t c memo united_states tax_court association cable tv incorporated petitioner v commissioner of internal revenue respondent docket no filed date h cranston pope for petitioner alan friday for respondent memorandum findings_of_fact and opinion cohen judge respondent determined a deficiency of dollar_figure in petitioner's federal income taxes for and additions to tax of dollar_figure under sec_6653 and dollar_figure under sec_6661 in the answer respondent alleged in the alternative that petitioner is liable for additions to tax for delinquency and negligence under sec_6651 and sec_6653 respectively unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure the issues for decision are whether petitioner is taxable on a gain on the sale of assets or whether it adopted a plan of complete_liquidation on or before the sale date of the assets in accordance with the requirements of sec_337 and whether petitioner is liable for the additions to tax determined by respondent findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioner had its principal_place_of_business in florida at the time the petition was filed during the year in issue petitioner was in the business of providing cable tv service association cable tv act was incorporated in the corporation was owned equally by four shareholders franklin w briggs briggs john l daniell daniell jimmy d morris morris and mike gay gay the corporation was formed to provide cable tv services to a beach resort subsequently act pursued and received franchise rights to provide cable tv services to panama city beach florida the franchise for panama city beach put act in competition with jones spacelink ltd jsl which also provided cable tv services in the area in date jsl expressed an interest in purchasing act assets which consisted of franchise rights the shareholders of act held an a m meeting on date to discuss the offer from jsl and other act business the meeting was held at the office of glenn hess hess act's attorney as was customary the meeting was tape-recorded and later transcribed various topics were discussed during the meeting the shareholders discussed the offer from jsl and voted to sell act's cable tv franchise rights to several geographical areas to jsl if jsl would agree to a sales_price of approximately dollar_figure million as part of the negotiations jsl requested a noncompetition agreement with act the following was recorded hess they jsl ask for a contract with harbortown they ask for a contract with pirates cove briggs we can't give them harbortown pirates cove we'll just say that it will be covered by the non-competing agreement daniell i t the noncompetition agreement covers what area hess uh yes hathaway bridge phillips inlet bridge dellwood beach road and the state park gulf of mexico if i say the intercoastal waterway i think they'll get a real great desire to build in west bay daniell in other words it doesn't cover bay county it's just hess no i defined it specifically hathaway dellwood road and the state park on the east phillips inlet on the west the gulf and the intercoastal waterway which is a good boundary along here and i got a map showing that will be it for a period of years the shareholders discussed business plans for act that were to occur whether or not the sale to jsl was completed they also discussed the interpersonal problems they had been having and the possibility of disassociating themselves the meeting ended with plans for hess briggs morris and daniell to travel to colorado to meet with jsl the act shareholders except gay and hess met with jsl in colorado on date act employed the firm of williams cox weidner cox wcwc as their accountants prior to traveling to colorado act contacted wcwc regarding the possible sale of act assets to jsl mack shepard shepard and joel turner turner were both accountants at wcwc shepard had been handling the act account shepard asked turner to research various options on how act could structure the contemplated jsl sale from a tax perspective turner researched the issue and prepared a memorandum that outlined several alternative methods on how to structure the sale including liquidation turner faxed the memorandum to briggs morris daniell and hess in colorado on date after sending the fax turner did not communicate with any act shareholders until date over a year after the sale to jsl hess was not a tax attorney and did not advise act with regard to the tax consequences of the sale hess briggs morris and daniell finalized the sale of act assets to jsl in colorado on date the final sales_price was dollar_figure which included the sum of dollar_figure for a noncompetition clause the agreement stated in part each seller covenants and agrees with buyer that for a period of five years from and after the date hereof each seller shall not directly or indirectly own control manage operate join participate in the ownership management operation or control of or be connected in any manner anywhere within all geographic areas which are covered by or which buyer has a right to serve under any cable television franchises or other agreements within the state of florida currently held by the buyer or any of its affiliates or granted to buyer or any of its affiliates within five years from the date hereof except for i the communities of mexico beach and deer point lake both in bay county florida port st joe in gulf county florida and apalachicola in franklin county florida and ii any other communities within the bay county florida franchise area which are not served or proposed to be served by buyer or any of its affiliates and which have been offered to and refused by buyer pursuant to the service agreement the parties acknowledged that sellers may build cable television systems for the communities of mexico beach and deer point lake both in bay county florida port st joe in gulf county florida and apalachicola in franklin county florida and such shall not be construed as a violation of this covenant_not_to_compete on date gay went to hess' office and asked hess to prepare minutes reflecting that on that day the shareholders of act voted to liquidate the corporation hess prepared the minutes which included resolutions that the board_of directors and shareholders of act voted to liquidate and dissolve the corporation in accordance with sec_337 of the internal_revenue_code of no meeting or other action of the shareholders occurred on date gay died several weeks after the meeting with hess in date act's form_1120 tax_return had not yet been prepared by wcwc shepard wrote a memorandum to briggs on date summarizing previous discussions between briggs and shepard on the treatment of the funds that act received from jsl as a result of the sale the memorandum did not mention liquidation in date wcwc began preparing act's form_1120 tax_return wcwc was operating under the assumption that act had not liquidated after wcwc prepared a draft of act's return wcwc informed briggs that a substantial tax_liability would be owed on the funds received from the jsl sale briggs was angry about act's tax_liability and expressed his anger to wcwc in response j vern williams williams a manager at wcwc contacted turner and asked turner to get involved with the act tax_return wcwc removed shepard from working with act and asked shepard to resign in a memorandum dated date turner informed williams that turner had previously advised act to liquidate turner was referring to the date memorandum that he had prepared for the act shareholders while they were in colorado turner sent williams a copy of the memorandum that he had prepared for the act shareholders turner prepared a date memorandum to act in anticipation of a meeting between turner and briggs later that day in the date memorandum to act turner stated we recommended a liquidation of the corporation by date to qualify for the transitional rules pertaining to a tax free liquidation under 'old code sec_337' during the date meeting turner informed briggs that minutes of a liquidation meeting were needed for submission to the irs with act's form_1120 tax_return on date turner faxed to briggs a sample set of minutes to be used for a corporate_liquidation the sample minutes provided by turner erroneously listed date as the date by which liquidation must be completed on date minutes purporting to represent a meeting during which the shareholders of act agreed to liquidate arrived at wcwc's office the minutes falsely stated that a meeting occurred on date pincite p m and referred to the erroneous date of date as the date by which liquidation must be completed bill bass bass an accountant at wcwc received the minutes when they arrived at wcwc bass felt apprehensive about the minutes but was instructed by turner to take the minutes at face value bass attached the minutes to act's form_1120 tax_return and filed the return with the irs the false minutes were prepared by briggs and morris between date and date daniell resigned as president of act on date in date and date daniell was interviewed by the irs in connection with an irs investigation of briggs daniell told the irs during the date meeting that the first time he found out that act had supposedly liquidated was during the date meeting with the irs daniell never participated in a vote to liquidate act in briggs and morris pleaded guilty to and were sentenced for violations of sec_7207 for false statements in income_tax returns ultimate findings_of_fact petitioner did not adopt a plan_of_liquidation prior to or on the sale date of its assets petitioner was liable for the tax on the gain on the sale of its assets at the time that petitioner's form_1120 tax_return was due officers of petitioner knew they were liable for the tax on the gain from the sale petitioner filed a false form_1120 tax_return with the irs that did not report the gain with the intent to evade a tax known to be owing opinion petitioner asserts that it had adopted an informal liquidation plan on or before the sale date of its assets and therefore the dollar_figure gain that was realized on the jsl sale was nontaxable petitioner admits that it did not adopt a formal liquidation plan because the minutes attached to the return were created after the sale backdated and contained false information respondent contends that petitioner had not timely adopted a liquidation plan and that the gain was taxable respondent acknowledges that a formal written liquidation plan is not required under sec_337 respondent argues however that the evidence establishes that an informal plan was not adopted petitioner has the burden of proving that respondent's determination of unreported income is erroneous rule a 503_us_79 respondent however must prove by clear_and_convincing evidence an underpayment_of_tax as well as fraudulent intent in relation to the addition_to_tax for fraud sec_6653 sec_7454 rule b gain on sale the nonrecognition_of_gain_or_loss provisions of sec_337 in connection with corporate liquidations were repealed by the tax_reform_act_of_1986 publaw_99_514 sec d 100_stat_2085 a transition rule allowed certain small corporations to be eligible for sec_337 nonrecognition for a longer period act was eligible for the transitional exemption provided that the liquidation was completed before date sec_337 as it applied to act provided as follows sec_337 gain_or_loss on sales or exchanges in connection with certain liquidations a general_rule --if within the 12-month_period beginning on the date on which a corporation adopts a plan of complete_liquidation all of the assets of the corporation are distributed in complete_liquidation less assets retained to meet claims then no gain_or_loss shall be recognized to such corporation from the sale_or_exchange by it of property within such 12-month_period act was required to adopt a liquidation plan on or before the sale date of its assets liquidation is a process distinct from other corporate action the liquidation of a corporation is the process of winding up its affairs by realizing upon its assets paying its debts and appropriating the amount of its profit and loss it differs from normal operation for current profit in that it ordinarily results in the winding up of the corporation's affairs and there must be a manifest intention to liquidate a continuing purpose to terminate its affairs and dissolve the corporation and its activities must be directed and confined thereto a mere declaration is not enough and the question whether a corporation is in liquidation is one of fact t 41_bta_965 the intent to liquidate must be adopted in a plan a plan is a method of putting into effect an intention or proposal 167_f2d_214 affg 8_tc_442 the statute does not require a formal plan 35_tc_418 however if there is no formal plan the adoption date of a liquidation plan is determined from the facts and circumstances id sec_1 b income_tax regs the facts and circumstances must provide clear evidence of an intention to liquidate if an informal plan is to be established 393_f2d_983 both petitioner and respondent rely on the date a m meeting and the events on the day of the sale to jsl to substantiate their assertions respondent contends that the transcript of the date a m meeting contains no reference to liquidation and establishes that petitioner intended to continue business respondent relies on the shareholders' discussion about which geographical areas to exclude from the noncompetition agreement in the jsl contract and the subsequent exclusion of those areas in the contract petitioner argues that the noncompetition agreement was added at the request of jsl and therefore is not evidence of an intent to continue business petitioner fails to acknowledge however that it was the act shareholders who specified which areas they wanted excluded from the agreement the specified areas excluded from the agreement with jsl covered the same areas as the act cable tv franchise rights contracts that were not sold to jsl further evidence of act's intention to continue business are briggs' statements during the date a m meeting briggs stated well the corporation will still be alive after this the jsl sale because the corporation also still has the county franchise in it referring to the county franchise and the contracts excluded from the noncompetition agreement briggs stated sooner or later we are gonna have to build the system or else total credibility is gone and this is whether we sell to jsl or don't sell to jsl emphasis added petitioner relies on the shareholders' discussion on the discord that existed between them during date as evidence of the shareholders' intention to liquidate briggs stated at the date a m meeting i just think it is better off if we sell that company and we all go our ways after that i think it will work better this statement is merely briggs' thoughts at the time and does not amount to a plan or a clear intention to liquidate on the part of all or a majority of the shareholders the events on the day of the jsl sale are similarly inadequate to establish an informal plan_of_liquidation regarding the memorandum that turner faxed to the shareholders in colorado on the day of the sale petitioner argues even lacking the specific words 'we recommend liquidation' the memorandum can be taken to so recommend at least in the common experience of almost everyone the memorandum from turner to the act shareholders in colorado stated in part if a plan_of_liquidation is adopted it appears that a significant amount of a gain will not be recognized at the corporate level provided the plan_of_liquidation is adopted and the liquidation process is completed prior to date respondent argues that given the text of the memorandum it is entirely likely that the shareholders decided to leave the decision of whether to liquidate or not for later respondent's position is supported by turner's failure to mention in his memorandum the timing requirement of sec_337 that a liquidation plan must be adopted on or before the sale date of the assets see sec_1 income_tax regs petitioner presented no evidence that its shareholders were aware of the timing requirement the shareholders' lack of knowledge of the time requirement negates an indication that they intended to act in conformity therewith briggs testified that he did not know anything about liquidations prior to the sale hess testified at trial that he was not act's tax adviser and did not provide act with tax_advice on the day of the sale or at any other time respondent's position that act's decision to liquidate was postponed until after the sale is supported by daniell daniell informed the irs during the date interview that after receiving turner's memorandum in colorado he morris and briggs left the decision to liquidate up in the air and that they planned to resolve the liquidation issue at a later date the shareholders' actions subsequent to the sale also fail to establish that the shareholders adopted an informal liquidation plan prior to or on the sale date to jsl respondent points to the liquidation minutes that gay had hess prepare on date the minutes stated that the act shareholders had voted to liquidate act on date which wa sec_2 months after the sale to jsl although these minutes were not submitted to the irs respondent argues and we agree that this action undermines any claim that the shareholders had informally agreed to liquidate in date briggs had several conversations with shepard in date prior to wcwc's preparing act's form_1120 tax_return during those conversations briggs did not tell shepard that act had voted to liquidate briggs' failure to inform wcwc that act had voted to liquidate until after briggs was informed by wcwc that there would be a large tax_liability if act had not liquidated also undermines a claim that act had informally adopted a liquidation plan prior to the jsl sale petitioner relies on mountain water co v commissioner t c pincite to support finding an informal liquidation plan based on facts and circumstances in mountain water co the sole asset was land that provided water for the company's water business the shareholders lost the land when it was condemned by the state the directors of the company had recognized that when the land was condemned the purpose for the existence of the company would cease after the condemnation the corporation filed a certification of dissolution with the state and wound up its affairs this court found that there was no question that there was a good_faith intention to liquidate the corporation completely the instant case is distinguishable from mountain water co the sale to jsl did not require a cessation of act's business the act shareholders had plans to continue act business whether or not the sale to jsl was completed additionally the sale of act's assets to jsl did not constitute a sale of act's sole asset because act still had outstanding contracts respondent has proven by clear_and_convincing evidence that act had not adopted an informal plan_of_liquidation as required by sec_337 petitioner has admitted that the minutes that were provided to the irs with act's form_1120 tax_return were false because they were created after the sale backdated and documented a meeting that did not occur because neither a formal nor an informal plan_of_liquidation existed prior to or on the sale date of the act assets to jsl act is ineligible for the nonrecognition provisions of sec_337 therefore act must recognize gain on the sale of its assets to jsl additions to tax the addition_to_tax in the case of fraud is a civil sanction provided primarily as a safeguard for the protection of the revenue and to reimburse the government for the heavy expense of investigation and the loss resulting from the taxpayer's fraud 303_us_391 in addition to proving an underpayment as discussed above respondent must prove that petitioner failed to report the gain on the sale of its assets with the intent to conceal mislead or otherwise prevent the collection of tax see 398_f2d_1002 3d cir 394_f2d_366 5th cir affg tcmemo_1966_81 the existence of fraud is a question of fact to be resolved upon consideration of the entire record 67_tc_181 affd without published opinion 578_f2d_1383 8th cir fraud will never be presumed 55_tc_85 fraud may however be proved by circumstantial evidence because direct proof of the taxpayer's intent is rarely available the taxpayer's entire course of conduct may establish the requisite fraudulent intent 56_tc_213 53_tc_96 intent may be inferred from various kinds of circumstantial evidence or badges_of_fraud including an understatement of income false statements or documents concealment of assets or covering up sources of income and implausible or inconsistent explanations of behavior 317_us_492 796_f2d_303 9th cir affg tcmemo_1984_601 in this case respondent's strongest evidence is petitioner's falsification of documents to corroborate its version of the events in the year in issue and other conduct during the preparation of petitioner's tax_return although a formal plan_of_liquidation was not required under sec_337 petitioner represented to the irs that it had adopted a formal plan_of_liquidation when it attached false minutes to its tax_return and did not report income from the sale of assets to jsl respondent argues that the false minutes are evidence of an actual intentional wrongdoing for the specific purpose of evading taxes petitioner argues that the minutes are not evidence of fraud but evidence of the shareholders' intention to comply with the tax laws in support of its position petitioner addresses the backdated minutes and argues on brief there were inaccuracies in the writing minutes which clearly indicated the plan was prepared after the fact and back-dated to appear as though it were prepared in anticipation of the liquidation this the commissioner argues is proof not only that no plan existed but also of an intent to defraud the government more likely it is simply what happens when a taxpayer attempts to prepare a tax sensitive and very technical document without benefit of counsel experienced counsel could have easily prepared the plan without the appearance of fraud by simply dating it currently and referring to an earlier meeting the irony is that the law does not even require a written plan all of this trouble arose from the efforts of one man attempting to properly satisfy what he thought was required of him under the law we cannot accept petitioner's excuse for creation of the false minutes wcwc informed briggs in date that act would owe a substantial amount of taxes if act had not adopted a plan_of_liquidation prior to or on the date of the sale to jsl briggs testified q but they the accountants showed you an act return in which there was a lot of tax due a i don't recollect seeing one i recollect that they said you have a liability on it--a big liability on it q okay a and that is when i think everybody got back together and they got talking to each other up at williams cox and weidner and whatever in the heck their name is q when they told you there was a return with a lot of tax due did that--that got everybody nervous and talking true a well i think it got--you know when we raised hell with them and said wait a minute now here you were in here from ground floor and all the rest of that and everything they went back and got talking amongst themselves i think after briggs raised hell with wcwc turner sent to williams his manager a fax that stated in part i believe you will agree that we gave them sound advice in october if they did not follow through with the advice they have a problem because we did explain the options to them let me hear from you act would not have had a substantial tax_liability from the jsl sale if it had liquidated in accordance with sec_337 wcwc's failure to inform the act shareholders about the timing requirement of sec_337 along with briggs' anger at wcwc because of the act tax_liability and turner's attempt to protect wcwc's interests in the memorandum to williams convinces us that act had not adopted a liquidation plan prior to or on the sale date of act's assets to jsl during the date meeting turner informed briggs that minutes of a liquidation meeting were needed for submission to the irs with act's form_1120 tax_return briggs testified q did mr turner tell you or give the impression that he needed those documents the minutes in order to file the return a yes they should have been filled out he said they needed to be filled out and he gave us a copy of them--really a format turner subsequently gave briggs a sample set of minutes to be used for a corporate_liquidation briggs and morris created the false minutes for an date p m meeting sometime between date and date with their recently acquired information that the plan had to be adopted on or before the sale date of its assets to jsl petitioner contends that the inaccuracies in the minutes are very technical the inaccuracies were not technical and consisted of a false date and time for a meeting that never occurred a mistaken date or time on a document does not alone amount to fraud we recognize that although creating documents after an event may be reprehensible manufacturing documents is not tantamount to fraud unless there is a showing that the information in the documents is essentially false see sinko v commissioner tcmemo_1967_45 however submitting false documents to the irs is an indication of fraud see 79_tc_995 affd 748_f2d_331 6th cir where as here a taxpayer has knowledge that documents are false and submits income_tax returns to the irs that are in conformity with the false documents there is clear_and_convincing evidence of fraud see cantor v commissioner tcmemo_1957_173 petitioner relies on badias seijas inc v commissioner tcmemo_1977_118 to support its position that the backdated and erroneous minutes should be overlooked when the motivation for preparing the minutes was mistake or misunderstanding in badias seijas a corporation sold its sole asset a restaurant the shareholder of the corporation made several errors on the final tax_return for the corporation the errors included failing to indicate that the corporation had sold its sole asset failing to designate the tax_return as a final return and listing the shareholder as a 50-percent_shareholder when he was the 100-percent shareholder the court determined that the corporation had adopted an informal plan_of_liquidation notwithstanding the errors on the tax_return because the errors did not affect the actual events constituting adoption of the plan the instant case is distinguishable from badias seijas the taxpayer's actions in badias seijas conformed to sec_337 even if the documents did not in this case the minutes are not merely an inaccurate representation of actual events they are a fabrication of events briggs knew that he did not participate in a vote to liquidate act on or before the sale date of the assets to jsl but he prepared minutes to the contrary briggs gave the false minutes to wcwc with the knowledge that the false information would be used to prepare act's form_1120 tax_return for submission to the irs respondent has met her burden_of_proof by clear_and_convincing evidence that petitioner acted with the intention to evade taxes accordingly we sustain respondent's determination that petitioner is liable for the addition_to_tax for fraud under sec_6653 respondent determined an addition_to_tax for under sec_6661 petitioner has the burden_of_proof on this issue rule a petitioner did not present any evidence or argument that would avoid application of this addition_to_tax because we have upheld respondent's fraud determination we need not examine the alternative additions to tax decision will be entered for respondent


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc corp - plr-161051-01 date date legend parent purchaser purchaser partnership target sellers date a date b company official tax professional plr-161051-01 this letter responds to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election parent is requesting an extension to file a sec_338 election under sec_338 with respect to the acquisition of the stock of target sometimes hereinafter referred to as the election on date a all citations in this letter to regulations under sec_338 are to regulations in effect on date a additional information was received in a letter dated date the material information is summarized below parent is the common parent of a consolidated_group purchaser is a wholly owned subsidiary of parent purchaser is an llc wholly owned by purchaser and disregarded as an entity separate from purchaser for federal_income_tax purposes target is a foreign_corporation wholly owned by partnership a domestic_partnership sellers were the only partners of partnership on date a pursuant to a purchase agreement of the same date purchaser and purchaser acquired all of sellers’ partnership interests in partnership in exchange for cash it is represented that the acquisition of target by means of the acquisition of all of the partnership interests in partnership qualified as a qualified_stock_purchase as defined in sec_338 prior to the acquisition target did not file a united_states income_tax return was not subject_to united_states income_taxation nor was required under sec_1_6012-2 to file a united_states income_tax return target is a controlled_foreign_corporation within the meaning of sec_957 target is not a passive_foreign_investment_company for which an election under sec_1295 was in effect or foreign_investment_company or foreign_corporation the stock ownership of which is described in sec_552 parent intended to file the election the election was due on date b but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-1 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for parent’s consolidated group’s or target’s taxable_year in which the acquisition occurred the taxable_year in which the election should have been filed or any taxable_year that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election or a sec_338 election and the acquisition is a qualified_stock_purchase under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i plr-161051-01 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish 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 in this case the time for filing the election is fixed by the regulations ie sec_1_338-2t d therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for parent to file the election provided parent acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company official and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election and that the government will not be prejudiced if relief is granted see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date on this letter for parent to file the election with respect to the acquisition of the stock of target as described above the above extension of time is conditioned on the filing within days of the date on this letter of all returns and amended returns if any necessary to report the transaction in accordance with the election and the taxpayers' parent’s consolidated group’s and target’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ tax_liability is lower sec_301_9100-3 parent must file the election in accordance with sec_1_338-2t d that is a new election on form_8023 must be executed on or after the date on this letter which grants an extension and filed in accordance with the instructions to the form a copy of this letter must be attached to the election form parent must file or amend as applicable its return to report the transaction as a sec_338 transaction for the taxable_year in which plr-161051-01 the transaction was consummated and for any other affected_taxable_year and to attach to the return a copy of this letter and a copy of the election we express no opinion as to whether the acquisition of the target’s stock qualifies as a qualified_stock_purchase under sec_338 or any other tax consequences arising from the election in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative cc sincerely yours ken cohen senior technician reviewer branch office of associate chief_counsel corporate


number release date id office uilc cca-227153-09 -------------- from ------------------ sent friday pm to ------------------------------------------------------ cc -------------- subject cases involving substantial compliance i put together a list of tax_court cases that consider substantial compliance in relation to a sec_170 contribution i am sending you the list just in case you would be interested tax_court cases discussing sec_170 and substantial compliance 100_tc_32 t’s qualified_appraiser had performed an appraisal and t attached form_8283 to the return containing all necessary information except the appraiser’s qualifications t substantially complied fair v commissioner tcmemo_1993_377 t did not maintain cost_basis records for donation of boat t substantially complied d’archangelo v commissioner tcmemo_1994_572 no qualified_appraisal no substantial compliance daniel v commissioner tcmemo_1997_328 no receipt for donated clothing t substantially complied 109_tc_258 no qualified_appraisal of non-publicly- traded stock and no summary appraisal attached to return no substantial compliance jorgenson v commissioner tcmemo_2000_38 no qualified_appraisal and no appraisal_summary for donation of auto and sliding wall partition no substantial compliance kendrix v commissioner tcmemo_2006_9 failure to substantiate several donations no substantial compliance smith v commissioner tcmemo_2007_368 no cwa or qualified_appraisal no substantial compliance tax_court cases disallowing deduction under sec_170 for lack of substantiation substantial compliance not discussed weyts v commissioner tcmemo_2003_68 no cwa no deduction stussy v commissioner tcmemo_2003_232 no cwa no deduction beery v commissioner tcmemo_2003_331 no cwa no deduction hill v commissioner tcmemo_2004_156 no cwa no deduction castleton v commissioner tcmemo_2005_58 complete failure to substantiate any contributions virtually no written documentation of any kind no deduction 118_tc_334 only cost_basis allowed for donated shares of stock because no substantiation 118_tc_528 no cwa no deduction tax_court cases discussing substantial compliance but not in context of sec_170 67_tc_1071 cited as precedent in bond issue was election in computing farm income estate of chamberlain v commissioner tcmemo_1999_181 qualified_disclaimer issue 122_tc_115 election issue


internal_revenue_service number release date index number ------------------- ------------------------------------------------------------ ------------------- ---------------------------------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number refer reply to cc psi b03 plr-150684-08 date date legend x y ----------------------------------------------------------------------------------------------------- ----------------------- ------------------------------------------------------------------------ state ------------- date ----------------------- dear ------------- we received your letter dated date submitted on behalf of x requesting a ruling under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to file an election to be treated as an association_taxable_as_a_corporation under sec_301_7701-3 this letter responds to your request facts x was formed on date as a state limited_liability_company x is wholly-owned by y y intended that x be treated as an association_taxable_as_a_corporation for federal tax purposes effective date however x inadvertently failed to timely file a form_8832 entity classification election law and analysis plr-150684-08 sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with a single owner can elect to be classified as an association and thus a corporation under sec_301_7701-2 or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301_7701-3 unless the entity elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed if an election specifies an effective date more than days prior to the date on which the election is filed it will be effective days prior to the date it was filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but 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 sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion plr-150684-08 based solely on the facts submitted and the representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 accordingly x is granted an extension of time of sixty days from the date of this letter to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes effective date the election should be made by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty 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 sincerely s curtis g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service issued date number release date cc el gl br1 gl-605772-97 uilc memorandum for kentucky-tennessee district_counsel from alan c levine chief branch1 general litigation subject gl-605772-97 we are responding to your date inquiry this document is not to be cited as precedent legend district a contractor a surety firm a date a date b date c amount a amount b amount c facts district a entered into a contract with contractor a that contractor a held contractor a’s the day that surety firm a defaulted on the letter to district a the surety firm surety firm a performance and payment bonds contractor a contract you explained in your date a that there is no conclusive proof of the day of default except that it occurred on or before date b_notice from district a a notice of federal tax levy was served on district a the taxpayer contractor a failed to honor the tax levy the amount in question is amount a at the time of which is the amount b its default reduced by an outstanding mechanics lien of amount c you request our reviews on whether you should recommend that the united_states bring an enforcement suit under sec_6332 and assert the penalty under sec_6332 against district a as of the date of writing district a for property belonging to owed to contractor a defaulted received has law and analysi sec_1 enforcement suit under sec_6332 sec_6332 provides that any person in possession of property or rights to property subject_to levy upon which a levy has been made shall upon demand of the secretary surrender such property or rights to the secretary except such part of the property or rights as is at the time of such demand subject_to an attachment or execution under any judicial process courts recognize two defenses for the failure to honor a levy the party did not possess any property or rights to property of the taxpayer or the property was subject_to a prior attachment or execution see eg 929_f2d_249 6th cir district a has raised the former defense in the present case is considered not to be in possession of contractor a’s property at the time the notice_of_levy was served because the property belonged to surety firm a or district a then district a would have a proper defense for not honoring the levy we are not aware of any legal theories that would enable district a to prove that it was not in possession of contractor a’s property at the time of the levy priority of a federal_tax_lien is determined by the common_law rule_of first in time first in right 347_us_81 however federal_law recognizes state law subrogation rights where there is a claim of subrogation to the lien priority of a secured creditor federal lien law provides that would have priority over the government as to the proceed the issue of subrogation is controlled by local law see sec_6323 surety firm a payments if it was subrogated to the rights of district a materialmen if any of the third parties perfected its lien against the property before the service filed the notices of federal_tax_lien on date c b in the letters you provided district a there were any liens that were perfected before date c surety firm a could claim subrogation rights to and date has not alleged that laborers or that in addition we agree with you that there is nothing in the district a contractor a contract or kentucky law that would provide for all the unpaid earnings_of contractor a to become the property of surety firm a or the property of district a we agree with your reading of national surety corp v state national bank of frankfort s w 2d ky that a surety is entitled to be subrogated to the rights a contractor has in contractually retained percentages of contract proceeds when a subcontractor defaults provided for in the district a contractor a which would provide for district a contractor a into any of the conditions provided for in the contract however the circumstances in this fact pattern do not fit to retain money earned but owed to contract are conditions would be subrogated to the rights of district a in the circumstances provided for in the contract these circumstances did not occur ky rev stat imposes an obligation on the contractor to apply payments from the owner to claims of those who have furnished labor or materials on the project however ky rev stat does not establish a_trust for the benefit of the materialmen see commonwealth of 805_f2d_628 6th cir cer484_us_817 r from having an interest in the earned but unpaid payments at issue in this case fifty-percent penalty under sec_6332 sec_6332 provides for a penalty for anyone who fails to surrender any property subject_to a levy unless the person failing to honor the levy can show reasonable_cause for his or her failure there is reasonable_cause in refusing to comply with a levy if there is a bona_fide dispute over the service’s legal right to levy upon the property in concern united_states v sterling national bank trust the scenario that you provided involved a transaction that occurred in kentucky and kentuckian taxpayers therefore it is governed by kentucky law if is subrogated to the rights of a party with a senior lien to the surety firm a government then surety firm a amount of the senior lien will have priority over the government for the co of new york 494_f2d_919 2nd cir 538_f2d_1101 5th cir cert_denied 430_us_945 however reasonable_cause does not include a clearly erroneous view of the law stubbornly adhered to after investigation should have disclosed the error 861_f2d_954 reh’g denied u s app lexis 6th cir quoting the dissent in sterling national bank f 2d pincite it appears that district a has made good-faith efforts to resolve the issue of the levy with your office also while we interpret the case law mentioned above as not containing any law that would preclude the levy from attaching to the proceed payments we do not believe that it is clearly erroneous to interpret it otherwise a clear answer to the issue of whether or not earned but unpaid proceed payments are the property of the surety firm when the contractor defaults is not provided for in the case law or otherwise therefore while we agree with your position in brining an enforcement suit under sec_6332 we think you should reconsider whether to recommend asserting the penalty under sec_6332 if you decide to recommend this penalty when your letter to department of justice comes through this office we will again review the appropriateness of the penalty and perhaps we will find that a proper foundation has been established for the penalty conclusion contract that precludes contractor a’s earned but unpaid progress payments from being the property of contractor a at the time of the levy however we advise you to reconsider whether asserting the penalty under sec_6332 would be appropriate in this case if you have any further questions please call


internal_revenue_service department of the treasury number release date index no washington dc person to contact telephone number refer reply to cc ita - plr-160846-02 date date legend the decedent the taxpayer dear this letter grants the taxpayer an extension of time to make an election under sec_1 of the internal_revenue_code pursuant to sec_311 of the tax reform act of pub_l_no for the taxpayer’s taxable_year ending date the election is to recognize a deemed sale of certain assets held on date and to commence a post-date holding_period for those assets the taxpayer filed the amended income_tax return containing this election late because of conditions beyond its control the deemed sale election is made timely by this letter facts the taxpayer holds assets which it represents qualify for the deemed sale election under the instructions for form_4797 sales of business property the election is made by reporting the deemed sales on the tax_return for the tax_year that includes the date of the deemed sale or on an amended_return filed within months of the due_date of that return excluding extensions the taxpayer adopted a date taxable_year end for federal_income_tax purposes so the deadline for making the election was date had the taxpayer elected a calendar taxable_year the deadline would have been more than a year later the taxpayer was unable to determine whether to make the election by the deadline and filed its income_tax return without the election a major factor in the uncertainty was difficulty in valuing the assets the appraisal process began shortly after the decedent’s death but the appraisals took almost a year to complete the taxpayer was also uncertain how making the deemed sale election would affect making the election under sec_2032 to use the alternative valuation_date this issue is not answered plr-160846-02 by irs publications and calls by the taxpayer’s attorneys to the national_office did not settle the matter the taxpayer later filed an amended income_tax return making the deemed sale election on date the irs issued notice_2002_58 2002_35_irb_432 concerning the deemed sale election the notice states that under appropriate circumstances the irs will grant requests to make a late election under sec_301_9100-1 through of the procedure and administration regulations the taxpayer has applied for relief under sec_301_9100-3 analysis sec_301_9100-1 through provide the standards the irs uses to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin because the deemed sale election procedures were published in notice_2002_58 in the internal_revenue_bulletin the deemed sale election is a regulatory election sec_301_9100-1 provides that the irs 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 internal_revenue_code except subtitles e g h and i the taxpayer filed the amended_return with the deemed sale election within six months after the due_date for filing the original return an extension of time to permit that election is therefore possible requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government based on the facts and information submitted and the representations made it is held that the taxpayer has acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government accordingly the requirements of the regulations for the granting of relief have been satisfied in this case caveats the extension of time granted by this letter is conditioned on the taxpayer’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money this ruling is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement while this office has not verified plr-160846-02 any of the material submitted in support of the request_for_ruling it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant we enclose a copy of the letter for this purpose also enclosed is a copy of the letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under sec_6110 of the internal_revenue_code sincerely clifford m harbourt senior technician reviewer office of associate chief_counsel income_tax accounting enclosures


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc tege eb ec-plr-135641-01 date date number release date index number 280g legend company company plan_year year year year date date date date date date date date date date date date date date amount this is in reply to a request for a ruling on behalf of company and company concerning whether payments under the plan are subject_to the deduction limitations of sec_280g and the excise_tax under sec_4999 both of the internal_revenue_code until recently company was a publicly-held corporation company is a holding_company and the common parent of various subsidiary and affiliate companies company has financial hardship dating to sometime prior to year plr-135641-01 company began considering additional restructuring options sometime prior to year of the restructuring options considered integrating company 1’s operations with those of company was seen as an attractive solution to company 1’s financial situation to this end company and company engaged in extensive negotiations the negotiations were in good-faith and at arm’s length and they culminated with the agreement between company and company contemplated that company managers were to receive employment offers on a case by case basis on date company petitioned a bankruptcy court for relief under chapter of the united_states bankruptcy code company sought and received court permission to operate as a debtor-in-possession on date company discovered that on date company informed officials at the stock exchange where its stock was listed and traded about however company did assent to the issuance of a stop trading order on company stock on date the stock exchange informed company that it was proceeding to strike company 1’s stock from its listing and registration because company no longer satisfied the listing guidelines maintained by the exchange plr-135641-01 the securities_and_exchange_commission approved the de-listing application and company 1’s stock was de-listed from the stock exchange on date company 1’s stock has not traded on any established securities exchange since the stock exchange issued its stop trading order on date and its stock has not been listed on any established securities exchange since it was de-listed on date on date a creditors’ committee was formed on behalf of company 1’s unsecured creditors the creditors’ committee retained legal counsel and financial advisors on date company filed a motion with the bankruptcy court seeking an order authorizing it to implement the plan you represent that implementation of the plan was necessary because among other things a condition of the agreement between company and company required company to conduct its operations in substantially the same manner after petitioning the bankruptcy court as it did before and that given the complex and varying aspects of company 1’s business such a condition could be satisfied only by stabilizing company 1’s key management force the plan was the means company used to accomplish this stabilization company developed the plan with the assistance of its financial advisor the plan addressed company 1’s anticipated personnel needs during the bankruptcy proceedings and covered approximately key employees you represent that the objectives of the plan were to retain management employees essential to continuing operations establish a severance program to create a stronger sense of security through the bankruptcy proceedings and provide a success fee for key employees who remain with company through the completion of the sale the plan consisted of a plr-135641-01 on date the bankruptcy court conducted a hearing on company 1’s date motion requesting an order authorizing the implementation of the plan the hearing continued on date counsel for the creditors’ committee and the committee’s financial advisors were present at the hearing counsel for other parties_in_interest also participated at the hearing the plan’s purpose as well as its terms and mechanics was detailed to the court at the hearing except for certain sealed documents all documents considered by the bankruptcy court were available for public inspection in response to comments made at and after the hearing company modified various provisions of the plan to reflect the concerns of participating parties_in_interest on date counsel for the creditors’ committee told the bankruptcy court that the creditors’ committee approved the plan on date the bankruptcy court granted company 1’s date motion authorizing it to implement the plan on date company 1’s board_of directors approved a recommendation to the bankruptcy court that company on date the bankruptcy court approved on date company purchased sec_280g of the code provides that no deduction will be allowed for any excess_parachute_payment sec_280g defines the term excess_parachute_payment as an amount equal to the excess of any parachute_payment over the portion of the base_amount allocated to such payment sec_280g of the code defines the term parachute_payment as any payment in the nature of compensation to or for the benefit of a disqualified_individual plr-135641-01 if such payment is contingent on a change in the ownership or effective_control of the corporation or in the ownership of a substantial portion of the assets of the corporation and the aggregate present_value of the payments in the nature of compensation to or for the benefit of such individual which are contingent on such change equals or exceeds an amount equal to three times the base_amount sec_280g of the code provides in relevant part that a parachute_payment does not include any payment to a disqualified_individual with respect to a corporation other than a small_business_corporation as defined in sec_1361 but without regard to paragraph c thereof if immediately before the change described in sec_280g no stock in such corporation was readily tradeable on an established_securities_market or otherwise and the shareholder approval requirements of sec_280g are met with respect to such payment sec_280g of the code provides that all members of the same affiliated_group as defined in sec_1504 determined without regard to sec_1504 should be treated as one corporation for purposes of sec_280g sec_1_280g-1 of the proposed income_tax regulations q a published in the federal_register on date fed reg big_number provides that the affiliated_group rule contained in sec_280g applies for purposes of determining whether a corporation’s stock was readily tradeable on an established_securities_market or otherwise immediately before the change described in sec_280g sec_280g of the code provides that the shareholder approval requirements of sec_280g are met with respect to any payment if i such payment was approved by a vote of the persons who owned immediately before the change described in sec_280g more than percent of the voting power of all outstanding_stock of the corporation and ii there was adequate_disclosure to shareholders of all material facts concerning all payments which but for this paragraph would be parachute payments with respect to a disqualified_individual sec_4999 of the code imposes on any person who receives an excess_parachute_payment a tax equal to percent of the amount of the payment you acknowledge that the transaction between company and company constitutes a change_of_ownership or control of company within the meaning of sec_280g of the code you also represent that no stock of any company affiliate was readily tradeable on an established_securities_market or otherwise immediately before that change in ownership or control based on the above-described facts and representations we rule as follows the change in ownership or control contemplated by sec_280g of the code occurred on date the date company plr-135641-01 because the failing financial condition and pending bankruptcy of company caused its stock to be de-listed by the stock exchange neither company nor any of its affiliate companies immediately before the change in ownership or control had any stock that was readily_tradable on an established_securities_market or otherwise the shareholder approval requirements of sec_280g of the code were satisfied upon the bankruptcy court’s order approving the plan because the creditors’ committee and the bankruptcy judge represented the shareholders’ interests and the shareholders were not otherwise eligible to approve the payments under the plan payments under the plan are not parachute payments within the meaning of sec_280g of the code and the provisions of sec_4999 of the code do not apply to any payments under the plan except as specifically ruled above no opinion is expressed or implied concerning the tax consequences of any transaction or item discussed or referenced herein this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent the taxpayer should attach a copy of this ruling to any income_tax return to which it is relevant sincerely robert b misner assistant chief executive compensation branch office of the division counsel associate chief_counsel tax exempt and government entities enclosure copy for purposes