internal_revenue_service department of the treasury washington dc number release date index number -------------------- ------------------------------- ----------------------- person to contact ----------------------------------------- telephone number --------------------- refer reply to cc fip b04 plr-112274-09 date date -------------------------------------------- --------------------------------------------------------------------- taxpayer ic group contract -------------------------------------------------------------------------------------- certificate -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- dear -------------- this is in response to your request for various rulings regarding the application of the internal_revenue_code to a transaction you contemplate undertaking facts the following is represented taxpayer is an individual taxpayer intends to establish an investment account account with a financial_institution that offers retail investment services sponsor ic is a corporation taxable under part i of subchapter_l of the internal_revenue_code ic issues group contract to sponsor under which sponsor can sell on ic’s behalf certificates to its customers eg taxpayer who open an account under its auspices under this arrangement taxpayer will invest money in the account the amount that taxpayer can invest is limited by the certificate taxpayer can invest more only with ic’s prior approval in exchange for a fee the certificate obligates ic to provide taxpayer a guaranteed minimum benefit if through a series of prescribed annual withdrawals by taxpayer the value of the account is exhausted ic will commence monthly payments of a specified amount to taxpayer the annuitant for life monthly benefit under the group contract and certificate the annuitant must be an individual who is the owner of or has a beneficial_interest in the account plr-112274-09 to keep the certificate in-force taxpayer must manage the account within the parameters specified in the certificate and must periodically pay ic a charge which may change once each ‘certificate year’ or if constrained by the terms of the certificate at specified anniversaries taxpayer can allocate the account to only those specified regulated_investment_companies or other publicly_traded_securities that are approved by ic because they are consistent with ic’s prescribed investment strategy and sponsor will periodically advise ic of taxpayer’s transactions in the account the monthly benefit is determined by reference to a benefit base at the time of issuance of the certificate the benefit base is the value of the account the benefit base is increased by additional cash investments subject_to the limit on the amount invested imposed by the certificate terms of some certificates provide that the benefit base will be adjusted on each anniversary of the certificate’s effective date to be the greatest of the value of the account on the anniversary the maximum value of the account on a prior anniversary or a minimum value if specified in the certificate taxpayer’s ability to access the value of the account is controlled by the certificate taxpayer can commence annual withdrawals from the account at taxpayer’s discretion the amount of such withdrawals is determined under a formula specified in the certificate consistent with the benefit base and the annuitant’s ie taxpayer’s life expectancy the amount is recalculated but cannot decrease on each certificate anniversary once begun annual withdrawals must continue no portion of an annual withdrawal can be reserved for a subsequent year taxpayer may elect to apply the value of the account to purchase a lifetime fixed immediate_annuity contract at guaranteed purchase rates specified in the certificate withdrawals in excess of the annual permitted withdrawal amount excess withdrawals will reduce including to the point of eliminating the benefit base the benefit base may increase but will not decrease except for a decrease due to an excess withdrawal the certificate terminates upon the occurrence of specified conditions including maturity taxpayer’s death failure to pay the charge ceasing to own the account investing any portion of the account in unapproved instruments or making an excess withdrawal that reduces the value of the account to zero if the value of the account is reduced to zero for any reason other than a withdrawal that includes an excess withdrawal and the annuitant ie taxpayer is still alive the certificate obligates ic to pay the monthly benefit which is determined by some certificates allow the customer to elect at issuance a cost-of-living-adjustment feature by which the benefit base will increase by a specified percentage per annum plr-112274-09 reference to the benefit base and the last determination of the permitted annual withdrawal amount the certificate will have no cash_value and taxpayer cannot assign or transfer any ownership rights including the rights to the monthly benefit and to purchase a fixed annuity under applicable state regulations the group contract will be an annuity_contract taxpayer will purchase certificate only if the regulations of his state of residence treat the group contract as an annuity_contract an actuarial analysis of the premise underlying the group contract concludes that the arrangement is substantially more sensitive to the risk of longevity than in volatility of the securities markets and that the predominant risk mitigated is longevity risk with incidental market risk protection with respect to the structure of the arrangement it is represented that ic will not have direct or indirect control_over investment decisions with respect to the account covered by the certificate sponsor will not be related to ic within the meaning of sec_1563 of the internal_revenue_code the universe of investments that the account will be permitted to hold will not be limited to regulated_investment_companies within the meaning of sec_851 managed by ic or any of its affiliates ic will not impose any significant barriers to reallocations between and among eligible assets within the account ic may require automatic rebalancing of the account to bring it into accord with the asset allocation strategy for the account ic will not have access to any non- public information about rics in which the account may be invested requested ruling sec_1 that the certificate will be treated as an annuity_contract within the meaning of sec_72 that the certificate will not create a right to reimbursement for losses realized on account assets for purposes of sec_165 and thus will not prevent taxpayer from currently deducting such losses that the certificate will not be treated as diminishing taxpayer’s risk of loss on account assets for purposes of applying the holding_period requirements of sec_1 that the certificate and account assets will not either at the time of issuance of the certificate or subsequently be viewed as components of a straddle within the meaning of sec_1092 plr-112274-09 law and analysis requested ruling sec_72 provides that except as otherwise provided gross_income includes any amount_received_as_an_annuity whether for a period certain or during one or more lives under an annuity endowment or life_insurance_contract the code does not otherwise define an annuity_contract or any amount_received_as_an_annuity sec_1_72-2 of the income_tax regulations provides that the contracts under which amounts paid will be subject_to the provisions of sec_72 include contracts which are considered to be life_insurance endowment and annuity_contracts in accordance with the customary practice of life_insurance_companies under sec_1 b and c as a general matter amounts received as an annuity are amounts which are payable at regular intervals over a period of more than one full year from the date on which they are deemed to begin provided the total of the amounts so payable or the period for which they are to be paid can be determined as of that date a proportionate part of which is considered to represent a return of premiums or other consideration paid under sec_1_72-2 amounts are considered as amounts received as an annuity only if all of the following tests are met the amounts must be received on or after the annuity_starting_date the amounts must be payable in periodic installments at regular intervals over a period of more than one full year from the annuity_starting_date and the amounts payable must be determinable either directly from the terms of the contract or indirectly from the use of either mortality tables or compound interest computations or both if the contract is a variable_contract sec_1_72-2 provides an alternative formulation of this requirement under sec_1_72-4 the annuity_starting_date is the first day of the first period for which an amount is received as an annuity the first day of the first period for which an amount is received as an annuity shall be the later of the date upon which the obligations under the contract became fixed or the first day of the period which ends on the date of the first annuity_payment explaining imposition of an income-out-first rule under sec_72 for withdrawals prior to the annuity_starting_date the senate report described a commercial_annuity as a promise by a life_insurance_company to pay the beneficiary a given sum for a specified period which period may terminate at death annuity_contracts permit the systematic liquidation of an amount consisting of principal the policyholder’s investment_in_the_contract and income an individual may purchase an annuity by payment of a single premium or by making periodic_payments a deferred_annuity_contract may at the election of the individual be plr-112274-09 surrendered before annuity payments begin in exchange for the cash_value of the contract the committee believes that the use of deferred_annuity contracts to meet long-term investment goals such as income security is still a worthy ideal s rep no pincite footnote omitted the report also explains sec_72’s utilization of an exclusion_ratio regime a portion of each amount_paid to a policyholder as an annuity generally is taxed as ordinary_income under an ‘exclusion ratio’ sec_72 computed to reflect the projected nontaxable return of investment_in_the_contract and the taxable growth on the investment id as described in 306_f2d_682 1st cir aff’g archibishop samuel trust v commissioner 36_tc_641 acq 1964_2_cb_3 i nherent in the concept of an annuity is a transfer of cash or property from one party to another in return for a promise to pay a specific periodic sum for a stipulated time interval again in the normal annuity situation once the annuitant has transferred the cash or property to the obligor and has received his contractual right to periodic_payments he is unconcerned with the ultimate disposition of the property transferred once it is in the obligor’s hands in life health insurance black and skipper state that i n the broadest sense an annuity is simply a series of periodic_payments and while l ife insurance has as its principal mission the creation of a fund t he annuity on the contrary has as its basic function the systematic liquidation of a fund accordingly e ach payment under an annuity may be considered to represent a combination of principal and interest_income and a survivorship element although not completely accurate one can view the operation of an annuity as follows if a person exactly lives out his or her life expectancy he or she would have neither gained nor lost through utilizing the annuity_contract kenneth black jr and harold d skipper jr life health insurance 13th ed elsewhere an annuity has been described as a right to receive fixed periodic_payments for a specified period of time and an annuity_contract as plr-112274-09 a contract under which in exchange for the payment of a premium or premiums the recipient thereof is bound to make future payments typically at regular intervals in amounts to payees and conditions specified in the parties’ agreement the determining characteristic of an annuity is that the annuitant has an interest only in the periodic_payments and not in any principal fund or source from which they may be derived although an individual who purchases an annuity remains the technical owner of the asset he or she does not retain total control_over that asset and does not have unfettered access to the full amount of his or her own property am jur 2d annuities sec_1 moreover t he purchaser of an annuity surrenders all rights to the money paid and therefore installment payments of a debt or payments of interest on a debt do not constitute an annuity id sec_2 whether an annuity_contract allows the owner to access the value of the contract through other than periodic annuity payments is a product of state statute appleman on insurance sec_182 b and 2d ed here on balance the group contract and hence the certificate possess the essential attributes of an annuity it is true that the certificate may not at the election of the holder be surrendered before annuity payments begin in exchange for the cash_value of the contract s rep no pincite it is also true that because the annuity_starting_date is contingent upon the value of the account being exhausted while taxpayer is alive it is not the case that if taxpayer exactly lives out his or her life expectancy he or she would have neither gained nor lost through utilizing the annuity_contract life health insurance pincite but these conditions are not dispositive the certificate and the amounts paid under the certificate meet the requirements of sec_1_72-1 and c a and b and b as annuity_contracts and annuity payments additionally the certificate is purchased by making periodic_payments of premium for a promise by a life_insurance_company to pay the beneficiary a given sum for a specified period which period may terminate at death and is used to provide long-term income security s rep no pincite moreover it has the determining characteristic that the annuitant has an interest only in the periodic_payments and not in any principal fund or source from which they may be derived am jur 2d annuities sec_1 the certificate holder will have surrender ed all rights to the money paid thereby distinguishing the certificate from installment payments of a debt or payments of interest on a debt which are not annuities id plr-112274-09 the certificate is not a contract to pay interest see sec_1_72-14 a accordingly the certificate will be treated as an annuity_contract within the meaning of sec_72 requested ruling sec_165 allows as a deduction any loss not_compensated_for_by_insurance_or_otherwise sec_1_165-1 provides that if a casualty or other event occurs which may result in a loss and in that year there exists a claim for reimbursement with respect to which there is a reasonable_prospect_of_recovery no portion of the loss with respect to which reimbursement may be received is sustained until it can be ascertained with reasonable certainty whether or not the reimbursement will be received whether a reasonable_prospect_of_recovery exists with respect to a claim for reimbursement of a loss is a question of fact to be determined upon an examination of all facts and circumstances in 29_bta_1109 aff'd 75_f2d_255 2d cir the taxpayer and two others were the beneficial owners of three brokerage accounts that were opened at the recommendation of a wealthy friend who desiring to assist them in making money on the stock market guaranteed the accounts the court held that the taxpayer's subsequent losses were not deductible because of the guarantee in 16_tc_1084 aff'd on another issue 196_f2d_923 1st cir the service argued that loss resulting from the abandonment of an elevated railway structure was compensated for by legislation the public control act guaranteeing the taxpayer operating profits sufficient to pay dividends the court disagreed stating that regardless of the amounts of any possible losses sustained by petitioner no payments would be forthcoming to it if its income were sufficiently high after absorbing the losses and other charges to pay the required dividends t c pincite 66_tc_897 aff'd 574_f2d_189 4th cir involved a business partnership formed by the taxpayer and an associate the the certificate is not a debt_instrument because it is issued by an insurance_company subject_to tax under subchapter_l in a transaction in which there is no consideration other than cash sec_1275 taxpayer is considered the owner of the account revrul_2003_92 2003_2_cb_350 revrul_81_225 1981_2_cb_12 plr-112274-09 taxpayer purchased an insurance_policy on his partner's life after his partner's accidental death the taxpayer and his partner's widow were unsuccessful in continuing the business and terminated the partnership the court upheld the disallowance of a loss on the termination because the taxpayer was compensated by the proceeds of the insurance_policy the court pointed out that the amount of the policy was approximately equal to the taxpayer's investment in the partnership thus although it was not the partnership_interest itself that was insured the life_insurance acted to compensate the loss of the partnership_interest in 608_f2d_485 ct_cl ct_cl aff'g us ct_cl lexis aftr 2d ria ustc cch ct_cl trial div the taxpayer a local television station claimed a loss based on termination of its affiliation agreement with cbs the television network the trial judge upheld disallowance of the deduction on the theory that increased revenues from affiliation with abc another television network compensated taxpayer for loss of the cbs affiliation reversing this finding the court of claims stated t he statute does not bar a deduction for a loss actually incurred merely because the taxpayer is able to effect an offsetting gain on a different although contemporaneous transaction f 2d pincite in 63_tc_21 which involved federal disaster relief payments the tax_court interpreting the words insurance or otherwise in sec_165 determined that the general term or otherwise must be construed consistently with the specific term_insurance the court stated that the general purpose of insurance is to spread the risk of loss from any peril among a large number of those who are exposed to a similar peril in 74_tc_725 the court citing shanahan determined that the phrase insurance or otherwise in an analogous provision sec_2054 contemplates that the type of compensation received must be such that it was structured to replace what was lost tc pincite the court held that a disbursement from a_trust fund established by a state bar association in compensation_for losses_incurred due to an attorney's unethical behavior was in the nature of insurance revrul_87_117 1987_2_cb_61 involves a regulated_public_utility that abandons a partially-completed nuclear plant the ratemaking authority allows a rate increase that takes into account the cost of the abandoned plant the ruling holds that the rate increase does not reduce the taxpayer's abandonment-loss deduction because the rate increase was structured to serve the utilities’ customers at a fair charge and ensure a reasonable return to investors not to reimburse the loss plr-112274-09 in the present situation the certificate may appear to be structured to replace what was lost in that the monthly benefit takes effect upon the reduction of the overall value of the assets in the account to zero and is based on the highest prior net value of those assets similarly as a case like johnson illustrates it is possible for a contractual arrangement to be treated as compensation_for sec_165 purposes even though it compensates for a loss indirectly not directly however in this case the relationship between any individual market loss in the account and any eventual periodic_payments under the certificate is too tenuous and too contingent on a number of factors for the payments to be considered compensation_for any given market loss for example taxpayer may die before the account is depleted in which case the monthly benefit will never take effect the assets in the investment portfolio are subject_to specified investment strategies that are intended to minimize the effect of excessive volatility and market risk there is no close correlation between any given loss and any eventual payments that taxpayer may receive moreover the fact amount and timing of the monthly benefit depends on market gains as well as losses similarly in boston elevated rwy regardless of the amounts of any possible losses sustained by petitioner no payments would be forthcoming to it if its income were sufficiently high after absorbing the losses t c pincite withdrawals of principal not just losses will contribute significantly to depletion of the account in fact the arrangement is structured primarily to insure against longevity risk not market risk and should taxpayer live long enough he could eventually begin to receive the monthly benefit whether or not losses were sustained finally the amount of compensation taxpayer may receive under the certificate depends on how long he lives and is not tied to the amount of the losses thus the fact amount and timing of the monthly benefit are contingent on a number of factors including not only a particular market loss but also other market losses offsetting market gains taxpayer's withdrawal rate and - most significantly --taxpayer's life span the contract is structured not as reimbursement for market losses but rather as a contingent deferred_annuity that begins to pay benefits on the occurrence of an event the timing of which may be influenced by market performance we conclude that the monthly benefit feature of the certificate is not structured to replace or reimburse either individual or overall market losses in the account portfolio cases such as dunne and johnson are distinguishable because the nexus between the losses and the compensation_for the losses was more direct than is the case here therefore the certificate will not create a right to reimbursement for losses realized on account assets for purposes of sec_165 and thus will not prevent taxpayer from currently deducting such losses assuming taxpayer’s losses otherwise meet the requirements of sec_165 plr-112274-09 this holding is based on and limited to the particular contract at issue and the effect of that contract as represented by taxpayer it would not necessarily apply to a similar feature if the terms of the contract were significantly altered requested ruling under sec_1 for purposes of sec_1 the term net_capital_gain means net_capital_gain determined without regard to sec_1 increased by qualified_dividend_income in defining qualified_dividend_income sec_1 provides that the term shall not include any dividend on any share of stock with respect to which the holding_period requirements of sec_246 are not met determined by substituting in sec_246 days for days each place it appears and by substituting 121-day period for day period sec_246 provides rules applicable to deductions for dividends received among them a required holding_period see sec_246 under sec_246 this holding_period is reduced for any period during such periods in which a the taxpayer has an option to sell is under a contractual obligation to sell or has made and not closed a short_sale of substantially_identical_stock_or_securities b the taxpayer is the grantor of an option to buy substantially_identical_stock_or_securities or c under regulations a taxpayer has diminished his risk of loss by holding or more other positions with respect to substantially_similar_or_related_property the applicable regulation is sec_1_246-5 which provides that property is substantially_similar or related to stock when i the fair_market_value of the stock and the property reflect the performance of a a single firm or enterprise b the same industry or industries or c the same economic factor or factors such as but not limited to interest rates commodity prices or foreign-currency exchange rates and ii changes in the fair_market_value of the stock are reasonably expected to approximate directly or inversely changes in the fair_market_value of the property a fraction of the fair_market_value of the property or a multiple of the fair_market_value of the property sec_1_246-5 a position is an interest including a futures or forward_contract or an option in property or any contractual right to a payment whether or not severable from stock or other_property sec_1_246-5 moreover a taxpayer has diminished its risk of loss on stock by holding a position in substantially_similar_or_related_property if the taxpayer is the beneficiary of a guarantee surety agreement or similar arrangement and the guarantee surety agreement or similar arrangement provides for payments that will substantially offset decreases in the fair_market_value of the stock sec_1 c the conference_report to the deficit_reduction_act_of_1984 h_rep_no pincite 1984_3_cb_1 indicates that t he substantially_similar standard is plr-112274-09 not satisfied merely because the taxpayer is an investor with diversified holdings and acquires a regulated_futures_contract or option on a stock index to hedge general market risks here by purchasing the certificate taxpayer has not entered into an option to sell is not under a contractual obligation to sell or has not made nor closed a short_sale of substantially_identical_stock_or_securities the certificate is not substantially_similar_or_related_property because the fair_market_value of the account and the certificate do not reflect the performance of a single firm or enterprise the same industry or industries or the same economic factors because the predominant risk the certificate protects against is longevity risk ie the benefit under the certificate is contingent upon taxpayer’s survival and because the changes in the fair_market_value of the account are not reasonably expected to approximate directly or inversely changes in the fair_market_value of the certificate a fraction or multiple thereof finally the benefits that may be ultimately paid under the certificate are not closely correlated with and do not substantially offset decreases in the fair_market_value of the account thus we conclude that the certificate does not diminish taxpayer’s risk of loss on account assets for purposes of applying the holding_period requirements of sec_1 requested ruling sec_1092 imposes special rules that effectively suspend losses with respect to positions that are held as part of a straddle a straddle is defined in sec_1092 as offsetting positions with respect to personal_property a taxpayer holds offsetting positions with respect to personal_property if there is a substantial diminution of the taxpayer’s risk of loss from holding any position by reason of his holding one or more other positions with respect to personal_property whether or not of the same kind see sec_1092 sec_1092 provides that the term personal_property means any personal_property of a type which is actively_traded and that the term position means an interest in personal_property the certificate however is not an offsetting_position with respect to taxpayer’s interest in the account see also sec_1092 accordingly sec_1092 does not apply the rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings and it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or plr-112274-09 referenced in this letter specifically no opinion is expressed or implied concerning the proper tax treatment of the group contract certificate by ic or sponsor this ruling is directed only to taxpayer sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely s sheryl b flum chief branch office of the associate chief_counsel financial institutions products


internal_revenue_service uil index nos number release date department of the treasury p o box ben franklin station washington dc person to contact telephone number refer reply to cc dom it a - plr-107734-99 date date attn re late filing of form_8716 ein legend officer date a date b date c specific dollar_figureamount dear this is in response to a request filed on behalf of the above-named taxpayer regarding the late filing of a form_8716 election to have a tax_year other than a required tax_year the taxpayer has requested an extension of time for making this election under authority contained in sec_301_9100-3 of the procedure and administration regulations the information submitted indicates that the taxpayer a limited_liability corporation organized on is treated for federal_income_tax purposes as a partnership the taxpayer's form_8716 was due_date b but was not filed however the information furnished shows that the taxpayer intended to comply with the requirements of sec_444 of the internal_revenue_code and engaged a firm of qualified_tax professionals to ensure a proper filing due to an error or misunderstanding on the part of the tax professionals the taxpayer did not file form_8716 the error was not due to any lack of due diligence or prompt action on the part of the taxpayer sec_1_444-3t of the temporary income_tax regulations provides among other requirements that form_8716 must be filed with the appropriate service_center by the earlier of i the 15th day of the fifth month following the month that includes the first day of the taxable_year for which the election will first be effective or ii the due_date without regard to extensions of the income_tax return resulting from the sec_444 election sec_301_9100-1 sets forth rules respecting the granting of extensions of time for making certain elections under these rules the commissioner in his or her discretion may grant a reasonable extension of time to make a regulatory election under subtitle a provided the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government sec_301_9100-2 sets forth rules governing automatic extensions for regulatory elections including elections to use other than the required tax_year under sec_444 if the provisions of sec_301_9100-2 do not apply to the taxpayer's situation as in this case the provisions of sec_301_9100-3 may apply sec_301_9100-3 sets forth standards that the commissioner will employ when determining whether to grant discretionary relief in situations that do not meet the requirements of sec_301_9100-2 these standards are whether the taxpayer acted reasonably and in good_faith in the matter and whether the granting of relief will prejudice the interests of the government generally a taxpayer will be deemed to have acted reasonably and in good_faith where the taxpayer reasonably relied on a qualified_tax professional and that professional failed to make or advise the taxpayer to make the election at issue the information and representations furnished by the taxpayer and its qualified_tax professionals establish that the taxpayer acted reasonably and in good_faith in this matter furthermore we have determined that granting relief in this case will not prejudice the interests of the government within the meaning of sec_301_9100-3 accordingly under sec_301_9100-3 the taxpayer is granted an extension of time to file form_8716 to adopt a taxable_year ending date c the taxpayer ha sec_45 days from the date of this letter to file the following items with the service_center form_8716 copy of this letter_ruling and a check for the amount of the payment required under sec_1_7519-1t sec_1_7519-1t provides in relevant part that for each taxable_year that a partnership has an election under sec_444 in effect the partnership must i file a return as provided in sec_1_7519-2t and ii make any required_payment as provided in sec_1_7519-2t we understand that on or about date the service_center issued a refund check to the taxpayer in the amount of dollar_figure representing amounts that the taxpayer had paid with its forms required_payment or refund under sec_7519 to comply with sec_1 1t a the taxpayer may return the federal government’s uncashed check if the amount of the required_payment does not exceed this ruling is limited to the filing of form_8716 except to the extent specifically addressed herein no opinion is expressed regarding the tax treatment of the subject transaction under the provisions of any other sections of the code or regulations that may be applicable thereto a copy of this letter_ruling is being sent to the taxpayer's district_director in accordance with the provisions of a power_of_attorney currently on file with this office the original of this letter_ruling is being sent to the taxpayer's authorized representative and a copy is being sent to the taxpayer this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent by other taxpayers sincerely yours assistant chief_counsel income_tax accounting s irwin a leib by_______________________ irwin a leib deputy assistant chief_counsel enclosures copy of this letter copy for sec_6110 purposes


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-149629-10 date date legend company ------------------------------------------------------------------------------------------------- ----------------------- state d1 -------------------- ----------------------- dear ---------------- this letter responds to a letter dated date submitted on behalf of company requesting a ruling under sec_1362 of the internal_revenue_code facts company was incorporated under the laws of state on d1 company’s shareholders intended that company be treated as an s_corporation as of d1 however a form_2553 election by a small_business_corporation was not timely filed company requests a ruling that it will be recognized as an s_corporation effective d1 law and analysis sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation plr-149629-10 sec_1362 provides that an election under sec_1362 may be made by a small_business_corporation for any taxable_year a at any time during the preceding_taxable_year or b at any time during the taxable_year and on or before the 15th day of the third month of the taxable_year sec_1362 provides that if a a small_business_corporation makes an election under sec_1362 for any taxable_year and b the election is made after the 15th day of the third month of the taxable_year and on or before the 15th day of the third month of the following taxable_year then such election shall be treated as made for the following taxable_year sec_1362 provides that if a an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat the election as timely made for the taxable_year and sec_1362 shall not apply conclusion based solely on the facts submitted and representations made we conclude that company has established reasonable_cause for failing to make a timely election to be an s_corporation provided that company otherwise qualifies as an s_corporation we conclude that company will be recognized as an s_corporation effective d1 and thereafter if company files a completed form_2553 effective d1 with the appropriate service_center within days following the date of this letter a copy of this letter should be attached to form_2553 a copy is enclosed for that purpose except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion as to whether company is otherwise eligible to be an s_corporation for federal tax purposes 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 plr-149629-10 the ruling contained in this letter is 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 ruling_request it is subject_to verification on examination sincerely s tara p volungis tara p volungis chief branch office of the associate chief_counsel passthroughs special industries enclosures a copy of this letter a copy of this letter for sec_6110 purposes


t c summary opinion united_states tax_court john edwin trout and barbara alma trout petitioners v commissioner of internal revenue respondent docket no 10576-13s filed date john edwin trout and barbara alma trout pro_se britton g wilson for respondent summary opinion paris judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed unless otherwise indicated all section references are to the internal_revenue_code code as amended and in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case respondent determined a deficiency of dollar_figure in petitioners’ federal_income_tax for the issue before the court is whether petitioners are eligible for the new_qualified_plug-in_electric_drive_motor_vehicle tax_credit pevc of dollar_figure under sec_30d for the notice_of_deficiency did not determine a penalty background this case was submitted on the pleadings and stipulated facts under rule the stipulation of facts the supplemental stipulation of facts the second supplemental stipulation of facts and the exhibits attached thereto are incorporated herein by this reference petitioners resided in nebraska when they petitioned the court the electric vehicle at issue a spark nev-48 ex was manufactured by zone electric_car llc zone electric pursuant to notice_2009_54 2009_26_irb_1124 date zone electric submitted a request on date to the internal_revenue_service irs to certify that its electric vehicles were qualified plug-in electric vehicles for purposes of sec_30d which as of the date of the notice allowed a tax_credit for qualified plug-in electric vehicles placed_in_service from january to date on date the irs issued a letter to zone electric stating that the spark nev-48 ex model meets the requirements of the qualified plug-in electric vehicle credit as a qualified plug-in vehicle this acknowledgment is valid only through date at which time the vehicle will need to be re-submitted under the revised provisions of sec_30d and any subsequent notice covering that period the letter goes on to state that purchasers of this qualified plug-in electric vehicle may rely on the certification concerning the vehicle’s qualification for the qualified plug-in vehicle credit on date petitioners ordered an electric vehicle described as a spark nev-48 ex from drive electric llc drive electric through the company’s web site freeelectriccar com petitioners remitted full payment of dollar_figure including shipping during the transaction and received an email confirmation of the order drive electric provided petitioners with a certificate of origin and a bill of sale both of which were dated date the bill of sale describes a conveyance of the spark nev-48 ex model electric vehicle which has a unique vehicle identification_number vin the bill of sale also purports to transfer title to the specifically identified vehicle as evidenced by the accompanying manufacturer’s statement of origin the certificate of origin also contains the date of the transaction and the vin the certificate of origin is signed by zone electric in addition petitioners were provided with the terms and conditions of sale when they ordered the vehicle pursuant to the terms and conditions drive electric would place the vehicle order with the appropriate manufacturer upon receipt of funds from the buyer specifically the document stated that upon receipt of buyer’s funds the vehicle manufacturer shall schedule the production of the vehicle and shall issue the vin sic and manufacturer’s statement of origin for the scheduled vehicle in pertinent part the terms and conditions stated that the buyer and the seller agreed that title to the vehicle would pass to the buyer upon issuance of the manufacturer’s statement of origin certificate of origin notwithstanding later productions assembly or physical shipment of the vehicle to the buyer the document further stated that the buyer acknowledged that the certificate of origin is issued at the time the vehicle is ordered and in advance of vehicle production petitioners timely filed their federal_income_tax return for which claimed a pevc of dollar_figure on date petitioners received their electric vehicle with a matching vin and they subsequently submitted a golf cart permit application to their local authorities who issued a permit on date respondent issued a notice_of_deficiency determining a deficiency of dollar_figure the amount claimed as a pevc discussion i burden_of_proof generally the commissioner’s determination_of_a_deficiency is presumed correct and the burden_of_proof in cases before the court is on the taxpayer rule a 290_us_111 under sec_7491 the burden_of_proof may shift to the commissioner if the taxpayer produces credible_evidence with respect to any factual issue relevant to determining the tax_liability of the taxpayer this section becomes applicable only if the taxpayer produces credible_evidence at trial 116_tc_438 petitioners have not argued that sec_7491 applies and have not shown that they meet the requirements to shift the burden_of_proof therefore the burden_of_proof remains with petitioners ii sec_30d the pevc was originally enacted in the emergency economic stabilization act of pub_l_no div b sec 122_stat_3765 date and effective for tax years beginning after date under sec_30d a taxpayer is allowed a one-time credit against income_tax with respect to each new_qualified_plug-in_electric_drive_motor_vehicle placed_in_service during the taxable_year sec_30d as signed into law on date was amended on date the american_recovery_and_reinvestment_act_of_2009 pub_l_no sec a - c 123_stat_115 amended sec_30d to define a new_qualified_plug-in_electric_drive_motor_vehicle more narrowly for tax years after date to exclude low-speed vehicles such as those primarily for use on golf courses as they would no longer constitute qualified motor vehicles for purposes of the pevc notice_2009_89 2009_48_irb_714 date after date the definition of qualified motor vehicles would effectively exclude low-speed vehicles from eligibility for a pevc as a result a taxpayer who intended to claim a pevc for a low-speed electric vehicle must have been in compliance with the provisions of sec_30d on or before date petitioners timely filed their tax_return in which they claimed a pevc of dollar_figure on the basis of their purchase of a low-speed electric vehicle on date petitioners paid drive electric in full for a low-speed electric vehicle drive electric then issued the certificate of origin and the title document with a unique vin ultimately a vehicle with the matching vin was delivered on date there is no dispute that drive electric’s model spark nev-48 ex is a low-speed electric vehicle and for purposes of sec_30d would not qualify under the more narrow definition to be applied after date sec_30d as effective on the date of petitioners’ purchases provides that low-speed vehicles can qualify for the pevc when the vehicle is placed_in_service by the taxpayer in a taxable_year beginning after date the enactment of the statute acquired by the taxpayer on or before date before the amendment of the statute took effect and generally in compliance with the requirements of sec_30d notice_2009_89 supra respondent argues that petitioners are not eligible for a pevc for because the qualified_vehicle was not placed_in_service on or before date or before the credit termination took effect respondent asserts that the vehicle was placed_in_service when it was delivered in consequently respondent argues petitioners are not eligible for a pevc for petitioners argue they remitted payment and acquired title to a qualified_electric_vehicle on date petitioners assert that legal_title passed to them on the date they entered into the purchase agreement and therefore they are entitled to a pevc for because the vehicle was acquired before date however the statute effective on the date of purchase also required a qualified motor_vehicle to be placed_in_service on or before date thus the statutory requirements are twofold petitioners had to acquire title to the vehicle after date and place it in service on or before date petitioners are entitled to a pevc for if they met these requirements sec_30d allows a credit against tax for qualified_property for the taxable_year in which such property is placed_in_service neither the c ode nor the regulations provide a general definition for a term that each uses many times regarding property ‘placed in service’ jasper l cummings when is property placed_in_service tax note sec_409 the de_facto general definition is the earlier of readiness for use for its intended purpose or actual regular use for that intended purpose but piecing together the de_facto definition is far harder than it ought to be id eg revproc_2007_65 2007_2_cb_967 placed_in_service not defined for sec_45 but the depreciation and investment_credit definition is adopted without question see irs publication how to depreciate property date although placed_in_service is not explicitly defined for purposes of sec_30d other sections of the code provide guidance sec_38 provides a business_credit against tax with respect to property in the first taxable_year in which qualified_property is placed_in_service by the taxpayer see also sec_1 d i income_tax regs property will be considered placed_in_service when it is in a condition or state of readiness and availability for a specifically assigned function id subpara ii see also 89_tc_710 referring to investment_credit for purposes of sec_38 there are other tests in the regulations which have been used to determine when a vehicle has been placed_in_service sec_1_150-2 income_tax regs for purposes of tax-exempt_bonds defines placed_in_service as the date on which based on all the facts and circumstances-- the facility has reached a degree of completion which would permit its operation at substantially its design level and the facility is in fact in operation at such level sec_1_1250-4 income_tax regs provides that property is placed_in_service on the date of first use regardless of when depreciation starts finally sec_145_4051-1 excise_tax regs states that the placed-in-service date for the tax on heavy trucks and trailers is the date when the owner takes possession of the vehicle the court will look at whether the vehicle was in a condition or state of readiness and availability for the specifically assigned function for which petitioners purchased it to determine when petitioners placed the spark nev-48 ex in service see sec_1_46-3 income_tax regs this court has held that the asset is considered to be placed_in_service only when the asset is in a state of readiness and available for full service 66_tc_718 in noell the taxpayer built an airport runway which was fully completed in late id pincite construction of the runway required the taxpayer to grade the land supply a rock base lay down asphalt payment and plant sod id before the surface was completed pilots occasionally used the runway to land and take off in despite the risk of damage to the plane from using an unpaved runway id the incomplete and rough surface made the runway unsatisfactory for permanent use and available only in good weather id the taxpayer contended that the runway construction was not complete until and so the investment_credit for the runway should be taken for his taxable_year id pincite the commissioner objected on the grounds that because pilots began to use the runway in the runway was placed_in_service that year id despite even occasional use the court concluded that the runway was not placed_in_service until it was in a state of readiness for full service of its specifically assigned function in id pincite caselaw requires that the court determine more specifically whether the asset in question was ready and available for full operation on a regular basis for its specifically assigned function see 89_tc_710 brown v commissioner tcmemo_2013_275 the court determined the placed-in-service date for a hydroelectric utility plant was deferred until the plant was available for full operation on a regular basis 89_tc_710 the court determined a depreciation deduction for the hydroelectric plant was not allowed for the year it first generated electric power during preoperational testing because the plant was not available for full operation on a regular basis until the following year id pincite the court noted that responsibility and control of the plant remained with the contractor during the preoperational testing and the taxpayer did not formally accept the plant until the following year id ultimately the placed-in-service date of property is when it is in a state of readiness and availability for full service of its specifically assigned function id as previously discussed the terms and conditions expressly stated that the vehicle order would be submitted to the manufacturer after payment was received by drive electric although the actual date of production is unknown petitioners received the finished vehicle on date consequently the court must find that the vehicle was not ready and available for full service to petitioners until date because the vehicle was not placed_in_service in petitioners are not eligible for a pevc for that year the court has considered all of the arguments made by the parties and to the extent they are not addressed herein they are considered unnecessary moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent the american recovery and reinvestment tax act of pub_l_no sec a stat pincite amending sec_30d modified the plug-in electric drive motor_vehicle credit the modification created a new credit against tax for qualified motor vehicles acquired after the date of the enactment of this act id sec a - c stat pincite the enactment took place on date id thus the new credit against tax applies to qualified motor vehicles placed_in_service after date and before date id the amount of the credit is of the cost of the vehicle up to a maximum credit of dollar_figure id to qualify a vehicle must either be a low-speed vehicle propelled to a significant extent by a rechargeable battery with a capacity of at least four kilowatt hours or be a two- or three-wheeled vehicle propelled to a significant extent by a rechargeable battery with a capacity of at least kilowatt hours id stat pincite this credit was available to petitioners for the tax_year in which the qualified motor_vehicle was placed_in_service which was tax_year the court does not have jurisdiction of petitioners’ tax_year


significant index number department of the treasury internal revenuf service washington dc tax_exempt_and_government_entities_division mar 201l se't ep ral ad re taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of date for the above-named plan which are described in sec_431 and sec_431 of the internal_revenue_code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning date this extension applies to the eligible amortization charge bases established as of date the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 of the code sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 including a certification from the plan's actuary that i absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ii the plan_sponsor has adopted a plan to improve the plan's funding status iii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided we have sent a copy of this letter to the and to the this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact sincerely yours tt ce _ david m ziegler manager ep actuarial group


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-122139-02 date date legend x a state d1 dear this letter responds to your letter dated date and subsequent correspondence on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 x's sole shareholder a decided that x would be an s_corporation effective d1 a relied upon a tax adviser to file x's form_2553 election by a small_business_corporation however x's form_2553 was not filed timely x requests a ruling under sec_1362 that its sec_1362 election will be treated as timely made for its taxable_year that began on d1 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective generally if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for plr-122139-02 the year in which the election is made sec_1362 provides that if an s election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year and sec_1362 shall not apply conclusion based on the facts submitted and representations made we conclude that x has established reasonable_cause for failing to make a timely s election and that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 containing an effective date of d1 for the election within days following the date of this letter then such election will be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center a copy is enclosed for that purpose except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether x is an s_corporation for federal tax purposes pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to x this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely mary beth collins senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court loran j forbes petitioner v commissioner of internal revenue respondent docket no 11238-05l filed date loran j forbes pro_se john d faucher for respondent memorandum opinion ruwe judge this case is before the court on respondent’s motion to dismiss for failure to state a claim upon which relief can be granted and to impose a penalty under sec_6673 motion to dismiss on date petitioner filed a petition with the court by order dated date the court directed petitioner to file a proper amended petition on or before date petitioner filed the amended petition on date based upon notices of determination concerning collection action s under sec_6320 and or in the amended petition petitioner seeks redetermination of the deficiency and review of lien and levy actions for the and tax years petitioner also alleges that notice of administrative judgment by estoppel with sixty three exhibits is evidenced on date respondent’s motion to dismiss was filed in his motion respondent asserts that petitioner makes no factual claims of error and asserts only law and legal conclusions in the petition respondent further argues that petitioner’s claims are nonsensical on their face on date petitioner filed his objection to respondent’s motion to dismiss on date petitioner’s supplemental objection to respondent’s motion to dismiss was filed 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 on date this court calendared respondent’s motion to dismiss for hearing at the court’s los angeles california trial session beginning date when this case was called from the calendar at the trial session there was no appearance by or on behalf of petitioner rule b provides that a petition filed in this court shall contain clear and concise assignments of each and every error which the petitioner alleges to have been committed in the notice_of_determination rule b further provides that the petition shall contain clear and concise lettered statements of the facts on which the petitioner bases each assignment of error pursuant to rule b this court may dismiss a case at any time and enter a decision against a taxpayer for failure to properly prosecute or to comply with the court’s rules see 114_tc_176 stephens v commissioner tcmemo_2005_183 rule provides that a party may file a motion to dismiss for failure to state a claim upon which relief can be granted it appears that petitioner disagrees with respondent’s determinations that it is appropriate to levy on petitioner’s property and to file a notice_of_federal_tax_lien to collect petitioner’s tax and penalty liabilities the petition and the amended petition however lack a clear and concise statement of the errors allegedly committed by respondent or a statement of facts that form the basis of petitioner’s assignments of error petitioner failed to allege any facts that indicate that respondent abused his discretion in determining that it is appropriate to levy on petitioner’s property and to file a notice_of_federal_tax_lien we find that petitioner’s claims state no justiciable basis on which this court may grant him relief petitioner claims that administrative judgment by estoppel and the uniform commercial code u c c provide him with relief the u c c argument he asserts is similar to the argument that petitioner advanced in a prior proceeding for the taxable_year in forbes v commissioner docket no 15591-03l this court found that petitioner’s argument was frivolous and groundless we find that the petition the amended petition and other documents petitioner has filed contain only incoherent arguments and meaningless legalistic language a petition that makes only frivolous and groundless arguments makes no justiciable claim and it is properly subject_to a motion for judgment on the pleadings 115_tc_523 therefore we shall grant respondent’s motion to dismiss see 123_tc_213 finding that a petition and an amended petition failed to state a claim upon which relief could be granted when they lacked a clear statement of error and contained nothing more than frivolous rhetoric and legalistic gibberish respondent also requests that this court impose a penalty pursuant to sec_6673 because petitioner has instituted the proceeding primarily for delay respondent further contends that petitioner’s position is groundless or frivolous and that petitioner filed this petition as a protest to paying income taxes sec_6673 provides that this court may require a taxpayer to pay to the united_states a penalty not in excess of dollar_figure whenever it appears that the taxpayer instituted or maintained the proceedings primarily for delay the taxpayer’s position in the proceeding is groundless or frivolous or the taxpayer unreasonably failed to pursue available administrative remedies petitioner has been notified repeatedly that this court might impose a penalty pursuant to sec_6673 if he continued to assert frivolous arguments petitioner lodged with the court what he captioned a commercial notice of administrative judgment by estoppel with respect to notice of international commercial claim within the admiralty administrative remedy agreement contract file number ljf09092004 ucc financing statement file number commercial notice attached to the commercial notice was a letter from the irs appeals_office dated date which informed petitioner that this court may require a taxpayer to pay a penalty to the united_states when the taxpayer’s position is frivolous or groundless or when the taxpayer institutes or maintains a proceeding primarily for delay also attached were several letters in which respondent’s settlement officers denied petitioner’s request for a face-to-face conference in those letters respondent’s settlement officers informed petitioner that all of the positions or issues you raised in your cdp request are items either that courts have determined are frivolous or groundless or appeals otherwise does not consider these are moral religious political constitutional conscientious or similar grounds furthermore this court has previously cautioned petitioner that asserting these frivolous arguments might result in a penalty pursuant to sec_6673 on date this court entered an order and decision in docket no 15591-03l that respondent could proceed with the collection action for petitioner’s taxable_year the court issued the following warning to petitioner we will not impose a penalty upon petitioner pursuant to sec_6673 at this time nevertheless we take this opportunity to admonish petitioner that the court will consider imposing such a penalty if petitioner returns to the court and advances similar arguments in the future documents that petitioner attached to the commercial notice indicate that after this court’s disposition of petitioner’s previous case involving his liability he filed a u c c financing statement describing the judge in that case and numerous employees of the internal_revenue_service as debtors these documents indicate that the u s department of justice has filed a complaint alleging that petitioner filed the u c c financing statement for purposes of retaliation and harassment at the trial session respondent confirmed that petitioner had filed the u c c financing statement and that the u s department of justice had begun the process of removing the lien arising from that financing statement we find that petitioner has asserted frivolous and groundless arguments in this proceeding which are similar to those advanced in his prior case before this court we also find that petitioner instituted this proceeding primarily for delay we hold that petitioner is liable for a dollar_figure penalty pursuant to sec_6673 to reflect the foregoing an appropriate order and 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 psi b02-plr-107697-00 date date x s-2 s-3 s-4 s-5 s-6 s-1 lp-1 lp-2 lp-3 lp-4 lp-5 this is in reply to a letter dated date and subsequent correspondence submitted on behalf of x requesting rulings under sec_409 sec_1361 and sec_4975 of the internal_revenue_code the information submitted states that x is a closely-held corporation that filed an s_corporation_election effective date x is a diversified general contractor that offers plant maintenance services and construction services to various market segments x has made elections for most of its qualifying subsidiaries to be treated as qualified subchapter_s subsidiaries qsubs pursuant to sec_1361 plr-107697-00 x maintains two employee_stock_ownership_plans plans each of which is intended to be qualified under sec_401 and sec_4975 the plans hold voting common_stock issued by x which has no stock that is readily_tradable on an established_securities_market within the meaning of sec_409 x has only one class of stock and each share of its common_stock has the same voting and dividend rights each of x’s subsidiaries that has employees has adopted the plans for the benefit of its employees in x caused several of its qsubs to form state law limited_partnerships lp-1 lp-2 lp-3 lp-4 and lp-5 partnerships each partnership is currently inactive and has no assets or employees upon the receipt of a favorable ruling x will cause each partnership to conduct active business operations and have employees who will be eligible to participate in the plans in addition each partnership intends to elect to be classified as an association_taxable_as_a_corporation pursuant to sec_301_7701-3 of the procedure and administration regulations and x intends to elect to treat each partnership as a qualified_subchapter_s_subsidiary qsub pursuant to sec_1361 s-1 is a wholly-owned first-tier subsidiary of x for which an election to be treated as a qsub has been made s-2 is also a wholly-owned first-tier subsidiary of x for which an election to be treated as a qsub has been made s-1 and s-2 formed lp-1 a delaware limited_partnership s-1 is the sole general_partner with a one percent interest in lp-1 and s-2 is the sole limited_partner with a ninety-nine percent interest in lp-1 s-1 and s-2 also formed lp-2 a delaware limited_partnership s-1 is the sole general_partner with a one percent interest in lp-2 and s-2 is the sole limited_partner with a ninety-nine percent interest in lp-2 s-3 is a wholly-owned first-tier subsidiary of x for which an election to be treated as a qsub has been made s-4 is also a wholly-owned first-tier subsidiary of x for which an election to be treated as a qsub has been made s-3 and s-4 formed lp-3 a delaware limited_partnership s-3 is the sole general_partner with a one percent interest in lp-3 and s-4 is the sole limited_partner with a ninety-nine percent interest in lp-3 s-5 is a wholly-owned first-tier subsidiary of x for which an election to be treated as a qsub has been made s-6 is also a wholly-owned first-tier subsidiary of x for which an election to be treated as a qsub has been made s-5 and s-6 formed lp-4 a delaware limited_partnership s-5 is the sole general_partner with a one percent interest in lp-4 and s-6 is the sole limited_partner with a ninety-nine percent interest in lp-4 plr-107697-00 s-5 and s-6 formed lp-5 a delaware limited_partnership s-5 is the sole general_partner with a one percent interest in lp-5 and s-6 is the sole limited_partner with a ninety-nine percent interest in lp-5 sec_301_7701-2 provides that for purposes of sec_301_7701-2 and sec_301_7701-3 a business_entity is any entity recognized for federal tax purposes including an entity with a single owner that may be disregarded as an entity separate from its owner under sec_301_7701-3 that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code a business_entity with two or more members is classified for federal tax purposes as either a corporation or a partnership a business_entity with only one owner is classified as a corporation or is disregarded sec_301_7701-2 provides that for federal tax purposes the term corporation means an association as determined under sec_301_7701-3 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 at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that for purposes of subchapter_s the term small_business_corporation means a domestic_corporation that is not an ineligible_corporation and that does not have as a shareholder a person other than an estate and other than a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that for purposes of sec_1361 the term ineligible_corporation means any corporation which is a a financial_institution which uses the reserve_method of accounting for bad_debts described in sec_585 b an insurance_company subject_to tax under subchapter_l c a corporation to which an election under sec_936 applies or a disc or former_disc sec_1361 provides that except as provided in regulations prescribed by the secretary for purposes of title_26 i a corporation which is a qualified_subchapter_s_subsidiary shall not be treated as a separate corporation and ii all assets liabilities and items of income deduction and credit of a qualified subchapter_s plr-107697-00 subsidiary shall be treated as assets liabilities and such items as the case may be of the s_corporation see also sec_1_1361-4 of the income_tax regulations sec_1361 provides that for purposes of sec_1361 the term qualified_subchapter_s_subsidiary means any domestic_corporation which is not an ineligible_corporation as defined in sec_1361 if i percent of the stock of such corporation is held by the s_corporation and ii the s_corporation elects to treat such corporation as a qualified_subchapter_s_subsidiary sec_1_1361-4 provides that except for purposes of sec_1361 and sec_1_1361-2 the stock of a qsub shall be disregarded for all federal tax purposes sec_4975 provides in pertinent part that an employee_stock_ownership_plan must be designed to invest primarily in qualifying employer_securities which is defined in sec_4975 as any employer_security within the meaning of sec_409 sec_409 defines the term employer_securities as common_stock issued by the employer or by a corporation that is a member of the same controlled_group which is readily_tradable on an established_securities_market sec_409 states that if there is no common_stock which meets the requirements of sec_409 the term employer_securities means common_stock issued by the employer or by a corporation which is a member of the same controlled_group having a combination of voting power and dividend rights equal to or in excess of a that class of common_stock of the employer or of any other such corporation having the greatest voting power and b that class of common_stock of the employer or of any other such corporation having the greatest dividend rights under sec_1361 and sec_1_1361-4 the separate existence of a qsub is disregarded for federal tax purposes such that all assets liabilities and items of income deduction and credit of a qsub shall be treated as assets liabilities and items of income deduction and credit of the s_corporation in addition sec_1_1361-4 states that except for purposes of sec_1361 and sec_1_1361-2 determining if the parent s_corporation owns the requisite stock to make the qsub election the stock of a qsub shall be disregarded for all federal tax purposes accordingly employees of the qsub are treated as employees of the parent s_corporation for purposes of sec_409 for purposes of sec_301_7701-3 a state law partnership is an eligible_entity consequently a state law limited_partnership may elect to be classified as a corporation for federal tax purposes each partnership is an eligible_entity with x as the single owner because the assets of each qsub including the state law limited_partnership interests are treated as owned by x plr-107697-00 accordingly based on the information and representations provided we conclude that the partnerships may elect to be classified as associations taxable as corporations pursuant to sec_301_7701-3 and x may elect to treat the partnerships as qsubs under sec_1361 furthermore if the partnerships make these elections x’s stock will be employer_securities within the meaning of sec_4975 and sec_409 with respect to employees of the partnerships this ruling is based on the assumption that the plans will continue to be otherwise qualified under sec_401 and sec_4975 at all relevant times except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter will be sent to x sincerely yours jeanne m sullivan assistant to the chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


date cor-115822-00 internal_revenue_service number info release date uil the honorable steve largent u s house of representatives washington d c dear mr largent thank you for your letter of date signed by you and a number of your colleagues encouraging the internal_revenue_service to immediately readjust the business standard mileage rate to reflect the recent increase in gasoline prices you note that the increased cost has particularly burdened self-employed taxpayers who use automobiles for business purposes gasoline prices we realize increased gasoline prices are an economic burden however the cost of gasoline is only one part of the business standard mileage rate which includes fixed and operating automobile costs these costs include depreciation or lease payments maintenance and repairs insurance and license and registration fees in addition to gasoline and oil less than one-third of the cents per mile rate comes from the cost of gasoline and oil thus an immediate adjustment in the rate taking into account the recent increase in gasoline prices might not be significant setting the business standard mileage rate the rate is a national average amount determined by an annual study performed by an independent_contractor who is an expert in the cost analysis of business use of automobiles the contractor uses recent data from each state on the component costs of operating the most popular automobiles the contractor then combines this data to achieve a national composite cents-per-mile rate advantages of using the business standard mileage rate reducing a taxpayer’s record-keeping burden is the principal advantage of using the rate gasoline prices rise and fall during the year but taxpayers may continue to use the same rate without having to keep records of actual expenses although rising gasoline prices can be a disadvantage for taxpayers who use the rate falling prices can work to their advantage for example although gasoline prices fell in for all of and through date taxpayers were able to use the rate that reflected the earlier higher prices taxpayer’s options to deduct the ordinary and necessary expenses of using an automobile for business purposes a taxpayer must substantiate the cost date place and business_purpose of each use of the automobile by adequate_records for the cost the taxpayer has two options substantiate actual cost by keeping records or by other_sufficient_evidence use the business standard mileage rate using the rate gives approximate not actual costs taxpayers can deduct the actual business_expenses of using a personally-owned automobile and this may be advantageous when automobile costs are rising publication travel entertainment gift and car expenses contains further information on how taxpayers should substantiate expenses i have enclosed the relevant pages from that publication i am sending a similar letter to your colleagues i hope this information is helpful please call me at or robert a berkovsky at if you have any questions sincerely charles o rossotti enclosure


t c memo united_states tax_court jose j mary d ramirez petitioners v commissioner of internal revenue respondent docket no filed date jose j mary d ramirez pro sese aely k ullrich for respondent memorandum findings_of_fact and opinion cohen judge respondent determined a deficiency of dollar_figure in petitioners’ federal_income_tax for and an accuracy- related penalty of dollar_figure under sec_6662 the issues for decision are whether petitioners are entitled to claimed capital_loss deductions and deductions on schedule a itemized_deductions and whether they are liable for the penalty 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 findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioners resided in california at the time that they filed their petition during petitioner jose j ramirez was employed as a lineman for southern california edison co and petitioner mary d ramirez was employed as a care provider they received combined wage income of dollar_figure during on their federal_income_tax return for petitioners claimed a long-term_capital_loss carryover of dollar_figure and a short- term capital_loss of dollar_figure dollar_figure was deducted on their return they claimed schedule a deductions totaling dollar_figure respondent disallowed for lack of substantiation dollar_figure in employee_expenses dollar_figure in charitable_contributions and dollar_figure in medical_expenses petitioners failed to maintain or produce records to substantiate the deductions opinion this case was set for trial with months’ notice along with the notice setting case for trial was the court’s standing_pretrial_order which among other things required the parties to stipulate in accordance with rule and to exchange documents that they intended to use at trial at least days before the first day of the trial session the only documents petitioners produced in a timely manner were attached to the stipulation petitioners presented purported receipts for noncash contributions that did not list or provide detailed information about the items contributed medical information related to their daughter that did not identify actual medical_expenses during a purchase contract for a toyota sequoia a mileage log that appeared to reflect primarily nondeductible commuting expenses and a bill for cellular telephone service at the time of trial petitioners could not explain the amounts claimed on the tax_return and in dispute in this case they presented no testimony about medical_expenses or any business use of the toyota or business mileage reflected in the log petitioners claim to have relied on their paid return preparer who advised them not to send their substantiating documents to respondent mr ramirez testified that he deducted the base_amount of his monthly cell phone expenses because he was required by his employer to carry a cell phone he claimed that cash contributions were deducted from his paycheck but he did not have any records to substantiate that claim otherwise he testified that he gave the information to the return preparer he acknowledged that he may have made a mistake in depending on someone whom he did not know and following her advice instead of complying with the court’s standing_pretrial_order petitioners are required to keep records and have the burden of proving that they are entitled to deductions see eg 512_f2d_882 9th cir affg tcmemo_1972_133 although the burden_of_proof may sometimes shift to the commissioner under sec_7491 it has not done so here because of the absence of substantiation the failure to maintain records or to cooperate with reasonable requests for information and the absence of credible testimony with respect to the specific factual issues in dispute petitioners have not complied with the requirements applicable to deductions of charitable_contributions under sec_170 and relating to contributions of household_items and recordkeeping for monetary contributions they have not complied with the requirements of sec_274 with respect to business use of their passenger_automobile or cellular telephone see sec_280f they have totally failed to prove the amounts claimed and disallowed as capital losses on their return and on their schedule a we cannot conclude that they are entitled to any of the deductions in dispute respondent has the burden of going forward with respect to the accuracy-related_penalty under sec_6662 applicable to among other things underpayments attributable to negligence or disregard of rules or regulations see sec_7491 the evidence of erroneous deductions in this case satisfies respondent’s burden upon due consideration of the entire record decision will be entered for respondent


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 b01 plr-155000-06 date date ------ ---------------------- ---------------------------------- legend x ------------------------------------------ d state dear --------------- this responds to a letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated on d under the laws of state x intended to be treated as an s_corporation for federal tax purposes effective d but the proper election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if the election is made after the first two and one-half months of a corporation's taxable_year then the corporation will plr-155000-06 not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such election as timely made for such taxable_year and effective as of the first day of that year x did not file a timely election to be treated as an s_corporation under sec_1362 effective d x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d within days from the date of this letter x must submit a properly completed form_2553 with a copy of this letter attached to the appropriate service_center 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 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 the taxpayer’s authorized representative sincerely dianna k miosi chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes