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 intl b01 plr-111731-17 date date ty ------- legend transferor parent country a exchange fsub1 disregarded_entity state a state b holdco us ------------------------------------------------- ------------------------- ------------------------------- ------------ ---------------------------------- ---------------------------------------------------- ------------------------- ------------------------------------------------------- ---------------------------------------------------------- -------------- ------------- ------------------------------------- ------------------------- holdco us group financial ------------------------------------------- ------------------------------- ------------------------- plr-111731-17 operating ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------- entity y a b year year year year year date date date date date date ------------------------------------ ------------------------- ---- -- ------- ------- ------- ------- ------- --------------------------- ------------------- -------------------------- -------------------- ---------------------- ---------------------- dear --------------- this is in response to your letter dated date requesting rulings with respect to the federal_income_tax treatment of transferor’s proposed transactions the proposed transactions plr-111731-17 the rulings contained in this letter are predicated upon facts and representations submitted by transferor 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 verification of the factual information representations and other data may be required as part of the audit process the information submitted for consideration is substantially as set forth below i pre-transaction structure parent is a country a corporation that functions as a holding_company parent’s common_stock is traded on exchange parent owns all of the outstanding_stock of transferor and fsub1 each a country a corporation transferor owns all of the outstanding interests in disregarded_entity an entity chartered under a governmental subdivision of country a that is disregarded as separate from transferor for federal tax purposes disregarded_entity owns all of the outstanding_stock of holdco us a state a limited_liability_company that is treated as a corporation for federal tax purposes holdco us is the common parent of holdco us group an affiliated_group that files a consolidated federal_income_tax return on a calendar_year basis holdco us owns all of the outstanding_stock of financial a state a corporation financial owns all of the outstanding_stock of operating a state b corporation entity y is a state a limited_liability_company that has elected to be treated as a corporation for federal tax purposes entity y has two classes of shares outstanding class a and class b holdco us wholly owns the class a shares the class a shares plr-111731-17 represent approximately a percent more than percent of the voting power and value of entity y's outstanding shares senior management of entity y wholly owns the class b shares the class b shares represent the remaining approximately b percent voting power and value of entity y's outstanding shares ii a previous transactions incorporation of u_s_assets in year and on subsequent occasions fsub1 transferred u_s_assets used in its u s trade_or_business to operating in exchange for stock these transfers qualified for nonrecognition under sec_351 of the internal_revenue_code fsub1 and operating received a private_letter_ruling from the internal_revenue_service irs on date stating that one of these transfers qualified for nonrecognition under sec_351 with respect to these transfers operating elected under sec_1 2t d to increase its earnings_and_profits e_p by an allocable portion of fsub1's effectively connected e_p ece p and non-previously taxed accumulated ece p in addition fsub1 reduced its ece p and non-previously taxed accumulated ece p in accordance with sec_1_884-2t pursuant to sec_1_884-2t fsub1 agreed that upon the disposition of part or all of the stock_or_securities it owned in operating or a successor_in_interest it would treat as a dividend_equivalent_amount for the taxable_year in which the disposition occurred an amount equal to the lesser_of the amount_realized upon such disposition or the total amount of ece p and non-previously taxed plr-111731-17 accumulated ece p that was allocated to operating pursuant to sec_1 2t d ii b formation of financial in year fsub1 formed financial and transferred to it all of the stock of operating in exchange for financial stock this transfer qualified for nonrecognition under sec_351 as part of the same transaction fsub1 transferred all of the stock of financial to disregarded_entity in exchange for an ownership_interest in disregarded_entity in connection with the transfer parent and operating received a private_letter_ruling from the irs on date stating in part the following provided that the actual transaction qualifies as an exchange under sec_351 and provided financial makes a valid election to increase its earnings_and_profits by an amount equal to the earnings_and_profits previously allocated to operating pursuant to the prior elections by fsub1 under sec_1_884-2t fsub1 attaches a statement to its timely filed including extensions federal_income_tax return treating such earnings_and_profits as if they had been allocated from fsub1 to financial pursuant to an election under sec_1_884-2t and fsub1 attaches a statement to its timely filed including extensions federal_income_tax return agreeing that upon the disposition of part or all of the stock_or_securities of either operating or a successor-in-interest or disregarded_entity or a successor-in-interest or upon a direct or indirect disposition of part or all of the stock_or_securities of financial or a successor-in-interest fsub1 shall treat such disposition as a disposition for purposes of sec_1_884-2t a fsub1's transfer of operating's stock to financial will not constitute a disposition of part or all of operating's stock within the meaning of sec_1_884-2t and b operating's earnings_and_profits will be reduced by an amount equal to the earnings_and_profits allocated to financial pursuant to a valid election under sec_1_884-2t plr-111731-17 if fsub1 disposes of part or all of the stock_or_securities of either financial or a successor-in-interest or disregarded_entity or a successor-in-interest or if financial disposes of part or all of the stock_or_securities of operating or a successor-in-interest fsub1 shall treat such disposition as a disposition for purposes of sec_1_884-2t c spin-off of transferor in year and year pursuant to a reorganization described in sec_368 fsub1 transferred all of its interests in disregarded_entity which owned all the stock of financial and cash to transferor a newly-formed corporation in exchange solely for stock of transferor fsub1 then distributed all the stock of transferor to parent in a transaction to which sec_355 applied in connection with this transaction parent and operating received a private_letter_ruling from the irs on date stating in part the following provided that transferor attaches a statement to its timely filed including extensions federal_income_tax return agreeing that transferor will treat a disposition of part or all of the stock_or_securities of either financial or a successor-in-interest or disregarded_entity or a successor-in-interest as a disposition for purposes of sec_1_884-2t then disregarded entity's transfer of the financial stock to transferor will not be treated as a disposition of stock under sec_1_884-2t if in the future financial is liquidated into transferor in a liquidation under sec_332 such liquidation of financial will be treated as a disposition for purposes of sec_1_884-2t notwithstanding sec_1 2t d ii transferor's sale of financial stock is a disposition for purposes of sec_1_884-2t and transferor must treat an appropriate amount as a dividend_equivalent_amount in accordance with sec_1_884-2t plr-111731-17 the irs supplemented this ruling on date adding in part a sentence to the end of ruling stating this ruling is in lieu of and replaces ruling of the ruling addressing the formation of financial for transfers occurring after fsub1's transfer of the financial stock to transferor d acquisition of entity y assets in year disregarded_entity acquired all the assets of entity y pursuant to a restructuring involving the assets acquired from entity y transferor through disregarded_entity formed holdco us and transferred to holdco us the assets acquired from entity y and all of the stock of financial in exchange solely for stock of holdco us the entity y acquisition as a result of the entity y acquisition holdco us became the new common parent of the holdco us group in connection with the entity y acquisition on date the irs issued a private_letter_ruling stating in part the following pursuant to sec_1_884-2t the transfer by disregarded_entity of the stock of financial to holdco us pursuant to the entity y acquisition will not be treated as a disposition of the financial stock under sec_1_884-2t financial's earnings_and_profits will be reduced by an amount equal to the earnings_and_profits allocated to holdco us in accordance with representations made in this ruling letter the statement filed pursuant to the representations made in this ruling letter is in lieu of and replaces the statement filed pursuant to ruling of the ruling addressing the split-off of transferor for dispositions occurring after the date of the entity y acquisition iii proposed transactions plr-111731-17 a further restructuring of the assets acquired from entity y is contemplated that will include a recapitalization of the shares of holdco us in a transaction that is intended to qualify as a reorganization under sec_368 the recapitalization and the merger of entity y with and into a disregarded subsidiary of holdco us in a transaction that is intended to qualify as a reorganization under sec_368 the merger the recapitalization and the merger will involve the following steps the limited_liability agreement of holdco us will be amended to authorize holdco us to issue class i class ii-a and class ii-b shares in this regard it is contemplated that a the class i shares will have terms that are consistent with the terms of the existing shares of holdco us owned by disregarded_entity and correspondingly transferor the existing holdco us shares b the class ii-a shares will have terms that are consistent with the terms of the existing class a shares of entity y owned by holdco us and c the class ii-b shares will have terms that are consistent with the terms of the existing class b shares of entity y owned by members of the senior management of entity y holdco us will form a new wholly owned disregarded subsidiary merger sub with a single class of shares and entity y will merge with and into merger sub with merger sub surviving as part of this transaction ie the merger each vested class b share of entity y will be converted into and become the right to receive a class ii-b share of holdco us and a cash payment from holdco us of approximately dollar_figure-- following the completion of the merger disregarded_entity and correspondingly transferor will exchange the existing holdco us shares for class i and class ii-a shares of holdco us and in conjunction with this exchange ie the recapitalization the existing holdco us shares will be canceled at the conclusion of these transactions it is anticipated that the class i and class ii-a shares of holdco us owned by disregarded_entity and correspondingly transferor will represent approximately a percent more than percent of the voting plr-111731-17 power and value of holdco us's outstanding shares and the class ii-b shares of holdco us owned by members of the senior management of entity y will represent approximately b percent of the voting power and value of holdco us's outstanding shares iv representations transferor has made the following representations in connection with the proposed transaction in connection with the entity y acquisition a transferor filed a year federal_income_tax return within days of the date of the letter_ruling issued date and attached a statement to that return agreeing that it will treat a disposition of part or all of the shares or securities of holdco us or a successor-in-interest or part or all of the interests in disregarded_entity or a successor-in-interest as a disposition for purposes of sec_1_884-2t and b holdco us filed an amended year federal_income_tax return within days of the date of that letter_ruling and attached to that return a statement described in sec_1_884-2t agreeing to increase its earnings_and_profits by an amount equal to the earnings_and_profits previously allocated to financial pursuant to prior elections made with respect to financial under sec_1_884-2t as if they had been allocated from transferor to holdco us pursuant to an election under sec_1_884-2t the recapitalization will qualify as a reorganization under sec_368 as a consequence the exchange by disregarded_entity and correspondingly transferor of the existing holdco us shares for class i and class ii-a shares of holdco us will qualify for nonrecognition_of_gain_or_loss under sec_354 the total fair_market_value of the class i and class ii-a shares of holdco us to be received by disregarded_entity and correspondingly transferor in the recapitalization will be approximately equal to the total fair_market_value of the existing holdco us shares immediately before that transaction the aggregate basis of the class i and class ii-a shares of holdco us to be received by disregarded_entity and correspondingly transferor in the plr-111731-17 recapitalization will be equal to the aggregate basis of the existing holdco us shares immediately before that transaction there are no dividend arrearages on the existing holdco us shares aside from the exchange by disregarded_entity and correspondingly transferor of the existing holdco us shares for class i and class ii-a shares of holdco us no cash or other_property will be exchanged in the recapitalization transferor will file an amendment to the statement described in representation a in accordance with the provisions of sec_1 2t d i and iv providing that it will treat a disposition of part or all of the class i shares the class ii-a shares or any securities of holdco us or a successor-in-interest that it owns through disregarded_entity or part or all of the interests in disregarded_entity or a successor-in-interest as a disposition for purposes of sec_1_884-2t v rulings based solely on the information submitted and on the representations set forth above we rule as follows pursuant to sec_1_884-2t the recapitalization will not constitute a disposition of the shares of holdco us by transferor for purposes of sec_1_884-2t transferor is not required to treat as a dividend_equivalent_amount for purposes of sec_884 any portion of the amount_realized on account of the recapitalization no opinion is expressed about the tax treatment of any of the transactions described herein including the recapitalization and the merger under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transactions not specifically covered by the above rulings in particular no opinion is expressed as to whether the recapitalization qualifies under sec_368 or the merger qualifies under sec_368 plr-111731-17 lastly no opinion is expressed as to the tax treatment of the dollar_figure-------per share payment issued from holdco us to the class ii-b shareholders this ruling letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent each affected taxpayer must attach a copy of this letter to the taxpayer's federal_income_tax return for the tax_year in which the transaction covered by this ruling letter is consummated in accordance with the power_of_attorney on file with this office a copy of this ruling letter is being sent to your authorized representative a copy of this ruling should be attached to any federal_income_tax return to which it is relevant sincerely __________________________ rosy l lor senior technical reviewer branch associate chief_counsel international enclosure copy for purposes


t c memo united_states tax_court jerry silver petitioner v commissioner of internal revenue respondent docket no filed date jerry silver pro_se alan r peregoy for respondent memorandum findings_of_fact and opinion wright judge respondent determined a deficiency in petitioner’s federal_income_tax for taxable_year in the amount of dollar_figure respondent further determined that petitioner is liable for additions to tax pursuant to sec_6651 a and 1unless otherwise indicated all section references are to continued a in the amounts of dollar_figure and dollar_figure respectively after concessions the sole issue for decision is whether a distribution to petitioner from a profit-sharing retirement_plan is fully includable in petitioner’s income for the taxable_year at issue we hold that such distribution is fully includable in petitioner’s income for the taxable_year at issue findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein petitioner resided in baltimore maryland at the time the petition was filed in this case petitioner failed to file a timely federal_income_tax return for taxable_year respondent issued a notice_of_deficiency to petitioner dated date on date petitioner filed his federal_income_tax return at sometime during petitioner received a distribution in the amount of dollar_figure from a profit-sharing retirement_plan plan maintained by his former employer jacob goldfinger goldfinger the plan was a qualified_plan under sec_401 petitioner left the employ of goldfinger in date petitioner testified that he was unaware of the plan’s existence while he was employed by goldfinger at no time prior to the continued the internal_revenue_code in effect during the year at issue and all rule references are to the tax_court rules_of_practice and procedure distribution did petitioner knowingly contribute either directly or indirectly to the plan petitioner deposited the check representing the distribution into his personal bank account on date on date petitioner mailed a check drawn against his personal account to goldfinger in the amount of dollar_figure goldfinger was the payee of this check and he subsequently deposited it into his personal bank account on his return for petitioner reported the dollar_figure as a nontaxable ira distribution respondent determined that the entire amount of the distribution constituted taxable_income to petitioner opinion as a general_rule respondent’s determinations are presumed correct and petitioner has the burden of proving otherwise rule a there is no dispute as to whether petitioner received the dollar_figure distribution petitioner contends however that the dollar_figure check constitutes his investment in the plan respondent on the other hand contends that petitioner sent the check to goldfinger pursuant to an agreement wholly unrelated to the plan and that under sec_72 petitioner has no investment in the plan we agree with respondent sec_402 provides that amounts actually distributed from a qualified_plan are taxable to the distributee under sec_72 in the year of distribution sec_402 the plan in the instant case is a qualified_plan sec_401 sec_72 relates to the taxation of annuities and certain proceeds of endowment and life_insurance contracts sec_72 is applicable to amounts received under an annuity_contract but which are not received as an annuity the distribution received by petitioner falls into this category sec_1_72-2 income_tax regs under the general_rule amounts received before the annuity_starting_date are included in income to the extent such amounts are allocable to income_on_the_contract and not included in income to the extent such amounts are allocable to the investment_in_the_contract sec_72 sec_72 defines the annuity_starting_date as the first day of the first period for which an amount is received as an annuity under the contract the record indicates that the distribution petitioner received in date was the first and only distribution that petitioner received from the plan the record also indicates that the distribution at issue was not received as an annuity but rather as a lump-sum_distribution of the balance of petitioner’s account the record further indicates that the distribution occurred prior to the annuity_starting_date thus sec_72 applies under sec_72 amounts which are allocable to the investment_in_the_contract will not be included in income sec_72 defines investment_in_the_contract as of any date as sec_72 investment_in_the_contract -- a the aggregate amount of premiums or other consideration paid for the contract before such date minus b the aggregate amount received under the contract before such date to the extent that such amount was excludable from gross_income under this subtitle or prior income_tax laws emphasis added the date referred to in this provision is the date of the distribution sec_72 petitioner’s testimony at trial concerning why he issued a check to goldfinger in the amount of dollar_figure was confusing his credibility was also questionable in any event it is quite clear that petitioner paid goldfinger after the date upon which the distribution occurred petitioner seems to argue that his ignorance of both the law and the plan’s existence should somehow operate to pardon his delinquency in contributing to the plan we cannot agree the mechanics of the internal_revenue_code do not permit such circumvention and we are without the power to effect a similar result accordingly as the statute is clear and as there is no evidence that petitioner contributed any amount to the plan prior to the distribution we find that petitioner did not have an investment_in_the_contract as defined in sec_72 therefore respondent’s determination as to this issue is sustained to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc psi 6-plr-166142-01 date date re request for private_letter_ruling regarding computer_software legend p taxpayer k l m year year dollar_figurea dollar_figureb dollar_figurec dollar_figured dollar_figuree dollar_figuref dollar_figureg dollar_figureh dollar_figurei plr-166142-01 dollar_figurej dollar_figurek dollar_figurem dear this letter responds to a letter dated date submitted on behalf of taxpayer requesting a ruling concerning the income_tax consequences on the purchase development and implementation of a customized computer_software database additional material was submitted on may and date facts taxpayer represents that the facts relating to its request are as follows taxpayer is a wholly owned subsidiary of p a foreign_corporation taxpayer is engaged in the business of marketing and distributing products related to the music industry taxpayer purchases its most significant product line from p and is a distributor of other products manufactured by third parties taxpayer is an accrual basis taxpayer with a march year end in year taxpayer acquired enterprise resource planning erp software from k and acquired computer hardware erp software is a shell that integrates different software modules for financial_accounting inventory control production sales and distribution and human resources usually consultants are hired to implement the erp package by customizing the software programs and routines within the shell to fit a taxpayer’s specific needs this implementation is accomplished by using internal erp templates and pre-set programs and by writing additional machine readable code the erp software is not usable until the implementation is completed taxpayer entered into a consulting agreement with k for additional software development and employee training for the newly developed software in addition taxpayer entered into an agreement with l to act as project manager for the implementation and design modifications of the erp system in year taxpayer entered into an agreement with m for additional training software design enhancements and technical issue resolution taxpayer’s expenditures_for the software project during year and year were as follows computer hardware erp software fee and sales_tax functional consulting costs paid to k maintenance prepaid outside training functional consulting costs paid to l dollar_figureb dollar_figurec dollar_figured dollar_figuree dollar_figuref dollar_figureg plr-166142-01 technical consulting costs model design software write machine readable code option implement templates miscellaneous project total dollar_figureh dollar_figurei dollar_figurej dollar_figurek dollar_figurem the functional consulting costs represent training troubleshooting maintenance and running reports during the training such costs did not include any reorganization expenditures the technical consulting costs represent the modeling and design of additional software the writing of machine readable code and the option selection and implementation of existing imbedded erp templates the original budget for the software and the consulting combined from k was dollar_figurea including the erp software fee the actual cost excluding the computer hardware was almost times higher than anticipated pursuant to the consulting contracts taxpayer was responsible for the costs of completing the project including correcting at its own expense any problems relating to the software systems operability or functionality the contracts provided no guarantees or warranties of the operability of the systems whose development the consultants were aiding the consultants were to be paid regardless of their success or failure for example the consulting services agreement with k specifically provides in part no specific result from provision of the services is assured or guaranteed k disclaims all other warranties express or implied including but not limited to the warranties of merchantability and fitness for a particular purpose rulings requested taxpayer requests rulings that the cost of the acquired erp software is amortized ratably over a month period upon the system being placed_in_service pursuant to sec_167 of the internal_revenue_code employee training costs are deductible as current expenses pursuant to revrul_96_62 1996_2_cb_9 and sec_162 the self-developed software costs are treated as current expenses not capital expenditures pursuant to sec_5 of revproc_2000_50 2000_2_cb_601 the separately_stated cost of computer hardware is depreciated over a 5-year recovery_period pursuant to sec_168 plr-166142-01 law and analysis sec_162 provides in part that there shall be allowed as a deduction all ordinary and necessary expenses paid or occurred during the taxable_year in carrying on any trade_or_business however sec_263 provides in part that no deduction shall be allowed for any amount_paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate in addition sec_1_263_a_-1 of the income_tax regulations indicates that in general capital expenditures include amounts paid_or_incurred to add value or substantially prolong the useful_life of property owned by the taxpayer such as plant or equipment or to adapt property to a new or different use however amounts paid_or_incurred for incidental repairs and maintenance of property are not capital expenditures sec_167 provides in part that there shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion wear_and_tear or obsolescence of property used in a trade_or_business if a depreciation deduction is allowable under sec_167 for computer_software sec_167 provides that such depreciation deduction shall be computed by using the straight_line method and a useful_life of months sec_1_167_a_-14 provides that the amount of the deduction for computer_software described in sec_167 and sec_1_197-2 is determined by amortizing the cost or other basis of the computer_software using the straight_line method described in sec_1_167_b_-1 except that its salvage_value is treated as zero and an amortization period of months beginning on the first day of the month that the computer_software is placed_in_service for purposes of sec_167 the term computer_software is defined in sec_167 as having the meaning given to such term by sec_197 except that such term shall not include any computer_software that is an amortizable sec_197 intangible except as otherwise provided in sec_197 sec_197 defines the term amortizable sec_197 intangible as meaning in general any sec_197 intangible that is acquired by the taxpayer after date and that is held in connection with the conduct_of_a_trade_or_business or an activity described in sec_212 sec_197 provides in part that the term sec_197 intangible shall not include computer_software that is not acquired in a transaction or series of related transactions involving the acquisition of assets constituting a trade_or_business or substantial portion thereof sec_197 provides that the term computer_software means any program designed to cause a computer to perform a desired function such term shall not include any data base or similar item unless the data base or item is in the public plr-166142-01 domain and is incidental to the operation of otherwise qualifying computer_software see also sec_1_197-2 revproc_2000_50 provides guidelines on the treatment of the costs of computer_software sec_2 of this revenue_procedure defines computer_software as any program or routine that is any sequence of machine readable code that is designed to cause a computer to perform a desired function or set of functions and the documentation required to describe and maintain that program or routine section dollar_figure of revproc_2000_50 provides in part that the cost of developing computer_software in many respects so closely resemble the kind of research_and_experimental_expenditures that fall within the purview of sec_174 as to warrant similar accounting treatment accordingly the internal_revenue_service will not disturb a taxpayer’s treatment of costs paid_or_incurred in developing software for any particular project where all of the costs properly attributable to the development of software by the taxpayer are consistently treated as current expenses and deducted in full in accordance with rules similar to those applicable under sec_174 section of revproc_2000_50 provides that with respect to the costs of acquired computer_software the service will not disturb the taxpayer’s treatment of costs that are separately_stated if the costs are consistently treated as capital expenditures_for an intangible asset the cost of which is to be recovered by amortization deductions ratably over a period of months beginning with the month the software is placed_in_service in accordance with the rules under sec_167 see sec_1 a - b the depreciation deduction provided by sec_167 for tangible_property placed_in_service after generally is determined under sec_168 this section prescribes two methods_of_accounting for determining depreciation allowances the general depreciation system in sec_168 and the alternative_depreciation_system in sec_168 under either depreciation system the depreciation deduction is computed by using a prescribed depreciation method recovery_period and convention for purposes of either sec_168 or sec_168 the applicable_recovery_period is determined by reference to class_life or by statute sec_168 provides that any qualified_technological_equipment is 5-year_property pursuant to sec_168 year property has a recovery_period of years for purposes of the general depreciation system in sec_168 for purposes of the alternative_depreciation_system in sec_168 sec_168 provides that in the case of any qualified_technological_equipment the recovery_period shall be years the term qualified_technological_equipment is defined in sec_168 as meaning in part any computer_or_peripheral_equipment sec_168 defines the term computer as meaning a programmable electronically activated device that i is capable of accepting information applying prescribed processes to the information plr-166142-01 and supplying the results of these processes with or without human intervention and ii consists of a central processing unit containing extensive storage logic arithmetic and control capabilities sec_168 defines the term related_peripheral_equipment as meaning any auxiliary machine whether on-line or off-line that is designed to be placed under the control of the central processing unit of the computer however pursuant to sec_168 the term computer_or_peripheral_equipment shall not include any equipment that is an integral part of other_property that is not a computer the computer_software expenditures addressed herein were not incurred in a transaction or series of related transactions involving the acquisition of assets constituting a trade_or_business or substantial portion thereof therefore in this case the computer_software is not subject_to amortization under sec_197 the cost of the purchased erp software along with the sales_tax on the software and the cost of the computer hardware are capital expenditures pursuant to sec_263 the amortization of the purchased software is computed by using the straight_line method over months beginning with the month the software is placed_in_service by taxpayer pursuant to sec_167 and sec_1_167_a_-14 see also section of revproc_2000_50 for purposes of sec_168 the computer hardware is qualified_technological_equipment consequently the depreciation of the computer hardware is determined under sec_168 or sec_168 by using a 5-year recovery_period beginning in the year the computer hardware is placed_in_service by taxpayer the functional consulting costs paid to k and l and the separately incurred maintenance and training expenses represent maintenance and training related expenses of taxpayer’s business such consulting costs did not include any reorganization expenditures in revrul_96_62 the service reiterated that amounts paid_or_incurred for training including the costs of trainers and routine updates of training materials are generally deductible as business_expenses under sec_162 even though such costs may have some future benefit however the pre-paid training expenses are deductible as a business_expense in the year in which incurred under the requirements of sec_461 revproc_2000_50 provides guidelines on the treatment of the costs of computer_software for purposes of revproc_2000_50 sec_2 of this revenue_procedure defines the term computer_software as meaning any program or routine that is any sequence of machine readable code that is designed to cause a computer to perform a desired function or set of functions and the documentation required to describe and maintain that program or routine sec_5 of revproc_2000_50 provides that the costs properly attributable to the development of computer_software by the taxpayer are allowed to be treated as current expenses and deducted in full section of the revenue_procedure provides that the costs of purchased plr-166142-01 computer_software are to be treated as capital expenditures_for an intangible asset the cost of which is to be recovered by amortization deductions ratably over a period of months beginning with the month the software is placed_in_service the technical consulting costs incurred by taxpayer include three different activities the modeling and design of additional software the writing of machine readable code and option selection and implementation of existing imbedded erp software templates in order to properly prepare for either writing additional machine readable code or selecting options and implementing imbedded software templates the additional needs of the software project are identified and modeled therefore the costs for the modeling and design of additional software dollar_figureh are to be allocated to the activities of writing machine readable code and the option selection and implementation of existing imbedded erp software templates the determination of whether taxpayer’s expenditures_for technical consulting costs are software development costs under sec_5 of revproc_2000_50 or costs associated with purchased software under section of revproc_2000_50 depends on the nature of the work performed by the consultants and on which party was responsible for developing the new software in this case taxpayer was solely responsible for adapting and customizing the purchased erp software under the consulting contracts the consultants performed the technical activities for taxpayer under a time-plus expense open-end job order pursuant to the consulting contracts taxpayer was responsible for the costs of completing the project including correcting at its own expense any problems relating to the software systems operability or functionality the contracts provided no guarantees or warranties of the operability of the systems by the consultants the consultants were to be paid regardless of their success or failure these facts are material representations if taxpayer is the sole responsible_party for the creation and performance of the software project covered by the consulting contracts and taxpayer’s technical consulting costs meet the definition of computer_software in revproc_2000_50 such costs will constitute taxpayer developed software under section dollar_figure of revproc_2000_50 consequently the portion of the technical consulting costs incurred by taxpayer for the writing of machine readable code as well as the allocable portion of the costs for the modeling and design of additional software activity meet the definition of computer_software in revproc_2000_50 accordingly such costs are currently deductible under sec_5 of revproc_2000_50 on the other hand the portion of the technical consulting costs incurred by taxpayer for the option selection and implementation of imbedded templates including any allocable portion of the costs for the modeling and design of additional software activity is a part of taxpayer specific installation modification costs of the erp software necessary to make it compatible with taxpayer’s business the erp software cannot be operated without such option selection and implementation these costs do not meet the machine readable code requirements of revproc_2000_50 therefore such plr-166142-01 costs are to be capitalized as part of the underlying purchased erp software and amortized ratably over a month period beginning with the later of the month the purchased software is placed_in_service by taxpayer or the month the template work is available for use by taxpayer lastly as the category of project costs identified by taxpayer as miscellaneous is undefined and has not been identified by taxpayer as being for the writing of machine readable code or for training such costs are also capitalized as a part of the underlying purchased erp software and amortized over the same month period as discussed in the preceding paragraph conclusions accordingly based solely on the representations submitted by taxpayer and the applicable law discussed above we rule as follows the cost of the purchased erp software including the sales_tax dollar_figurec is to be capitalized under sec_263 and amortized ratably over months beginning with the month the software is placed_in_service by taxpayer the employee training and related costs dollar_figured dollar_figuree dollar_figuref dollar_figureg are deductible as current expenses under sec_162 however the pre-paid training expenses are deductible as a current_expense in the year in which incurred under the requirements of sec_461 the separately_stated computer hardware cost dollar_figureb is to be capitalized under sec_263 and depreciated under sec_168 over a 5-year recovery_period if taxpayer is solely responsible for the creation and performance of the software project covered by the consulting contracts the costs of writing machine readable code software dollar_figurei and its allocable portion of the costs of modeling and design of additional software under taxpayer’s consulting contracts are self-developed computer_software and are allowed to be deductible as current expenses pursuant to sec_5 of revproc_2000_50 the costs of option selection and implementation of templates dollar_figurej and its allocable portion of the costs of modeling and design of additional software under taxpayer’s consulting contracts are installation modification costs that are to be capitalized and amortized as part of the purchased erp software ratably over months beginning with the later of the month the purchased software is placed_in_service by taxpayer or the month the template work is available for use by taxpayer the undefined miscellaneous costs under taxpayer’s consulting contracts are also capitalized as a part of the underlying purchased erp software and amortized over the same month period described in the preceding sentence plr-166142-01 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of the transaction described above under any other provision of the code or regulations specifically we express no opinion on whether sec_174 or the regulations thereunder apply to taxpayer’s expenditures at issue this ruling is directed only to the taxpayer on whose behalf it was requested sec_6110 provides that it may not be cited or used as precedent in accordance with the power_of_attorney we are sending a copy of this letter_ruling to taxpayer’s authorized representatives we also are sending a copy of the letter_ruling to the appropriate industry director lmsb sincerely yours kathleen reed senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date number release date uil the honorable david scott member u s house of representative sec_173 north main street jonesboro ga dear congressman scott conex-107858-11 i am responding to your letter dated date on behalf of your constituent ------------------------------- --------------- asked about the homebuyer tax_credit for long-time residents who are military personnel and who do not satisfy the 5-consecutive-year home ownership requirement she and her husband purchased a new home in ---------- in ---------------- she previously resided in homes that she owned in ------------------------- ----------------------------- and ---------------------------- eligible first-time homebuyers and long-time residents who purchase a principal_residence can take a refundable tax_credit sec_36 of the internal_revenue_code the code in general the individual had to purchase the principal_residence after date and before date to qualify for the credit sec_36 of the code long-time residents qualify for a credit of up to dollar_figure only if on the purchase date of the new residence the individual and the individual's spouse if married has owned and used the same home as a principal_residence for any 5-consecutive-year period during the 8-year period ending on the purchase date of the new home sec_36 of the code congress did not provide any exceptions to the 5-consecutive-year ownership requirement including for members of the military in addition the statute does not grant the internal_revenue_service the authority to waive this requirement any changes to this rule would require legislative action by congress conex-107858-11 i hope this information is helpful if you have any questions please contact me or ----------------------------------- at -------------------- sincerely michael j montemurro chief branch office of associate chief_counsel income_tax accounting


t c summary opinion united_states tax_court kelly butler petitioner v commissioner of internal revenue respondent docket no 29230-13s l filed date kelly butler pro_se jeremy d cameron peter t mccary and a gary begun for respondent summary opinion leyden special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not 1all section references are to the internal_revenue_code code as continued reviewable by any other court and this opinion shall not be treated as precedent for any other case the internal_revenue_service irs office of appeals appeals_office issued petitioner a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination dated date and a supplemental notice_of_determination concerning collection action s under sec_6320 and or supplemental notice_of_determination dated date the notice_of_determination and the supplemental notice_of_determination sustained a proposed levy with respect to petitioner’s unpaid federal_income_tax liability petitioner invoked the court’s jurisdiction by timely filing a petition for review of the determination pursuant to sec_6330 the issues for decision are whether petitioner may amend her originally filed continued amended in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated 2the court uses the term irs to refer to administrative actions taken outside of these proceedings the court uses the term respondent to refer to the commissioner of internal revenue who is the head of the irs and is respondent in this case and to refer to actions taken in connection with this case 3on date the court ordered that correspondence received date from petitioner be filed as of that date as the petition in this case and that the petition filed date be filed as the amended petition in this case federal individual_income_tax_return original tax_return to claim the filing_status of married_filing_jointly the amount of social_security disability benefits benefits petitioner received from the social_security administration ssa during the portion of the benefits petitioner received that is taxable for and whether the appeals_office abused its discretion in sustaining the proposed levy for reasons stated herein the court holds that petitioner may not amend her original tax_return to claim the filing_status of married_filing_jointly during petitioner received dollar_figure of benefits from the ssa hereinafter total benefits dollar_figure of the total benefits is taxable to petitioner for hereinafter taxable benefits and the appeals_office did not abuse its discretion in sustaining the proposed levy background the parties submitted this case fully stipulated pursuant to rule petitioner resided in florida when she timely filed her petition i benefits paid to petitioner in petitioner received a form ssa-1099 social_security_benefit statement from the ssa that reported total benefits of dollar_figure as follows benefit amount_paid by check or direct deposit medicare part b premiums deducted from benefits attorney’s fees dollar_figure dollar_figure dollar_figure the total benefits included the following amounts paid in for through dollar_figure for dollar_figure for dollar_figure for and dollar_figure for the benefits directly deposited into petitioner’s bank account consisted of a lump-sum payment of dollar_figure deposited on date and payments totaling dollar_figure deposited approximately monthly from mid-july through date by letter dated date the ssa informed petitioner that she would soon receive a check for dollar_figure because we are sending you money which we did not have to use to pay an attorney sic fee this amount was part of the dollar_figure the ssa reported as attorney’s fees in the form ssa-1099 the ssa reported in a form ssa-1099 payments to petitioner totaling dollar_figure in but not the dollar_figure for the unpaid attorney’s fees 4the record does not show what portions if any of the amounts attributable to through were allocated to medicare part b premiums or attorney’s fees ii petitioner’s original tax_return petitioner assisted by a commercial tax_return preparation service filed her original tax_return late on date in that tax_return petitioner claimed the filing_status of married_filing_separately and entered the name and social_security_number of her spouse james butler petitioner reported wages of dollar_figure total benefits of dollar_figure on line 20a and taxable benefits of dollar_figure on line 20b petitioner claimed a standard_deduction of dollar_figure and reported a total_tax of dollar_figure petitioner claimed a making_work_pay_credit of dollar_figure and reported an amount owed of dollar_figure petitioner did not submit any payment with the original tax_return on date the irs notified petitioner it had disallowed the claimed making_work_pay_credit as a math error the record does not indicate whether petitioner challenged the disallowance on the same day the irs assessed the total_tax of dollar_figure shown in the tax_return an addition_to_tax under sec_6651 for failure to timely file the tax_return an addition_to_tax under sec_5during petitioner was married to mr butler 6petitioner calculated the amount of taxable benefits for on the basis of a filing_status of married_filing_separately and having lived apart from mr butler for all of see sec_86 c a a respondent did not challenge this calculation or that petitioner had lived apart from mr butler for all of a for failure to timely pay the tax shown on the tax_return and interest the irs mailed a notice_and_demand for payment letter to petitioner at her last_known_address petitioner did not pay the balance due iii mr butler’ sec_2010 tax_return mr butler filed a federal individual_income_tax_return and also claimed the filing_status of married_filing_separately the irs subsequently issued a notice_of_deficiency to mr butler for in response to which he filed a petition with the court seeking redetermination of the deficiency he settled his case for by stipulated decision butler v commissioner t c dkt no 7993-13s date iv request for collection_due_process_hearing the irs mailed petitioner at her last_known_address a notice_of_intent_to_levy and notice of your right to a hearing on date with respect to the unpaid tax_liability for petitioner timely filed a form request for a collection_due_process or equivalent_hearing petitioner checked the boxes for filed federal_tax_lien and proposed levy or actual levy as the bases for the collection_due_process cdp hearing request at the time petitioner filed the form the irs had not filed a notice_of_federal_tax_lien for the unpaid tax_liability for in the form petitioner requested an offer-in-compromise as a collection alternative and a withdrawal of lien asserting no tax due petitioner also wrote the following in the other section of the form right to file jointly disability s s pay reported is w rong by dollar_figure big_number for year mr butler signed the form as petitioner’s representative by letter dated date the irs informed petitioner that it had received the form and was forwarding it to the appeals_office by letter dated date the appeals_office informed petitioner it had received her request for a cdp hearing the appeals_office settlement officer so assigned to petitioner’s cdp hearing request sent petitioner a letter dated date to schedule a telephone cdp hearing for date the so informed petitioner that if the date and time were not convenient or if she wanted a face-to-face conference at the appeals_office closest to her she should contact the so by date 7petitioner checked the box to request an equivalent cdp hearing but the record shows and the parties do not dispute that she timely requested a cdp hearing the so also informed petitioner in that letter that she could not dispute the underlying tax_liability because it was the result of a tax_return she had filed voluntarily she could file an amended tax_return for consideration mr butler had to complete and file a form_2848 power_of_attorney and declaration of representative to represent her before the irs and in order for the so to consider the requested collection alternative she had to submit by date copies of her filed and tax returns a form 433-a collection information statement for wage earners and self-employed individuals and a form_656 offer_in_compromise v initial cdp hearing petitioner did not contact the so before the scheduled cdp hearing submit the requested information or participate in the scheduled cdp hearing the so sent petitioner a letter dated date because petitioner had not called at the time of the scheduled cdp hearing or submitted the requested information the so gave petitioner until date to submit the requested information and informed her that a determination would otherwise be made by reviewing the administrative file the so referred to this letter as the last chance letter on date petitioner and mr butler called and spoke with the so and asserted that petitioner was not liable for the total_tax reported in the original tax_return the so explained that the underlying tax_liability was the result of a tax_return petitioner had filed voluntarily and on which she had reported her income petitioner and mr butler notified the so that they had filed an amended federal_income_tax return claiming the filing_status of married_filing_jointly implied that the amended tax_return reported no tax due and stated that the irs was going to accept the amended tax_return once it was signed the so informed petitioner and mr butler that the amended tax_return would not be processed by the irs because mr butler had filed an individual federal_income_tax return for received a notice_of_deficiency for and filed a petition with the court seeking redetermination of the deficiency as to his tax_return the so informed petitioner that she could not challenge the underlying tax_liability the so also informed petitioner and mr butler that petitioner was not eligible for an installment_agreement or an offer-in-compromise because she had not filed tax returns for and petitioner requested an extension from the date deadline in the last chance letter to file the tax returns for and and an offer-in-compromise the so sent petitioner a letter dated date to extend the deadline to date for her to submit the tax returns for and and an offer-in-compromise petitioner did not submit the requested tax returns or information by the extended deadline the so verified that the legal and administrative requirements were met and on date issued the notice_of_determination that sustained the proposed levy with respect to petitioner’s unpaid tax_liability for vi order remanding to appeals_office this case was set for the court’s trial session on date in tampa florida petitioner was not present at calendar call and instead mr butler appeared on her behalf to which respondent objected at the trial session respondent made an oral motion for entry of decision the court noted that petitioner had been erroneously informed by the appeals_office that she could not challenge the underlying tax_liability even though there was a dispute about the amount of her benefits that was subject_to tax and that perhaps this erroneous information had caused her to not submit the requested financial information in support of a collection alternative the court asked whether respondent had considered waiving the additions to tax pursuant to internal_revenue_manual irm pt date on date the court ordered respondent to report whether petitioner qualified for the first-time abate administrative waiver for the late-filing and late-payment additions to tax and ordered petitioner to file an objection if any to respondent’s oral motion for entry of decision on date respondent reported that petitioner did not meet the first-time abate administrative waiver requirements for the abatement of the late- filing and late-payment additions to tax because petitioner and mr butler had been assessed an accuracy-related_penalty for in a significant amount petitioner did not file a response to respondent’s oral motion for entry of decision on date the court by order denied respondent’s oral motion for entry of decision and remanded the case to the appeals_office for the purpose of affording petitioner a supplemental cdp hearing under sec_6330 at which she could challenge her underlying tax_liability for and or present an alternative to the proposed levy in that order the court stated 8this section of the internal_revenue_manual irm hereinafter referred to as the first-time abate administrative waiver states that it may be appropriate to abate additions to tax for failure to timely file and failure to timely pay when the taxpayer has no prior penalties for the preceding years and has filed or filed a valid extension for all currently required returns and paid or arranged to pay any_tax due irm pt date so smith informed petitioner that she could not challenge her underlying liability as part of the administrative review process because she self-reported the tax due on her return on date the appeals_office issued to petitioner a notice_of_determination for stating that she was barred from challenging the existence or amount of her underlying liability and that respondent would proceed with the proposed levy there is no indication in the administrative record that petitioner was issued a notice_of_deficiency for or that she otherwise had a prior opportunity to dispute the amount of her tax_liability for that year on this record we conclude that the appeals_office erred in denying petitioner the opportunity to challenge her underlying liability during the administrative review process vii supplemental cdp hearing and supplemental notice_of_determination the so sent petitioner a letter dated date to schedule a supplemental telephone cdp hearing for date in that letter the so informed petitioner that during that supplemental cdp hearing petitioner could raise collection alternatives to the proposed levy challenges to the appropriateness of the collection action spousal defenses if applicable and challenges to the underlying tax_liability the so informed petitioner that if she wanted to dispute the total_tax reported in her original tax_return she would have to file a form 1040x amended u s individual_income_tax_return for by date the so confirmed that at that time petitioner was in filing compliance with all required tax returns but the so informed petitioner that she had to complete a form 433-a and form_656 by date if she wanted to propose an offer-in- compromise as a collection alternative on date petitioner faxed to the so a copy of a form 1040x that she had filed with the irs petitioner attached to the form 1040x a proposed form_1040 u s individual_income_tax_return proposed tax_return that reported total benefits of dollar_figure on line 20a and taxable benefits of dollar_figure on line 20b both less than the total benefits and taxable benefits petitioner had reported in her original tax returndollar_figure the proposed tax_return reported an amount owed of dollar_figure also less than the total_tax petitioner had reported in her original tax_return petitioner included a copy of a check dated date for dollar_figure that she had submitted to the irs with the form 1040x the copy of the check was superimposed over the top of the second page of the copy of the form 1040x and obstructed a portion of 9the form 1040x bears the signature of mr butler with a notation for kelly butler 10the record does not show and petitioner has not explained how she calculated the asserted taxable benefits in the proposed tax_return petitioner also reported no wages in the proposed tax_return but reported taxable ira_distributions of dollar_figure the form 1040x and the proposed tax_return were prepared by the same commercial tax_return preparation service that had prepared petitioner’s original tax_return the amended tax_return in part iii explanation of changes of the form 1040x petitioner wrote only paid_by ss in the so held the supplemental cdp hearing by telephone on date with petitioner and mr butler the so confirmed that the irs had received petitioner’ sec_2010 form 1040x because the payment had posted with a designated code indicating that the payment had arrived with an amended tax_return however the irs had not yet reviewed the form 1040x the so notified petitioner that the underlying tax_liability could not be resolved until the irs reviewed the form 1040x the so requested an unobstructed copy of the form 1040x from petitioner to forward to the irs to expedite its processing petitioner submitted an unsigned unobstructed copy of the second page of the form 1040x to the so the so forwarded the form 1040x to the irs for processing on date and again on date the irs notified petitioner in a letter dated date that the form 1040x could not be processed because the income petitioner had reported did not match the income reported by the ssa to the irs the letter included irs tax_return transcripts and wage and income transcripts for for petitioner to review the so also notified petitioner in a letter dated date that the form 1040x had not been accepted and gave her days to submit a new form 1040x reporting the income the ssa reported she had received in in that letter the so also notified petitioner that she could enter into a collection alternative by contacting the so within days petitioner neither submitted a new form 1040x for nor contacted the so to discuss a collection alternative the appeals_office issued the supplemental notice_of_determination again sustaining the proposed levy the so determined that the amended tax_return that petitioner had submitted could not be accepted because it did not report all the income the ssa reported she had received and that petitioner had not shown that the total_tax as reported in her original tax_return was incorrect the so also rejected petitioner’s request for a collection alternative because petitioner had not provided a form 433-a or a form_656 as requested i jurisdiction and standard of review discussion sec_6331 authorizes the commissioner to levy upon property and property rights of a taxpayer liable for taxes who fails to pay those taxes within days after notice_and_demand for payment sec_6331 provides that the levy authorized by sec_6331 may be made with respect to any unpaid tax only after the commissioner has notified the person in writing of his intention to make the levy at least days before any levy action is begun sec_6330 elaborates on sec_6331 and provides that the written notice must inform the taxpayer of her right to request a cdp hearing sec_6330 sec_301_6330-1 proced admin regsdollar_figure if a cdp hearing is requested the hearing is to be conducted by the appeals_office sec_6330 at the hearing the so conducting it must verify that the requirements of any applicable law or administrative procedure have been met sec_6330 the taxpayer may raise at the cdp hearing any relevant issue relating to the unpaid tax or the proposed levy including appropriate spousal defenses challenges to the appropriateness of collection actions and offers of collection alternatives sec_6330 within days after the appeals_office issues a notice_of_determination the taxpayer may appeal the determination to the court sec_6330 11petitioner in the form requested a withdrawal of a federal_tax_lien however the record does not indicate that a federal_tax_lien was filed at the time petitioner filed the form petitioner did not raise the issue of withdrawal of a federal_tax_lien with the so or in her petition that issue is not properly before the court and is deemed conceded see rule b any issue not raised in the assignments of error shall be deemed to be conceded sec_301_6330-1 q a-f3 proced admin regs in seeking tax_court review of a notice_of_determination the taxpayer can only ask the court to consider an issue that was properly raised in the taxpayer’s cdp hearing in reviewing an irs administrative determination in a cdp case if the underlying tax_liability is properly in dispute the court reviews the determination regarding the underlying tax_liability de novo 114_tc_176 the court reviews all other determinations for abuse_of_discretion id pincite abuse_of_discretion exists when a determination is arbitrary capricious or without sound basis in fact or law see 125_tc_301 aff’d 469_f3d_27 1st cir ii underlying tax_liability the underlying tax_liability in this case consists of the total_tax petitioner reported in her original tax_return the addition_to_tax under sec_6651 for failure to timely file the addition_to_tax under sec_6651 for failure to timely pay and the interest see 115_tc_329 finding that the term underlying tax_liability includes any amount owed by a taxpayer pursuant to the tax laws including additions to tax and interest generally the court does not have authority to consider issues not raised before the appeals_office sec_301_6330-1 q a-f3 proced admin regs petitioner has consistently challenged the amount of total benefits she received from the ssa and the portion of the total benefits that is taxable to her for more specifically petitioner asserted in her petition and her amended petition that the total_tax she had reported in her original tax_return was wrong for two reasons she was entitled to file an amended tax_return to claim the filing_status of married_filing_jointly with her husband and the ssa incorrectly reported the amount of total benefits she received in and as a result the portion of the total benefits that is taxable to her for was less than she had reported petitioner however did not challenge the additions to tax under sec_6651 and or the interest in the form during the cdp hearings or in her petition and amended petition the additions to tax and interest therefore are not properly before this court see sec_301_6330-1 q a-f3 proced admin regs see also rule b any issue not raised in the assignments of error shall be deemed to be conceded a changing filing_status to married_filing_jointly petitioner argued that her tax_liability for would be reduced by her filing an amended tax_return claiming the filing_status of married_filing_jointly petitioner asserted in her amended petition that her total_tax for would have been reduced because she could have used a loss carryforward presumably attributable to mr butler if she was allowed to amend her tax_return to claim the filing_status of married_filing_jointly the court does not need to consider whether there are any losses that can be carried forward because petitioner is barred from amending her original tax_return to claim the filing_status of married_filing_jointly a married taxpayer may not file a federal tax_return claiming the filing_status of married_filing_jointly if after claiming the status of married_filing_separately in a separate tax_return either spouse has been sent a notice_of_deficiency and either spouse files a petition with the court with respect to the notice_of_deficiency sec_6013 both petitioner and mr butler claimed the filing_status of married_filing_separately in their respective tax returns for mr butler received a notice_of_deficiency with respect to hi sec_2010 tax_return and filed a petition with the court with regard to his tax_return see butler v commissioner t c dkt no 7993-13s date accordingly petitioner may not amend her original tax_return to claim the filing_status of married_filing_jointly b total benefits petitioner disputes the amount of total benefits she received from the ssa in and in turn the portion of the total benefits that is taxable to her for gross_income includes all income from whatever source derived unless excludable by a specific code provision sec_61 benefits are included in gross_income sec_86 social_security disability benefits are treated in the same matter as other social_security_benefits see sec_86 thomas v commissioner tcmemo_2001_120 tax ct memo lexi sec_148 at benefits generally are included in gross_income for the year in which they are received even if the benefits are attributable to prior yearsdollar_figure sec_86 sec_451 the ssa reported that petitioner received total benefits of dollar_figure in petitioner disagrees petitioner claims that she received only dollar_figure from ssa the amount the ssa directly deposited into her bank account during and that she did not receive the amount reported as attorney’s fees in petitioner does not address whether the medicare part b premiums of dollar_figure constitute amounts received in and therefore we also deem this issue conceded see rule b any issue not raised in the assignments of error shall be deemed to be conceded 12a taxpayer may make an election with respect to the amount of a lump- sum payment of benefits received during a taxable_year in which the portion of the payment is attributable to prior years sec_86 petitioner was eligible to make a sec_86 election on her original tax_return because she received a lump- sum payment of benefits during that was in part attributable to and petitioner did not make a sec_86 election on her original tax_return neither petitioner nor respondent provided a computation showing that petitioner would benefit from a sec_86 election with respect to the reported attorney’s fees as a general_rule income is taxed to the person earning it even if the right to receive the income is contractually assigned to another person before it is earned 281_us_111 114_tc_399 aff’d 259_f3d_881 7th cir banks v commissioner tcmemo_2001_ tax ct memo lexi sec_68 at see also s rept no pincite 1983_2_cb_328 stating that the total amount of social_security_benefits received by a taxpayer is not to be reduced by attorney’s fees under this principle the amount of the benefits reported as attorney’s fees in is considered an amount received by petitioner despite the fact that ssa paid her attorney the reported fee amount petitioner received a benefit from these funds in the form of payment for services required to obtain her benefits see kenseth v commissioner t c pincite the court concludes that petitioner received total benefits of dollar_figure in dollar_figure 13in some circumstances amounts paid for attorney’s fees are deductible as a miscellaneous expense in schedule a itemized_deductions see sec_212 although the ssa reported the amount of attorney’s fees as dollar_figure for the amount of the deduction is limited to expenses related to the collection of income which is required to be included in gross_income for federal_income_tax purposes sec_212 sec_1_212-1 e income_tax regs the deductibility of the allocable attorney’s fees is academic because the amount of the legal fees incurred in securing her benefits ie dollar_figure or of the attorney’s continued iii taxable benefits in her original tax_return petitioner reported dollar_figure as the amount of taxable benefits for that year see supra p and note in the proposed tax_return attached to the form 1040x petitioner asserted that the amount of taxable benefits for was less dollar_figure petitioner has not explained how she calculated the asserted revised amount of taxable benefits of dollar_figure consequently the court decides that the amount of petitioner’ sec_2010 taxable benefits is dollar_figure computed by petitioner as discussed supra note a computation neither the irs nor respondent challenged iv abuse_of_discretion in deciding whether the so abused her discretion in sustaining the proposed levy we consider whether she properly verified that the requirements of any applicable law or administrative procedure had been met considered any relevant issues petitioner had raised and determined whether any proposed collection action balances the need for efficient collection_of_taxes with the continued fees the same percentage of the benefits required to be included in gross_income is less than the standard_deduction for for married_filing_separately ie dollar_figure claimed in petitioner’s original tax_return see sec_212 andrews v commissioner tcmemo_1992_668 tax ct memo lexi sec_708 at sec_1_212-1 e income_tax regs legitimate concern of petitioner that any collection action be no more intrusive than necessary see sec_6330 it is clear from the court’s review of the record that the so analyzed the transcript of petitioner’s account and verified that the requirements of applicable law and administrative procedure were followed the so stated in her case activity report that she had reviewed petitioner’s account transcript and confirmed that the proper assessment was made the so did not abuse her discretion in rejecting petitioner’s request for an offer-in-compromise as a collection alternative the so informed petitioner that she had to submit a form 433-a form_656 and supporting financial documentation but petitioner failed to do so the so did not abuse her discretion in determining that petitioner was ineligible for a collection alternative under these circumstances see bergdale v commissioner tcmemo_2014_152 at t here is no abuse_of_discretion when the settlement officer fails to consider a taxpayer’s request for an offer-in-compromise when a form_656 was not filed conclusion the court sustains the appeals office’s determination in the notice_of_determination and the supplemental notice_of_determination and holds that petitioner may not amend her original tax_return to claim the filing_status of married_filing_jointly petitioner received total benefits from the ssa of dollar_figure in dollar_figure of those total benefits is taxable to petitioner in and the appeals_office did not abuse its discretion in sustaining the proposed levy in reaching the conclusions described herein the court has considered all arguments made and to the extent not mentioned above the court finds them to be moot irrelevant or without merit to reflect the foregoing 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 plr-115452-08 date date legend x state date date dear ----------------- --------------------------------------- ------------------------- ---------------- -------------------------- ---------------------------- this responds to a letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated in state on date it was intended that x elect s_corporation treatment effective date however a form_2553 election by a small_business_corporation was not timely filed for x 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 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 plr-115452-08 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 based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective date accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective date within days following the date of this letter then such election will be treated as timely made for x's taxable_year beginning date a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact 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 sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi plr-115957-00 date date number release date index number company state shareholders date dear this letter responds to a letter from your authorized representative dated date as well as subsequent correspondence submitted on behalf of company requesting a ruling under sec_1362 of the internal_revenue_code regarding company's late s_corporation_election company represents the following facts facts company was incorporated in state on date with two shareholders company represents that it intended to be an s_corporation from inception but for reasons stated in the ruling_request form_2553 election by a small_business_corporation was not timely filed company has filed form_1120s u s income_tax return for an s_corporation for its first tax_year law and analysis sec_1362 provides in general that an election by a small_business_corporation under sec_1362 to be an s_corporation may be made for any_tax year-- a at any time during the preceding tax_year or b at any time during the tax_year and on or before the 15th day of the 3d month of the tax_year sec_1362 provides that if-- a a small_business_corporation makes an election under sec_1362 for any_tax year and plr-115957-00 b that election is made after the 15th day of the 3d month of the tax_year and on or before the 15th day of the 3d month of the following tax_year then that election shall be treated as made for the following tax_year sec_1362 provides that if-- a an election under sec_1362 is made for any_tax year determined without regard to sec_1362 after the date prescribed by this subsection for making the election for that tax_year or no such election is made for any_tax year and b the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat such election as timely made for that tax_year and sec_1362 shall not apply based solely on the facts as represented by company in this ruling_request we conclude that there was reasonable_cause for company’s failure to make a timely s_corporation_election therefore we rule that company's late election under sec_1362 shall be treated under sec_1362 as timely filed for its first tax_year beginning date this ruling is contingent however on company filing form_2553 with the appropriate service_center no later than days from the date of this letter a copy of this letter should be attached to the form_2553 except for the specific ruling above no opinion is expressed or implied concerning the federal_income_tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed on whether company otherwise is eligible to be an s_corporation under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent sincerely mary beth collins assistant to the chief branch office of associate chief_counsel passthroughs and special industries enclosure copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court daniel hugh o’connor petitioner v commissioner of internal revenue respondent docket no filed date daniel hugh o’connor pro_se randall craig schneider for respondent memorandum findings_of_fact and opinion vasquez judge respondent determined a dollar_figure deficiency in petitioner’s federal_income_tax after concessions the only issue remaining the notice_of_deficiency adjusted petitioner’s gross_income to include dollar_figure of other income dollar_figure of gambling income and dollar_figure of social_security continued for decision is whether petitioner may exclude from taxable_income dollar_figure he received from covance clinical research unit inc covance 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 findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioner resided in nevada at the time he filed the petition since approximately petitioner has suffered from gout in covance advertised that it was conducting a gout study in honolulu hawaii petitioner was living in honolulu at the time and entered into a contract with covance to participate in the study for days and nights petitioner was confined to the covance medical facility he was required to adhere to a strict schedule during the study which included blood tests urine tests ekgs and vital continued income petitioner concedes that the dollar_figure of gambling income is includable in his gross_income however respondent concedes that petitioner is entitled to offset the gambling income by including dollar_figure of gambling_losses on his schedule a itemized_deductions the parties also agree that the adjustment to social_security income is computational and will be resolved by our holding herein screenings during the study covance provided petitioner and the other participants with meals_and_lodging petitioner was also required to participate in outpatient visits after the completion of the study petitioner received a payment of dollar_figure from covance covance issued a form 1099-misc miscellaneous income to petitioner petitioner timely filed a form_1040 u s individual_income_tax_return for he did not report the dollar_figure that he received from covance the internal_revenue_service irs audited his return during the audit on date petitioner submitted a form 1040x amended u s individual_income_tax_return on the amended_return petitioner reported dollar_figure of gambling income and the dollar_figure payment from covance stating in the explanation of changes that he did not report the items on his original return because they were overlooked the irs did not process petitioner’s amended_return during the audit and the audit appeal processes the irs requested that petitioner produce his contract with covance although petitioner had a copy of the contract he failed to produce it at the time of trial petitioner had a copy of the contract in a storage unit in hawaii but he did not introduce it into evidence opinion i burden_of_proof as a general_rule the commissioner’s determinations in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of proving that those determinations are erroneous rule a 290_us_111 petitioner argues that the burden_of_proof shifts to respondent under sec_7491 sec_7491 and shifts the burden_of_proof to the commissioner as to any factual issue relevant to a taxpayer’s liability for tax if the taxpayer introduces credible_evidence with respect to such issue and the taxpayer satisfies certain other conditions including cooperation with the government’s requests for witnesses information and documents see also rule a the burden is on the taxpayer to show that he satisfied these prerequisites see richardson v commissioner tcmemo_2005_143 at trial petitioner made an oral motion to shift the burden_of_proof to respondent the factual issue in this case is whether the contract between petitioner and covance provided that the payment by covance to petitioner is excludable from gross_income as either compensation_for sickness or injury or a gift petitioner did not introduce the contract or testify to its terms therefore petitioner has failed to present credible_evidence that the contract provided that the payment was compensation_for sickness or injury or was a gift furthermore petitioner did not cooperate with the government’s request to produce the contract thus the conditions of sec_7491 are not satisfied and the burden_of_proof remains on petitioner ii deficiency petitioner does not dispute receiving the dollar_figure payment from covance however petitioner argues that the payment is not includable in his gross_income it is well established that pursuant to sec_61 gross_income includes all income from whatever source derived unless otherwise excluded by the internal_revenue_code see 348_us_426 exclusions from gross_income are construed narrowly 515_us_323 petitioner argues that the covance payment is not includable in gross_income because it is excluded under sec_104 as compensation received on account of physical illness or physical sickness and excluded under sec_102 as property received by gift a sec_104 as relevant here sec_104 provides in part sec_104 compensation_for injuries or sickness a in general --except in the case of amounts attributable to and not in excess of deductions allowed under sec_213 relating to medical etc expenses for any prior taxable_year gross_income does not include-- the amount of any damages other than punitive_damages received whether by suit or agreement and whether as lump sums or as periodic_payments on account of personal physical injuries or physical sickness in interpreting sec_104 the supreme court has held that damages are excludable from gross_income where a taxpayer proves the underlying cause of action giving rise to the recovery is based on tort or tort type rights and the damages were received on account of personal injuries or sickness see commissioner v schleier u s pincite pursuant to an amendment to sec_104 included in the small_business job protection act of pub_l_no sec stat pincite the second prong of the schleier test now requires a taxpayer to prove that the damages were received on account of personal physical injuries or physical illness see 422_f3d_684 8th cir aff’g tcmemo_2004_113 goode v commissioner tcmemo_2006_48 shaltz v commissioner tcmemo_2003_ henderson v commissioner tcmemo_2003_168 aff’d 104_fedappx_2 on date sec_1_104-1 income_tax regs was amended to provide that t he injury need not be defined as a tort under state or common_law taxpayers may apply the amendment retroactively 9th cir moreover satisfaction of the second prong requires the taxpayer to show a direct causal link between the damages received and the physical injury or sickness sustained lindsey v commissioner f 3d pincite petitioner bears the burden of proving that he satisfies both prongs of the schleier test see commissioner v schleier u s pincite 105_tc_396 aff’d 121_f3d_393 8th cir the determination of the purpose for payment from the contract is factual see bagley v commissioner t c pincite petitioner has been suffering from gout since roughly and he did not allege that he suffered from physical injury or sickness on account of the gout study petitioner did not prove a direct causal link between the payment he received from covance and the gout that he has suffered from since petitioner entered into a written contract with covance to participate in the gout study in he testified that he has the contract but he failed to produce it at trial without the contract we cannot determine that the payment was compensation_for anything except petitioner’s participation in the study mere participation in the study does not result in compensation_for damages received on account of physical injury or physical sickness b sec_102 sec_102 allows taxpayers to exclude from gross_income the value of property acquired by gift bequest devise or inheritance the supreme court has defined a gift_for statutory purposes as a transfer of property that proceeds from a ‘detached and disinterested generosity’ ‘out of affection respect admiration charity or like impulses ’ 363_us_278 citations omitted the donor’s intent is of critical import in deciding whether the property transferred was a gift id pincite petitioner argues that the payment from covance was a gift however petitioner did not introduce any evidence that demonstrates that covance paid him dollar_figure out of detached and disinterested generosity rather petitioner and covance entered into a contract for him to participate in a medical study following the study covance issued petitioner a form 1099-misc for the payment made pursuant to this contract the issuance of a form 1099-misc petitioner does not satisfy the requirements of any other paragraphs under sec_104 demonstrates that covance did not have donative_intent when it paid dollar_figure to petitioner therefore petitioner may not exclude the amount under sec_102 in reaching all of our holdings herein we have considered all arguments made by the parties and to the extent not mentioned above we conclude they are irrelevant or without merit to reflect the foregoing decision will be entered under rule