss see 48_tc_430 petitioner's loss if any did not embody the requisite element of chance accident or contingency see 36_tc_1191 quoting 21_bta_702 and is therefore no more than a personal_expense to petitioner as a result of petitioner's neglect further even if this were to be considered as a casualty_loss petitioner has offered no - -18 evidence whatsoever of the amount of the loss we therefore sustain respondent's denial of a deduction for petitioner's claimed casualty_loss in in general a taxpayer is allowed to deduct moving_expenses paid_or_incurred during the taxable_year in connection with the commencement of work by the taxpayer as an employee or self- employed individual at a new principal_place_of_work sec_217 on his tax_return for the taxable_year petitioner deducted dollar_figure for moving_expenses to substantiate this deduction petitioner placed in evidence a car rental receipt in the amount of dollar_figure and a motel receipt from a motel in huntsville alabama in the amount of dollar_figure respondent concedes that petitioner is entitled to these amounts as a moving_expense_deduction for respondent further concedes that petitioner is entitled to include as a moving_expense_deduction in the amount of dollar_figure based on another car rental receipt petitioner argues in his brief that he produced to respondent's agent receipts for all expenses he would have reasonably been expected to produce however petitioner offered only the two receipts at trial and no other information regarding the moving_expenses although the evidence indicates that petitioner did have some moving_expenses in in addition to those conceded by respondent there is no basis for concluding that the amount of such expenses would cause petitioner's itemized_deductions for to result in his tax computed on the basis of such - -19 deductions being less than the tax computed on the basis of the standard_deduction petitioner has conceded that he is not entitled to a medical_expense_deduction for but petitioner has not conceded that he is not entitled to the deduction he claimed for a charitable_contribution in the amount of dollar_figure petitioner has offered no evidence of any charitable_contribution made in and therefore we sustain the denial of the deduction of dollar_figure claimed by petitioner for a charitable_contribution in petitioner also deducted various expenses on his schedule a for the taxable_year that respondent disallowed petitioner presented at trial a variety of unorganized checks receipts invoices and car rental agreements in support of these claimed deductions petitioner claimed that the unreimbursed employee business_expenses in the amount of dollar_figure claimed on schedule a of his tax_return consisted of vehicle expenses parking fees travel_expenses meals and entertainment_expenses and other business_expenses most of these claimed expense deductions are of the type specified in sec_274 which provides that no deduction is allowed unless the taxpayer can substantiate by adequate_records or sufficient evidence the amount of the among the items that respondent has allowed is the deduction of dollar_figure for home mortgage interest and dollar_figure for points petitioner deducted on schedule a of his tax_return - -20 expenditure the time and place of the expenditure the business_purpose of the expense and the business relationship involved petitioner introduced in evidence documents that he contends show unreimbursed employee business_expenses petitioner testified that had he applied for reimbursement of these expenses his employer would have reimbursed him for the expenditures not only has petitioner failed to meet his burden of substantiating these claimed expense deductions by proper evidence he has failed to show that they would be deductible even if substantiated these expenditures if for business purposes would have been reimbursed by his employer had he claimed reimbursement see 79_tc_1 59_tc_696 petitioner testified that some of these expenses which he claimed as deductible may have actually been reimbursed by his employer and that some were nondeductible personal expenditures based on this record petitioner has failed to show that he is entitled to a deduction for unreimbursed employee business_expenses in in any amount we therefore sustain respondent's disallowance of petitioner's claimed deduction in of unreimbursed employee business_expenses petitioner claimed a deduction for repayment under claim of right in the amount of dollar_figure petitioner testified that this amount related to litigation involving child_support for his daughter and argued in his brief that this amount was arrearage - -21 on child_support he paid the state of tn and child's mother dorine furuya neither of which would provide petr with accounting of monies rec'd despite several written requests from the petr petitioner testified that approximately dollar_figure of this claimed deduction was for child_support payments and approximately dollar_figure was for attorney's_fees and expenses of the litigation concerning child_support payments the portion of this claimed deduction that relates to child_support payments is not deductible sec_71 sec_215 the portion of this claimed deduction that relates to the litigation costs concerning child_support payments is not deductible since it is a personal living or family expense which is not deductible under sec_262 372_us_39 furthermore petitioner has failed to prove that the amounts he claimed as deductions were expenditures he actually made in we hold that petitioner is not entitled to deduct the amount he claims to be deductible as a repayment under claim of right petitioner deducted dollar_figure in legal fees for the year that he testified related to his unsuccessful attempt to obtain unemployment_compensation through litigation sec_212 allows in the case of individual taxpayers a deduction for all the ordinary and necessary expenses paid_or_incurred during the taxable_year for the production_or_collection_of_income respondent does not argue that legal fees to collect unemployment_compensation are not deductible if paid see united_states v - -22 gilmore supra 236_fsupp_88 d n j respondent however argues that petitioner has not substantiated the entire amount of the claimed deduction petitioner introduced into evidence checks that he claimed represent legal fees and expenses relating to unemployment_compensation litigation respondent concedes that of the checks represent deductible amounts totaling dollar_figure one of the remaining checks received in evidence is in the amount of dollar_figure payable to richard stegman esq for consultation and two of such checks are payable to neil paulson in the total amount of dollar_figure petitioner offered no evidence that either mr stegman or mr paulson worked on the unemployment_compensation litigation and neither person appeared on any court documents relating to this litigation the fourth check received in evidence is a check in the amount of dollar_figure payable to accurate professional typists petitioner could not remember whether this check was related to the unemployment_compensation litigation there were also received in evidence two airline passenger receipts that petitioner claims relate to the unemployment_compensation litigation the travel represented by the airline receipts was to huntsville alabama and occurred over weekends and holidays there is a strong indication from these facts that the travel was for personal purposes petitioner claims that car rental agreements received in evidence represent expenses related to the unemployment_compensation litigation petitioner has not - -23 explained how the amounts paid under the car rental agreements relate to the unemployment_compensation litigation we therefore hold that petitioner has failed to establish that he had any deductible expenses relating to the unemployment_compensation litigation other than the dollar_figure conceded by respondent in support of a claimed deduction for for taxes on his car registration petitioner submitted a copy of a canceled check payable to emmett sanders in the amount of dollar_figure in the notice_of_deficiency respondent did not disallow dollar_figure of the deduction claimed by petitioner for taxes on his car registration petitioner has failed to show that the entire amount of the check to emmett sanders was for taxes on his car registration we therefore uphold respondent's determination with respect to the disallowance of a portion of the amount claimed by petitioner as taxes on his car registration in the other taxes deducted by petitioner in are utility taxes and tax on petitioner's telephone bill these items are nondeductible and we sustain respondent's disallowance of these claimed deductions sec_164 see 73_tc_621 petitioner has offered no evidence to substantiate the charitable_contribution_deduction claimed on schedule a of his tax_return since petitioner has not substantiated this claimed deduction we sustain respondent's disallowance of the claimed deduction - -24 petitioner deducted dollar_figure in moving_expenses in which respondent disallowed in her notice_of_deficiency petitioner testified that he moved from huntsville alabama to melbourne florida in date petitioner testified that he incurred expenses in connection with his move from huntsville to melbourne through date while in melbourne he worked for avionics until date petitioner then remained in melbourne to receive unemployment benefits petitioner has offered no evidence that the expenses of his move to melbourne in continued through nor has he offered any substantiation of this claimed deduction we therefore sustain respondent's disallowance of this claimed deduction for moving_expenses in respondent disallowed all of the amounts claimed as deductions by petitioner on schedule a for for lack of substantiation the following are schedule a claimed deductions in dispute for the year deduction amount state_and_local_income_taxes real_estate_taxes charitable_contributions casualty theft_loss moving_expenses dollar_figure big_number petitioner has failed to provide any substantiation whatsoever for these claimed deductions and accordingly we sustain respondent's disallowance of the claimed deductions for - -25 for the years and petitioner claimed to have incurred business_expenses relating to a m techservices he claimed these deductions on schedule c respondent denied all of these claimed business deductions for on the basis that petitioner had not established that he was carrying_on_a_trade_or_business to which the expenses related sec_162 provides that there is allowed as a deduction all ordinary and necessary business_expenses incurred during the taxable_year generally a trade_or_business is an activity that is pursued in good_faith with continuity and regularity and for the production_of_income 480_us_23 whether a taxpayer is engaged in a trade_or_business is a question of fact 72_tc_433 petitioner reported on his tax_return for that the name of his business was a m techservices at trial petitioner claimed he was an engineering consultant seeking to contract out his services as an independent_contractor he reported no gross_income in from this business but claimed deductible expenses totaling dollar_figure petitioner has placed in evidence numerous canceled checks and other documentation in purported support of these claimed deductions these checks relate to rent payments utility and phone bills mailboxes credit card - -26 payments airline tickets and automobile expenses petitioner has not shown that the expenses for which these checks were given relate to a business rather than being personal expenses petitioner has offered no evidence other than his vague testimony that he was engaged in a trade_or_business other than his full-time job with avionics during the year petitioner reported no income in from any business other than his employment by avionics the nature of the expenses petitioner claimed as deductible in strongly suggests that they were nondeductible personal household expenses petitioner deducted power phone and rent for an apartment address which he claims was his business address pincite south oak street room this same address appeared on the forms w-2 issued by avionics to petitioner for the years and this is also the address that petitioner used on his checking account petitioner also used this address on the automobile repair invoices and on all of the car rental agreements that are in evidence petitioner further admitted that the south oak street apartment is a residential apartment at trial when petitioner was asked where his residential address was during that year he was vague and unspecific claiming that at the time he lived in another person's house he had difficulty remembering the name of the person the street address or the telephone number but could immediately recall the address that he claimed was the address for his claimed business we conclude that petitioner - -27 has not met his burden of proving that he was engaged in a bona_fide business during other than his employment and sustain respondent's disallowance of petitioner's claimed business_expenses relating to a m techservices respondent allowed some of the schedule c business_expense deductions claimed by petitioner relating to a m techservices for the year according to petitioner this business was a personal financial services collection agency at trial petitioner failed to offer proof of any amount_of_deductions in excess of those allowed by respondent accordingly we sustain respondent's determinations with regard to petitioner's claimed schedule c deductible expenses for the year sec_6662 imposes an accuracy-related_penalty of percent on any portion of an underpayment_of_tax that is attributable to items set forth in sec_6662 respondent contends that petitioner is liable for this penalty for either negligence or substantial_understatement of tax under sec_6662 and negligence includes any careless reckless or intentional disregard of rules or regulations any failure to make a reasonable attempt to comply with the provisions of the law and any failure to exercise ordinary and reasonable care in the preparation of a tax_return see 731_f2d_1417 9th cir affg 79_tc_714 - -28 sec_6664 provides that the penalty should not be imposed on any portion of an underpayment if the taxpayer shows reasonable_cause for such portion of the underpayment and that the taxpayer acted in good_faith with respect to such portion reliance on the advice of a professional such as an accountant may constitute a showing of reasonable_cause if under all the circumstances such reliance was reasonable and the taxpayer acted in good_faith sec_1 b income_tax regs petitioner has failed to show that he was not negligent there is no evidence that petitioner made a reasonable attempt to comply with the statutes or regulations in filing his federal_income_tax returns for any of the years at issue had petitioner consulted either the relevant statutes or a competent tax adviser he would have discovered that many of the deductions he claimed were not proper it is clear from the facts in this case and from petitioner's brief that petitioner claimed these deductions and expenses without regard to the applicable law therefore we sustain the accuracy-related_penalty for each year as determined by respondent decisions will be entered under rule


internal_revenue_service number release date index number 468a -------------------------------- ------------------------------------------------------------ ------ ---------------------------------------------- ---------------------------------------- ------------------------------ department of the treasury washington dc person to contact ----------------------- id no ------------- telephone number refer reply to cc psi b06 - plr-127513-07 date date ---------------------------- ------------------------------------------------ ------------------------------ --------------------------------------------- legend taxpayer -------------------------------- plant intermediate -------------------------------- parent -------------------------------- purchaser ----------------------------------------------------------- director ---------------------------------------------------------------------------------- location commission a order commission b state method fund dear------------- ---------------- ----------------------------------------- -------------------------------- ----------------------------------------------------- -------- ----------------------- ------------------------------------------ --------------------------------- --------------------------------------------------------------------------------- this letter responds to your request dated date for a revised schedule of ruling amounts for the taxable_year pursuant to sec_468a of the internal_revenue_code taxpayer was previously granted a revised schedule of ruling amounts for ------- as well as other years on ----------------------- because of a substantial - - - - plr-127513-07 variation as defined in sec_1_468a-3 of the income_tax regulations in the ruling_amount determined under the formula approved originally by letter dated --------------------- taxpayer was granted a revised schedule of ruling amounts for years - ---------------by letter dated ---------------------- taxpayer later realized that the substantial variation applied to the ------- taxable_year as well and requested that the service grant additional time to request the required revised schedule for that year by letter dated date this request was granted by the service by letter dated --------------------- and this request for a revised schedule for the ------- taxable_year followed information was submitted pursuant to sec_1_468a-3 taxpayer represents the facts and information relating to its request for a revised schedule of ruling amounts as follows taxpayer is wholly owned by intermediate which is wholly owned by parent parent files a consolidated_return for the affiliated_group which includes taxpayer intermediate and parent taxpayer has a ----- percent direct ownership_interest in the plant the plant is situated at location plant -------------------------------------------------- the estimated base cost for decommissioning plant is based on an independent study and the proposed method of decommissioning the plant is method decommissioning operations are expected to begin after ----------------------------------------------------------------- ----------- also located at location taxpayer is subject_to the regulatory jurisdiction of commission a -------percent and commission b -----percent there is no change in the amount to be included in the cost of service as determined by commission b and those amounts are included here for completeness in order commission a authorized the annual amount of decommissioning costs of dollar_figure----------------to be included in taxpayer’s cost of service for ratemaking purposes for plant for the years -------------- for --------and ---------- commission a linked the costs to the amount of electricity generated by the plant and purchased by purchaser the estimated cost of decommissioning plant is dollar_figure------------------in ------- dollars and the total estimated future cost of decommissioning plant is dollar_figure----------------- of which dollar_figure------------------is allocable to the fund dollar_figure------------------x taxpayer’s qualifying percentage of -------- the funding_period for the plant extends from ------- through ----- ------- and the level_funding limitation period for the plant extends from ------- through ---- ------- the assumed after-tax rate of return to be earned by the assets of the fund is --- -------percent the rate of escalation to determine the future cost of decommissioning plant is -------percent compounded annually the estimated period for which the fund will be in effect is --- years ------- through ------- the estimated_useful_life of the plant plr-127513-07 is --- years ------- through ------- thus the taxpayer has calculated its qualifying percentage to be --------percent there are no proceedings pending before either commission a or b that may result in a change to the amount of decommissioning costs for the plant to be included in the taxpayer’s cost of service for ratemaking purposes taxpayer in prior schedules of ruling amounts dated --------------------- and -------- ----------------------- was granted permission to use a formula pursuant to sec_1 468a- a to determine its schedule of ruling amounts the ruling_amount for each year of the period is determined on or before the deemed payment_date for the year expressed mathematically the taxpayer uses the following formula to determine the ruling_amount formula a x c - d x e f - g x b e f - g - e where a b c d e total estimated cost of decommissioning the plant in future dollars as approved by commission a dollar_figure------------------ taxpayer’s jurisdictional percentage for commission a ------ percent taxpayer’s qualifying percentage under sec_1_468a-3 ---------- percent fair_market_value of the fund assets as of the beginning of the current_year dollar_figure------------------------------------------ after tax_rate of return as approved by commission a -------- percent final year of funding_period ------- and f g if the formula should result in a negative number the ruling_amount will be current_year -------- assumed to be zero plr-127513-07 using the formula results in the following calculation for ------- sec_468a provides that a taxpayer may elect to deduct the amount of ---------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------- payments made to a qualified decommissioning fund however former sec_468a limits the amount_paid into such fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to this fund which is included in the taxpayer's cost of service for ratemaking purposes for the tax_year or the ruling_amount applicable to this year sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the total nuclear decommissioning costs with respect to the nuclear power plant as the period for which the nuclear decommissioning fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within months after the close of the tax_year sec_1_468a-1 provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under ' 468a-1 b of the regulations is a taxpayer that has a qualifying interest in among other things a direct ownership_interest sec_1_468a-1 provides that the term qualifying interest means a leasehold interest in any portion of a nuclear power plant if a the holder of the leasehold interest is subject_to the jurisdiction of a public_utility commission with respect to such portion of the nuclear power plant b the holder of the leasehold interest is primarily liable under federal or state law for decommissioning such portion of the nuclear power plant and c no other person establishes a nuclear decommissioning fund with respect to such portion of the nuclear power plant plr-127513-07 sec_1_468a-2 provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the lesser_of the cost of service amount applicable to the nuclear decommissioning fund for such tax_year or the ruling_amount applicable to the nuclear decommissioning fund for such tax_year sec_1_468a-3 provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes under sec_1_468a-3 the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3 provides that the internal_revenue_service will approve at the request of the taxpayer a formula or method for determining a schedule of ruling amounts rather than a schedule specifying a dollar amount for each taxable_year that is consistent with the principles and provisions of sec_468a and the regulations thereunder sec_1_468a-3 provides that in general the amount for any_tax year in the level_funding limitation period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3 the level_funding limitation period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes sec_1_468a-3 provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage plr-127513-07 sec_1_468a-3 provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant under sec_1_468a-3 the qualifying percentage for any nuclear decommissioning fund is equal to a fraction the numerator of which is the number of tax years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of tax years in the estimated_useful_life of the applicable plant sec_1_468a-3 provides that the estimated period for which a nuclear decommissioning fund is to be in effect begins on the later of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund or deemed made or the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 provides that the estimated_useful_life of a nuclear power plant begins on the first day of the taxable_year that includes the date that the plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund plr-127513-07 unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount sec_1_468a-3 enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 provides that any taxpayer that has obtained a formula or method for determining a schedule of ruling amounts for any taxable_year must file a request for a revised schedule on or before the earlier of the deemed payment deadline for the fifth taxable_year that begins after its taxable_year in which the most recent formula or method was approved or the deemed payment deadline for the first taxable_year that begins after a taxable_year in which there is a substantial variation in the ruling_amount determined under the most recent formula or method there is a substantial variation if the ruling_amount for the year and the ruling_amount for any earlier year since the most recent formula or method was approved differ by more than percent of the smaller amount sec_1_468a-3 provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3 the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 of the regulations commission a has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations pursuant to sec_1_468a-3 we approve a formula for determining the schedule of ruling amounts rather than a schedule specifying a plr-127513-07 dollar amount for each taxable_year that is consistent with the principles and provisions of sec_468a the approved formula is the formula shown and explained previously in this letter_ruling taxpayer as owner of the plant has calculated its share of the total decommissioning costs under sec_1_468a-3 of the regulations taxpayer has determined that pursuant to sec_1_468a-3 of the regulations the qualifying percentage is --------percent the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the lesser amount of the decommissioning costs applicable to the fund or the ruling_amount applicable to the fund as set forth under sec_1 468a- b of the regulations taxpayer subject_to the jurisdiction of two public_utility commissions for ratemaking purposes has calculated its share of the total decommissioning costs as required by sec_1 468a- f of the regulations based solely on the determinations above we conclude that the taxpayer's proposed schedule of ruling amounts in regard to commission a satisfies the requirements of sec_468a of the code accordingly the schedule of ruling amounts requested by the taxpayer under sec_468a is approved as follows approved schedule of ruling amounts allocable to the taxpayer year ----------- commission a commission b total ----------------------- ---------------- ----------------------- approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time the current ruling is issued except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above we note that as stated in our letter of --------------------- because the statutory deemed plr-127513-07 payment deadline for the ------- tax_year has passed taxpayer will not be permitted to make any further contributions for the ------- tax_year as a result of this revised schedule of ruling amounts the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code payments made to such fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to such fund or the ruling amounts applicable to this fund in the tax_year this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides 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 the taxpayer’s authorized representative we are also sending a copy of this letter_ruling to the director pursuant to sec_1_468a-7 a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries cc