internal_revenue_service number release date index number -------------------------------- ---------------------------------------- ------------------------------------------------------------ ---------------------- ------------------------------------------- ------------------------- in re ----------------------------------- ------------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number ---------------------- refer reply to cc psi b06 plr-128824-17 date date legend taxpayer a -------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ --------- taxpayer b partnership ---------------------------------------------------- --------------------------------- taxpayer a llc ---------------------------------------------------------- ------------------------------------------------------------------------ taxpayer b llc state a state b regulator date a b c ---------------------- --------- -------------- ----------------------------------------------- ------------------- -------------- -------------- -------------- plr-128824-17 d e ---------------- ---------------- taxpayer a liability ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------- taxpayer b liability ------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------- dear --------------- this letter responds to a request for a private_letter_ruling dated date and subsequent correspondence submitted on behalf of taxpayer a by your authorized representatives taxpayer a requested a ruling regarding the application of the normalization rules under sec_168 of the internal_revenue_code and sec_1_167_l_-1 of the income_tax regulations to an exchange of like_kind properties between taxpayer a and taxpayer b the relevant facts as represented in your submissions are set forth below facts taxpayer a is a state a limited_liability_company which is classified as a partnership for federal_income_tax purposes taxpayer a owns regulated electricity transmission and distribution facilities throughout state a taxpayer a leases these facilities to partnership a state a limited_partnership which is classified as a partnership for federal_income_tax purposes partnership operates the electricity transmission and distribution facilities and provides both distribution services to retail electric providers that sell electricity to consumers and transmission services to other electricity distribution companies cooperatives municipalities and retail energy providers the operation of the electricity transmission and distribution facilities is subject_to the regulatory jurisdiction of the regulator for rates and conditions of service the rates for the distribution and transmission services are established under traditional ratemaking on a rate base rate of return basis taxpayer b is a state b limited_liability_company which is classified as a partnership for federal_income_tax purposes taxpayer b owns and operates a regulated electricity transmission and distribution system in state a taxpayer b provides distribution services to retail electric providers that sell electricity to consumers plr-128824-17 taxpayer b also provides transmission services to other electricity distribution companies cooperatives municipalities and retail energy providers taxpayer b’s operations are subject_to the regulatory jurisdiction of the regulator for rates and conditions of service the rates for the distribution and transmission services are established under traditional ratemaking on a rate base rate of return basis on date taxpayer a taxpayer b and partnership entered into an agreement and plan of merger pursuant to which taxpayer a will transfer substantially_all of its electricity distribution facilities and certain of its electricity transmission facilities to taxpayer b and taxpayer b will transfer certain of its electricity transmission facilities to taxpayer a merger agreement this transaction will provide taxpayer a with additional transmission assets to meet the infrastructure needs for safe reliable and affordable electric power of a growing state a economy this transaction will allow taxpayer b to expand its existing distribution network into a growing service area it had not previously served and add additional retail customers pursuant to the merger agreement the following transactions will occur after the taxpayers receive the necessary approvals taxpayer a will transfer assets comprising substantially_all of its electricity distribution facilities and certain of its electricity transmission facilities taxpayer a assets to a newly-formed limited_liability_company taxpayer a llc taxpayer a llc will be wholly-owned by and treated as a disregarded_entity as to taxpayer a taxpayer a represents that as a result taxpayer a will be deemed to continue to own the taxpayer a assets for federal_income_tax purposes taxpayer b will transfer certain of its electricity transmission facilities taxpayer b assets to a newly-formed limited_liability_company taxpayer b llc taxpayer b llc will be wholly-owned by and treated as a disregarded_entity as to taxpayer b taxpayer a represents that as a result taxpayer b will be deemed to continue to own the taxpayer b assets for federal_income_tax purposes taxpayer b llc will merge with and into taxpayer a with taxpayer a as the surviving entity as a result taxpayer a will become the direct owner of the taxpayer b assets taxpayer a represents that for federal_income_tax purposes because taxpayer b llc is disregarded taxpayer b will be deemed to transfer the taxpayer b assets to taxpayer a substantially simultaneously with and as consideration for the transfer of the taxpayer b assets by taxpayer b to taxpayer a taxpayer a llc will merge with and into taxpayer b with taxpayer b as the surviving entity taxpayer b will also pay cash to taxpayer a for a small portion of the taxpayer a assets as a result taxpayer b will become the direct owner of the taxpayer a assets taxpayer a represents that for plr-128824-17 federal_income_tax purposes because taxpayer a llc is disregarded taxpayer a will be deemed to transfer the taxpayer a assets to taxpayer b the third and fourth transactions are expected to be treated for tax purposes as a like_kind exchange under sec_1031 between taxpayer a and taxpayer b of the taxpayer a assets for the taxpayer b assets and cash substantially_all of this exchange is expected to be treated as an exchange of properties that are of like_kind within the meaning of sec_1031 and thus qualify for tax deferred treatment however taxpayer a and possibly taxpayer b are expected to have some amount of exchange_group deficiencies or exchange_group surpluses within the meaning of sec_1_1031_j_-1 therefore the taxpayers may recognize some amount of taxable gain in the like_kind exchange taxpayer a and taxpayer b will take a substituted tax basis in the assets acquired by each of them adjusted as specified in sec_1_1031_j_-1 for exchange_group deficiencies and surpluses and taxable gain recognized for regulatory purposes taxpayer a will record the taxpayer b assets it will receive at the same regulatory net_book_value at which those assets had been recorded by taxpayer b immediately prior to the like_kind exchange similarly taxpayer b will record the taxpayer a assets it will receive at the same regulatory net_book_value at which those assets had been recorded prior to the like_kind exchange the regulatory net_book_value of the taxpayer a assets is expected to approximately equal the regulatory net_book_value of the taxpayer b assets plus the amount of cash paid_by taxpayer b to taxpayer a in the like_kind exchange for federal_income_tax purposes taxpayer a and taxpayer b claimed accelerated_depreciation including in certain cases bonus_depreciation on the assets they owned the taxpayer a assets include electricity distribution systems and electricity transmission systems the taxpayer b assets include electricity transmission systems prior to the like_kind exchange each taxpayer recorded an accumulated deferred federal_income_tax adfit reserve to reflect the deferral of federal income taxes attributable to its claiming accelerated_depreciation and for other temporary differences for its public_utility assets immediately prior to the consummation of the like_kind exchange it is projected that taxpayer a will have an adfit reserve balance attributable to the taxpayer a assets of approximately dollar_figurea substantially_all of which will be attributable to accelerated_depreciation further immediately prior to the consummation of the like_kind exchange taxpayer b is projected to have an adfit reserve balance attributable to the taxpayer b assets of approximately dollar_figureb approximately dollar_figurec of which will be attributable to accelerated_depreciation taxpayer a and taxpayer b propose to record the following entries to their regulated books of account to reflect the like_kind exchange plr-128824-17 taxpayer a will remove from its regulated books of account the entire approximately dollar_figurea of adfit reserve balance associated with the taxpayer a assets it is relinquishing similarly taxpayer b will remove the entire approximately dollar_figureb of adfit reserve balance associated with the taxpayer b assets it is relinquishing taxpayer a will increase a non-operating income account in the amount of the adfit reserve balance removed similarly taxpayer b will increase a non-operating income account in the amount of the adfit reserve it removed taxpayer a will record the taxpayer b assets it is acquiring as an asset on its regulated books of account in an amount equal to taxpayer b’s regulatory net_book_value in the taxpayer b assets immediately prior to the like_kind exchange similarly taxpayer b will record the taxpayer a assets it is acquiring as an asset on its regulated books of account in an amount equal to taxpayer a’s regulatory net_book_value in the taxpayer a assets immediately prior to the like_kind exchange as a result taxpayer a’s initial net book basis in the taxpayer b assets it is acquiring is projected to be approximately dollar_figured and taxpayer b’s initial net book basis in the taxpayer a assets it is acquiring is projected to be approximately dollar_figuree taxpayer a will book taxpayer a liability similarly taxpayer b will book taxpayer b liability when taxpayer a and taxpayer b recover the book carrying value of the replacement_property in rates they will have to pay the taxpayer a liability and taxpayer b liability respectively to the government taxpayer a and taxpayer b will have removed the adfit associated with the relinquished_property from their regulated books of account and will not record any of the replacement properties’ pre- transactional adfit taxpayer a represents that its accounting entries are in accordance with gaap applicable to rate regulated enterprises based on discussions with regulator staff and others taxpayer a has concluded that it will not collect the taxpayer a liability from customers thus taxpayer a does not anticipate establishing a regulatory asset as a result taxpayer a’s post-like kind exchange rate base computation will be reduced by its taxpayer a liability balance in addition to any additional adfit balances that are created after the transaction ruling requested subsequent to the like_kind exchange it will be consistent with the requirements of sec_168 and sec_1 -1 for taxpayer a to recognize the taxpayer a liability balance for ratemaking purposes and record such balance on its regulated books of account plr-128824-17 law and analysis sec_168 provides that the depreciation deduction determined under sec_168 shall not apply to any public_utility_property within the meaning of sec_168 if the taxpayer does not use a normalization method_of_accounting in order to use a normalization method_of_accounting sec_168 requires a taxpayer in computing its tax expense for establishing its cost of service for ratemaking purposes and reflecting operating results in its regulated books of account to use a method_of_depreciation for property that is the same as and a depreciation period for such property that is not shorter than the method and period used to compute its depreciation expense for such purposes under sec_168 if the amount allowable as a deduction under sec_168 differs from the amount that would be allowable as a deduction under sec_167 using the method period first and last year convention and salvage_value used to compute regulated tax expense under sec_168 then the taxpayer must make adjustments to a reserve to reflect the deferral of taxes resulting from such difference sec_168 provides that one way the requirements of sec_168 will not be satisfied is if the taxpayer for ratemaking purposes uses a procedure or adjustment which is inconsistent with such requirements under sec_168 such inconsistent procedures and adjustments include the use of an estimate or projection of the taxpayer’s tax expense depreciation expense or reserve for deferred taxes under sec_168 unless such estimate or projection is also used for ratemaking purposes with respect to all three of these items and with respect to the rate base former sec_167 generally provided that public_utilities were entitled to use accelerated methods for depreciation if they used a normalization method_of_accounting a normalization method_of_accounting was defined in former sec_167 in a manner consistent with the definition in sec_168 sec_1_167_l_-1 provides that the normalization requirements for public_utility_property pertain only to the deferral of federal_income_tax liability resulting from the use of an accelerated method_of_depreciation for computing the allowance for depreciation under sec_167 and the use of straight-line_depreciation for computing tax expense and depreciation expense for purposes of establishing cost of services and for reflecting operating results in regulated books of account these regulations do not pertain to other book-tax timing differences with respect to state income taxes f i c a taxes construction costs or any other taxes and items sec_1_167_l_-1 provides that the reserve established for public_utility_property should reflect the total amount of the deferral of federal_income_tax liability resulting from the taxpayer's use of different depreciation methods for tax and ratemaking purposes plr-128824-17 sec_1_167_l_-1 provides that the amount of federal_income_tax liability deferred as a result of the use of different depreciation methods for tax and ratemaking purposes is the excess computed without regard to credits of the amount the tax_liability would have been had the depreciation method for ratemaking purposes been used over the amount of the actual tax_liability this amount shall be taken into account for the taxable_year in which the different methods of depreciation are used sec_1_167_l_-1 provides that the taxpayer must credit this amount of deferred taxes to a reserve for deferred taxes a depreciation_reserve or other reserve_account this regulation further provides that the aggregate amount allocable to deferred taxes may be reduced to reflect the amount for any taxable_year by which federal income taxes are greater by reason of the prior use of different methods of depreciation under sec_1 -1 h i or to reflect asset retirements or the expiration of the period for depreciation used for determining the allowance for depreciation under sec_167 taxpayer a has transferred the taxpayer a assets and received replacement assets in exchange taxpayer a has disposed of taxpayer a assets and those assets have been removed from taxpayer a’s regulatory books of account taxpayer a’s adfit was created due to the deferral of federal taxes attributable to taxpayer a's claiming accelerated_depreciation and other temporary differences with respect to the relinquished_property as required by sec_1_167_l_-1 the disposal of the relinquished_property from taxpayer a's regulatory books of account is the functional equivalent of a retirement of the property see generally sec_1_167_a_-8 and sec_1_168_i_-8 sec_1_167_l_-1 provides that the accumulated adfit balance is adjusted to reflect such dispositions the required adjustment is the removal of the adfit balance with respect to the relinquished_property from taxpayer a's regulated books of account in accordance with this requirement taxpayer a will remove from its regulated books of account the entire approximately dollar_figurea of adfit reserve balance associated with the taxpayer a assets it is relinquishing taxpayer a will not record on the utility’s regulated books of account any of the replacement properties’ pre-transactional adfit in this case we are satisfied that the taxpayer a liability is unrelated to the relinquished properties’ adfit and thus its regulatory treatment is beyond the scope of the normalization rules therefore we conclude that subsequent to the like_kind exchange it will be consistent with the requirements of sec_168 and sec_1 -1 for taxpayer a to recognize the taxpayer a liability balance for ratemaking purposes and record such balance on its regulated books of account except as specifically set forth above no opinion is expressed or implied concerning the federal_income_tax consequences of the above described facts under any other provision of the code or regulations specifically we express no opinion plr-128824-17 regarding any consequences of the exchange described above including whether such exchange satisfies the provisions of sec_1031 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 this ruling is based upon information and representations submitted by taxpayer and accompanied by penalty of perjury statements executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely david a selig senior counsel branch office of associate chief_counsel passthroughs special industries


number release date id office uilc cca_2009022408503637 -------------- from ------------------- sent tuesday date am to ---------------------- cc ------------------------------------ subject re tefra questions --------- for the ------- year the parent will sign for itself and the entire consolidated corporate filing group p by current officer for itself and subsidiaries the llc through which it owns its partnership_interest is disregarded for this purpose for-------- signature sec_1 by current officer of sec_1 title of current officer of sec_1 by current officer of p title of current officer of p on behalf of itself and its subsidiaries including sec_1 signature p


tcmemo_2011_300 united_states tax_court alpha diallo petitioner v commissioner of internal revenue respondent docket no filed date alpha diallo pro_se r jeffrey knight for respondent memorandum findings_of_fact and opinion thornton judge respondent determined deficiencies in petitioner’s and federal income taxes of dollar_figure dollar_figure and dollar_figure respectively respondent further determined penalties pursuant to sec_6662 of dollar_figure dollar_figure and dollar_figure for tax years and respectively the issues for decision are whether petitioner underreported gross_receipts from his limousine driving business as respondent has determined whether respondent properly disallowed certain deductions with respect to this business whether petitioner is entitled to dependency_exemption deductions for one dependent in tax years and and two dependents in tax_year whether petitioner is entitled to head_of_household filing_status and whether petitioner is liable for accuracy-related_penalties pursuant to sec_6662 findings_of_fact the parties have stipulated some facts which we incorporate by this reference when he petitioned the court petitioner resided in maryland during the years at issue petitioner was self-employed as a limousine driver he owned no vehicle other than the one he used in his business sometimes he used this vehicle for personal purposes during the years at issue petitioner’s sister-in-law and his niece r d who was born in resided with him at hi sec_1all section references are to the internal_revenue_code for the years at issue and all rule references are to the tax_court rules_of_practice and procedure all dollar amounts have been rounded to the nearest dollar residence in another niece s d was born and she also resided with petitioner at his residence petitioner’s brother who is the father of r d and s d lived in africa to assist with the care of his children petitioner’s brother provided petitioner financial support and helped buy petitioner’s house on his federal_income_tax returns for and petitioner claimed head_of_household filing_status for and he claimed r d as his dependent for he claimed both r d and s d as dependents on schedules c profit or loss from business petitioner reported gross_receipts from his limousine driving business of dollar_figure dollar_figure and dollar_figure for and respectively he claimed total schedule c business_expenses of dollar_figure dollar_figure and dollar_figure for and respectively in the notice_of_deficiency respondent determined that petitioner’s proper filing_status was single and that he was entitled to no dependency_exemption deductions using the bank_deposits method respondent determined that petitioner had underreported his schedule c gross_receipts by dollar_figure for and by dollar_figure for respondent also disallowed for lack of substantiation some of petitioner’s schedule c expenses the 2the court refers to minors by their initials see rule a disallowed deductions totaled dollar_figure dollar_figure and dollar_figure for and respectively opinion i schedule c gross_receipts if a taxpayer fails to keep adequate_records the commissioner may reconstruct the taxpayer’s income by any reasonable method that clearly reflects income sec_446 see 348_us_121 one acceptable method is the bank_deposits method 102_tc_632 96_tc_858 affd 959_f2d_16 2d cir bevan v commissioner tcmemo_1971_312 affd 472_f2d_1381 6th cir this method assumes that if a taxpayer is engaged in an income-producing activity and makes deposits to bank accounts then those deposits less amounts identified as nonincome items constitute taxable_income see clayton v commissioner supra pincite respondent reconstructed petitioner’s gross_income for and using the bank_deposits method respondent’s analysis showed aggregate deposits into petitioner’s accounts of dollar_figure for and dollar_figure for all of which respondent has included in petitioner’s gross_income petitioner bears the burden of showing that these determinations are incorrect rule a see dileo v commissioner supra pincite bevan v commissioner supra petitioner does not dispute making these deposits he contends however that they include certain nontaxable amounts namely a dollar_figure cash hoard that he allegedly brought with him when he moved to the united_states in as well as other indeterminate sums that he claims to have accumulated from his employment as a limousine driver from until petitioner alleges that before he kept all these moneys in his house instead of a bank because he feared that if the bank went broke he would lose everything but he also testified that in he learned of federal deposit insurance which guarantees the security of deposits in member banks in the light of this testimony it is difficult to understand why he would have made these deposits in and and not before moreover petitioner’s self-created profit and loss statements which are in evidence strongly discredit his testimony and in fact tend to support respondent’s determinations as to his gross_receipts for and taking into account 3petitioner does not contend and the record does not suggest that the burden_of_proof should shift to respondent pursuant to sec_7491 4petitioner’s self-created profit and loss statements show gross_receipts of dollar_figure for and dollar_figure for a number of inconsistencies in petitioner’s testimony we do not find it credible or plausible petitioner has failed to establish that any of the unexplained amounts deposited in his accounts represent nontaxable items accordingly we sustain respondent’s determinations as to this issue ii schedule c deductions sec_162 allows a deduction for ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business taxpayers must maintain records sufficient to establish the amount of their income and deductions sec_6001 sec_1_6001-1 e income_tax regs in general no deduction is permitted for personal family or living_expenses sec_262 if a taxpayer establishes a deductible expense but is unable to substantiate the precise amount the court may approximate the deductible amount but only if the taxpayer presents sufficient evidence to establish a rational basis for making the estimate 39_f2d_540 2d cir the record provides no credible evidentiary basis to support petitioner’s claimed deductions beyond the amounts that respondent has allowed although petitioner introduced into evidence copies of numerous receipts they cannot be readily correlated with the deductions he has claimed the receipts include expenditures_for many personal items such as games bedding and food similarly although petitioner presented evidence of about dollar_figure in fuel expenditures they appear to cover both personal and business use of his automobile petitioner has failed to prove that he is entitled to schedule c deductions greater than those respondent has permitted we sustain respondent’s determinations with respect to petitioner’s schedule c deductions iii dependency_exemption deduction a taxpayer may claim a dependency_exemption deduction with respect to an individual who is either a qualifying_child or a 5petitioner’s testimony in this regard as in other regards was inconsistent and unreliable he first testified that he could not recall how many miles he drove for personal purposes then he testified that he did not use the automobile for personal purposes except to stop for groceries petitioner stated that when he needed a car for personal reasons he would rent a car this testimony is rendered less credible by petitioner’s subsequent admission that he drove his automobile to the trial ultimately petitioner testified that he used his automobile to percent for business purposes but acknowledged he had no documentation to support this allocation in the event as seems likely that substantially_all of petitioner’s use of the limousine was not in a trade_or_business of providing to unrelated persons services consisting of the transportation of persons or property for compensation or hire see sec_280f petitioner would be subject_to the strict substantiation requirements of sec_274 petitioner however has failed to show he meets the substantiation requirements of sec_1_6001-1 and e income_tax regs or to provide any basis for us to approximate a deduction under 39_f2d_540 2d cir perforce he does not satisfy the stricter substantiation requirements of sec_274 qualifying_relative sec_151 sec_152 to be a taxpayer’s qualifying_child an individual must bear a qualifying relationship to the taxpayer have the same principal_place_of_abode as the taxpayer for more than one-half of the taxable_year meet certain age requirements and have not provided over one-half of his or her own support for the year sec_152 there is no dispute that petitioner’s nieces born in and each satisfy the relationship requirement and the age requirement to be a qualifying_child see sec_152 a i we are satisfied that the nieces meet the principal_place_of_abode requirement because r d resided with petitioner at his residence during and and s d resided with petitioner at his residence following her birth in it appears self-evident that r d and s d one a toddler and the other an infant did not provide more than one- half of their own support during any year at issue consequently petitioner is entitled to dependency_exemption deductions for his two nieces iv head_of_household filing_status sec_1 grants a special tax_rate for any individual who qualifies as a head_of_household with exceptions not relevant here the statute generally defines a head_of_household as an unmarried individual who maintains as his or her home a household which constitutes for more than one-half of the taxable_year the principal_place_of_abode of either a qualifying_child as defined in sec_152 or a dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction under sec_151 sec_2 for this purpose an individual is considered to maintain a household only if he or she furnishes over one-half of the cost of maintaining the household during the taxable_year sec_2 in order for the court to determine whether the taxpayer provided over one-half of the cost of maintaining the household the taxpayer must prove the total cost of maintaining the household see rosen v commissioner tcmemo_1994_40 costs of maintaining a household include property taxes mortgage interest rent utility charges upkeep and repairs property insurance and food consumed on the premises sec_1_2-2 income_tax regs the record is inconclusive as to whether petitioner was unmarried during the years at issue but even if he were unmarried he is not entitled to head_of_household status because he has not established that he provided over one-half of the cost of maintaining the household petitioner provided inadequate records to establish the total cost of maintaining the household or his own contribution to the total cost in a document in evidence dated date and captioned attestation petitioner’s brother attested that he worked for an international bank in the republic of guinea that he provided financial help to petitioner whenever it was necessary that he assisted him in paying bills and in buying his house and that his wife and children stayed with petitioner at the brother’s own expense the record is otherwise silent as to the amount of the brother’s contributions petitioner has failed to show that he provided over one-half of the cost of maintaining the household we sustain respondent’s determination as to this issue v sec_6662 penalty respondent determined that for each year at issue petitioner is liable for an accuracy-related_penalty pursuant to sec_6662 and b and for negligence or substantial_understatement_of_income_tax respondent bears the burden of production with respect to this penalty see sec_7491 to meet this burden respondent must produce evidence establishing that it is appropriate to impose this penalty once respondent has done so the burden_of_proof is on petitioner to show that the penalty does not apply see 116_tc_438 negligence includes any failure to make a reasonable attempt to comply with the provisions of the internal revenue laws and is the failure to exercise due care or the failure to do what a reasonable and prudent person would do under the circumstances sec_6662 85_tc_934 sec_1_6662-3 income_tax regs negligence also includes any failure by the taxpayer to keep adequate books_and_records or substantiate items properly sec_1_6662-3 income_tax regs petitioner exhibited a lack of due care in failing to report gross_receipts to keep adequate books_and_records and to properly substantiate claimed deductions respondent has carried his burden of production with respect to the sec_6662 penalties for negligence sec_6662 and b imposes a 20-percent accuracy-related_penalty on any portion of a tax underpayment that is attributable to any substantial_understatement_of_income_tax defined in sec_6662 as an understatement that exceeds the greater of percent of the tax required to be shown on the return or dollar_figure the exact amounts of petitioner’s underpayments will depend upon the rule_155_computations in accordance with our findings and conclusions to the extent that those computations establish as seems likely that petitioner has substantial understatements of income_tax respondent has also met his burden of production in this regard see prince v commissioner tcmemo_2003_247 the accuracy-related_penalty does not apply with respect to any portion of the underpayment for which it is shown that the taxpayer had reasonable_cause and acted in good_faith sec_6664 petitioner has made no attempt to explain his failure to report gross_receipts to keep adequate books_and_records and to substantiate items properly we hold that for each year at issue petitioner is liable for a sec_6662 penalty for negligence and alternatively for substantial understatements of income_tax insofar as the rule_155_computations show substantial understatements to reflect the foregoing decision will be entered under rule


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 fip b01 plr-100142-07 date april -------------------------------------------------------- -------------------------------------------- -------------------------------- --------------------- ---------------------- legend legend taxpayer ---------------------------------------------------------------------- corporation a ---------------------------------------------------------------------- corporation b ---------------------------------------------------------------------- date date date date date date date vp - tax type m property state a ----------------- ----------------------- --------------------- --------------------- ------------------- ------------------ ----------------- ------------- --------------- this is in reply to a letter dated date and subsequent plr-100142-07 state b dear --------------- correspondence requesting a ruling on behalf of taxpayer and corporation a specifically you have requested that taxpayer and corporation a be granted an extension of time under sec_301_9100-1 of the procedure and administration regulations to file form_8875 taxable_reit_subsidiary election so that taxpayer and corporation a may jointly elect for corporation a to be treated as a taxable_reit_subsidiary trs of taxpayer effective date facts taxpayer operates in a manner intended to satisfy the reit requirements under sec_856 et seq of the internal_revenue_code for each of its taxable years taxpayer is a self-administered and self-managed reit in the business of acquiring developing redeveloping owning leasing and managing type m property corporation b a state a corporation is operated in a manner intended to satisfy the reit requirements under sec_856 et seq corporation b is in the business of acquiring developing redeveloping owning leasing and managing type m property corporation a a state b corporation has been a taxable_reit_subsidiary of corporation b since date corporation a is in the business of developing real_estate properties and providing real_estate development services taxpayer is a widely-held reit listed on the new york stock exchange during date taxpayer a shareholder of corporation b decided to become the sole shareholder of corporation b and operate corporation b as a qualified_reit_subsidiary to that end the board_of directors of corporation b on date directed corporation b to redeem all of its shares outstanding except for those held by taxpayer this redemption occurred on date as a result of the redemption corporation b became a qualified_reit_subsidiary of taxpayer and therefore was disregarded for federal_income_tax purposes corporation a thereby became a wholly-owned subsidiary of taxpayer on date taxpayer and corporation a filed a form_8875 with the internal_revenue_service service electing to make corporation a a wholly owned taxable_reit_subsidiary of taxpayer although the election was otherwise properly completed and timely filed line of the form_8875 erroneously provides that the date the election is to take effect was date instead of the date of redemption date during date taxpayer’s vice president - tax vp - tax in the course of quarterly asset testing discovered the discrepancy in their letter of date taxpayer and corporation a requested relief under sec_301_9100-1 plr-100142-07 taxpayer has submitted a detailed affidavit from the vp - tax describing the events that led to the failure to make a valid election and to the discovery of the failure the affidavit also details how the vp - tax obtained personal knowledge of the events the federal_income_tax returns of taxpayer corporation a including its subsidiaries and corporation b are currently under audit for certain tax years ending prior to the tax_year involved in this ruling however the service has not discovered the failure to make a valid regulatory election granting the relief requested will not result in taxpayer corporation a or corporation b having a lower tax_liability in the aggregate respectively for all years to which the regulatory election applies than such parties would have had if the election had been timely made taking into account the time_value_of_money taxpayer corporation a and corporation b do not seek to alter a return position for which an accuracy-related_penalty has been or could have been imposed under sec_6662 and which requires or permits a regulatory election for which relief is requested hereby being fully informed of the required regulatory election and related tax consequences taxpayer and corporation a did not choose to not file the election law and analysis sec_856 provides that a reit and a corporation other than a reit may jointly elect to treat such corporation as a taxable_reit_subsidiary to be eligible for treatment as a taxable_reit_subsidiary sec_856 provides that the reit must directly or indirectly own stock in the corporation and the reit and the corporation must jointly elect such treatment the election is irrevocable once made unless both the reit and the subsidiary consent to its revocation in addition the election and the revocation may be made without the consent of the secretary availability of form_8875 taxable_reit_subsidiary election according to the announcement this form is to be used for tax years beginning after for eligible entities to elect treatment as a taxable_reit_subsidiary the instructions to form_8875 provide that the subsidiary and the reit can make the election at any time during the tax_year the instructions further provide that the effective date of the election cannot be more than months and days prior to the date of filing the election or more than months after the date of filing the election if no date is specified on the form the election is effective on the date the form is filed with the service officers of both the reit and the taxable_reit_subsidiary must jointly sign the form sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulations or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a in announcement 2001_1_cb_716 the service announced the sec_301_9100-3 through c i sets forth rules that the internal revenue plr-100142-07 taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i service generally will use to determine whether under the particular facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of ' sec_301_9100-3 provides that subject_to paragraphs b i through iii of ' when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have acted reasonably and in good_faith and ' c provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money based on the information submitted and representations made we conclude that taxpayer and corporation a have satisfied the requirements for granting a reasonable extension of time to elect under sec_856 to treat corporation a as a trs of taxpayer effective as of date accordingly taxpayer and corporation a are granted days from the date of this letter to file a form_8875 jointly electing for corporation a to be treated as a trs of taxpayer effective date this ruling is limited to the timeliness of the filing of the form_8875 this ruling s application is limited to the facts representations code sections and regulations cited herein no opinion is expressed with regard to whether taxpayer otherwise qualifies as a reit under subchapter_m corporation a or corporation b is not lower in the aggregate respectively for all years to which the election applies than such tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the director s office will determine such tax_liability for the years involved if the director s office determines that such tax_liability is lower that office will determine the federal_income_tax effect no opinion is expressed with regard to whether the tax_liability of the taxpayer plr-100142-07 this ruling is directed only to the taxpayers who requested 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 your authorized representatives sincerely s ________________________ elizabeth a handler chief branch office of associate chief_counsel financial institutions products enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------------------------------- -------------------------------- ------------------------------ ------------------------------------- - department of the treasury washington dc person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b07 - plr-154222-03 date date ----------------------------------------- ------------------------ --------------------------- --------------------------- --------------------------- --------------------------- --------------------------- legend taxpayer v w x y z dear ------------------ we received your letter requesting permission for taxpayer to revoke its election under sec_41 of the internal_revenue_code this letter responds to that request the facts submitted and the representations made are as follows taxpayer is the common parent of an affiliated_group_of_corporations that file a consolidated_return taxpayer is an accrual_method taxpayer using a calendar_year for tax purposes for the taxable_year ending on v taxpayer elected on behalf of itself and the members of its controlled_group to determine its credit_for_increasing_research_activities under the alternative_incremental_research_credit airc rules of sec_41 taxpayer determined its research_credit for the taxable years ending on v w x and y using the airc rules of sec_41 before the due_date of its return including extensions for the taxable_year ending on z taxpayer submitted a request to revoke its election to determine its research_credit under the airc rules of sec_41 for qualified_research_expenses paid_or_incurred on or after the taxable_year ending on z and all subsequent taxable years for taxable years beginning after date taxpayers may elect to determine their research_credit under the airc rules of sec_41 sec_41 provides that any election under sec_41 shall apply for the taxable_year in which made and all succeeding taxable years unless revoked with the consent of the secretary based solely on the facts submitted and representations made we grant permission for taxpayer to revoke its election to determine its credit_for_increasing_research_activities under the airc rules of sec_41 for qualified_research_expenses paid_or_incurred during the taxable_year ending on z taxpayer should compute its credit_for_increasing_research_activities for the taxable_year ending on z and all succeeding taxable years using the general_rule of sec_41 provided that taxpayer does not make a new election to determine its credit_for_increasing_research_activities under the airc rules of sec_41 except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter further we express or imply no opinion concerning expenditures taxpayer or any member of its controlled_group treated as qualified_research_expenses this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to taxpayer’s authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely s brenda m stewart senior counsel branch office of associate chief_counsel passthroughs and special industries cc -------------------


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-104966-09 date date x --------------------------------------------------------------------------------------------------- -------------- legend country --------------------- date ---------------------- dear ----------- this letter responds to your letter dated date submitted on behalf of x by x’s authorized representatives requesting an extension of time under sec_301 of the procedure and administration regulations to file an election to treat x as a partnership for federal tax purposes under sec_301_7701-3 facts according to the information submitted x was formed under the laws of country on date as a limited_liability partnership x intended to be treated as a partnership for federal tax purposes effective date however x inadvertently failed to timely file a form_8832 entity classification election law and analysis 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 plr-104966-09 entity with at least two members can elect to be classified as an association and thus a corporation under sec_301_7701-2 or a partnership sec_301_7701-3 provides that unless it elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301 c i will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed if an election specifies an effective date more than days prior to the date on which the election is filed it will be effective days prior to the date it was filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion plr-104966-09 based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election to be treated as a partnership for federal tax purposes effective date x should make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely s curtis g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------------- ------------------------ ----------------------- -------------------------------- -------------------------- ------------------------- ------------------------ ------------------------- ty --------------- ty --------------- legend taxpayer year year taxpayer’s representative year dear ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- ------------------------ telephone number ------------------- refer reply to cc ita b03 plr-129688-11 date date ----------------------------------------- ------- ------- --------------------------------- ------- this responds to your letter dated ---------------- you requested an extension of time to elect to revoke an election to treat qualified dividends and capital_gains as investment_income under sec_163 and sec_163 of the internal_revenue_code for year sec_1 and and sec_1 d - c of the income_tax regulations facts taxpayer’s main source_of_income is investment_income and a qualified_pension taxpayer timely filed form_1040 individual_income_tax_return for year and year each return was prepared using computerized tax_return preparation software taxpayer's year and year returns included form_4952 investment_interest expense deduction on which they elected to treat all net_long-term_capital_gain and qualified dividends as investment_income the effect of electing to treat qualified dividends and net capital_gains as investment_income is to tax the qualified dividends and net capitals gains at ordinary_income tax_rates in these years taxpayer paid both regular income and alternative_minimum_tax the computerized tax_return preparation software did not consider the affect of the alternative_minimum_tax in analyzing whether or not taxpayer should make the election under sec_163 and sec_163 in year and year in each year plr-129688-11 the election increased the total_tax due because the alternative_minimum_tax due increased by more than the regular income_tax due decreased taxpayer made the election under sec_163 based on the information available at the time the year and year returns were prepared taxpayer’s representative did not realize until preparing the return for year that the taxpayer would have been subject_to less total_tax in year and year if the election had not been made taxpayer’s representative contacted the software developer and was told that the computerized tax_return preparation software’s failure to consider the affect of the alternative_minimum_tax was a defect in the software it is represented that taxpayer relied on taxpayer’s representative to accurately prepare taxpayer’s return and was not aware of the inadvertent error at the time the year and year returns were filed it is further represented that only when the year return was prepared that the error was discovered as a result taxpayer seeks permission to revoke the election in year and year law analysis sec_163 provides that in the case of a taxpayer other than a corporation the amount allowed as a deduction for investment_interest shall not exceed the net_investment_income of the taxpayer for the taxable_year investment_interest expense that is disallowed by sec_163 may be carried to the next taxable_year sec_163 sec_163 provides in part that investment_income is the sum of - i gross_income from property_held_for_investment other than gain taken into account under clause ii i ii the excess if any of i the net gain attributable to the disposition of property_held_for_investment over ii the net_capital_gain determined by only taking into account gains and losses from dispositions of property_held_for_investment plus iii so much of the net_capital_gain referred to in clause ii i as the taxpayer elects to take into account under such clause sec_163 also states that such term shall include qualified_dividend_income as defined in section h ii b only to the extent the taxpayer elects to treat such income as investment_income for purposes of this subsection sec_1_163_d_-1 of the regulations provides that the election under sec_163 must be made on or before the due_date including extensions of the income_tax return for the taxable_year in which the qualified_dividend_income is received or net_capital_gain is recognized plr-129688-11 sec_1_163_d_-1 of the regulations provides that the election under sec_163 is revocable with the consent of the commissioner under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election under all subtitles of the code except subtitles e g h and i provided that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-3 provides extensions of time to make a regulatory election under code sections other than those for which sec_301_9100-2 expressly permits automatic extensions requests for extensions of time for regulatory elections will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-3 states that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer - i requests relief before the failure to make the regulatory election is discovered by the service beyond the taxpayer’s control ii inadvertently failed to make the election because of intervening events iii failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election taxpayer acted reasonably and in good_faith because taxpayer reasonably relied on a qualified_tax professional who used faulty computerized tax preparation software and consequently advised taxpayer to make the election this software failed to consider the affect of the alternative_minimum_tax in analyzing whether or not taxpayer should make the election under sec_163 and sec_163 in year and year under sec_301_9100-3 a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer - i seeks to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief taking into account sec_1 c and the new position requires a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or plr-129688-11 iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the service will not ordinarily grant relief taxpayer is not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time relief is requested because of the failure of the computerized tax_return preparation software to consider the alternative_minimum_tax in analyzing whether or not taxpayer should elect to treat all net_long-term_capital_gain and qualified dividends as investment_income in year and year taxpayer had not been informed in all material respects of the election and its tax consequences furthermore taxpayer is not using hindsight in requesting relief taxpayer has represented that specific facts have not changed since the original deadline that made the election appear advantageous sec_301_9100-3 provides in part that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301_9100-3 provides in part that the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under these criteria the interests of the government are not prejudiced in this case taxpayer has represented that granting relief would not result in a lower tax_liability in the aggregate for all taxable years affected by the election than taxpayer would have had if the election had been timely made taking into account the time_value_of_money furthermore the taxable years in which the regulatory election should have been made and any taxable years that would have been affected had it been timely made are not closed by the period of assessment ruling accordingly the consent of the commissioner is hereby granted for an extension of time pursuant to sec_301_9100-1 and -3 for taxpayer to revoke the prior year and year election pursuant to sec_163 and sec_1_163_d_-1 of the regulations taxpayer has an extension of days from the date of this ruling in which revoke the election for year and year by filing amended returns for those years this ruling is limited to providing an extension of time to elect to revoke the election under sec_163 it does not provide relief from any liability incurred as a result of filing a late election nor is it a ruling that the taxpayer is otherwise eligible to make the election no opinion is expressed as to the applicability of any other provision of the code or the regulations which may be applicable under these facts plr-129688-11 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely christopher f kane branch chief branch income_tax accounting


t c summary opinion united_states tax_court sequare k daniel-berhe petitioner v commissioner of internal revenue respondent docket no 27211-11s filed date sequare k daniel-berhe pro_se whitney n moore for respondent summary opinion kerrigan judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated all section references are to the internal_revenue_code code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure we round all monetary amounts to the nearest dollar respondent determined a federal_income_tax deficiency of dollar_figure and a sec_6662 penalty of dollar_figure for the issues for our consideration are whether petitioner is entitled to deductions claimed on schedule a itemized_deductions for unreimbursed employee business_expenses of dollar_figure for whether petitioner is entitled to schedule a deductions for other miscellaneous expenses of dollar_figure for and whether petitioner is liable for the sec_6662 accuracy-related_penalty for background some of the facts have been stipulated and are so found petitioner resided in california when he filed the petition during the tax_year petitioner lived in los angeles california and was a part-time instructor teaching at five different colleges and universities in the greater los angeles area petitioner taught various engineering courses at each of these institutions often driving to more than one school per day to teach class petitioner was not entitled to any reimbursement by any of his employers for business-related expenses petitioner drove approximately big_number to big_number miles per year commuting to and from home and from college to college in petitioner drove a ford explorer which averaged approximately miles per gallon of gas respondent concedes that petitioner is entitled to a deduction for parking fee expenses of dollar_figure for in petitioner paid dollar_figure to the long beach city college and east los angeles college bookstores petitioner filed timely his form_1040 u s individual_income_tax_return for on date respondent issued petitioner a notice_of_deficiency determining a federal_income_tax deficiency of dollar_figure and a sec_6662 penalty of dollar_figure for respondent disallowed schedule a deductions of dollar_figure for unreimbursed employee_expenses and dollar_figure for miscellaneous other expenses petitioner reported the following amounts of unreimbursed employee business_expenses expense vehicle parking fees and transportation overnight travel other business miscellaneous total amount dollar_figure big_number big_number big_number big_number petitioner claimed the standard mileage rate for big_number business miles the remaining schedule a miscellaneous expense deduction of dollar_figure was attributed to legal fees investment_expenses financial advice and seminars workshops discussion sec_162 allows a taxpayer to deduct all ordinary and necessary expenses paid_or_incurred in carrying_on_a_trade_or_business an ordinary_expense is one that commonly or frequently occurs in the taxpayer’s business 308_us_488 and a necessary expense is one that is appropriate and helpful in carrying on the taxpayer’s business 290_us_111 the expense must directly connect with or pertain to the taxpayer’s business sec_1_162-1 income_tax regs a taxpayer may not deduct a personal living or family expense unless the code expressly provides otherwise sec_262 deductions are a matter of legislative grace and a taxpayer must prove his or her entitlement to a deduction 503_us_79 292_us_435 to that end taxpayers are required to substantiate each claimed deduction by maintaining records sufficient to establish the amount of the deduction and to enable the commissioner to determine the correct_tax liability sec_6001 see also 116_tc_438 whether an expenditure is ordinary or necessary is a question of fact 320_us_467 generally the performance of services as an employee constitutes a trade_or_business 91_tc_352 sec_1_162-17 income_tax regs the employee must show the relationship between the expenditures and his or her employment see joseph v commissioner tcmemo_2005_169 for such expenses to be deductible the taxpayer must not have the right to reimbursement from his or her employer see 788_f2d_1406 9th cir aff’g tcmemo_1984_533 normally the court may estimate the amount of a deductible expense if a taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount see 39_f2d_540 2d cir 85_tc_731 this principle is often sec_7491 provides an exception that 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 sec_7491 and the taxpayer satisfies certain other conditions including substantiation of any item and cooperation with the government’s requests for witnesses and information sec_7491 see also rule a we note that there is no basis to shift the burden to the commissioner under sec_7491 referred to as the cohan_rule see eg 46_f3d_760 8th cir aff’g tcmemo_1993_197 i employee business_expenses a car and truck expenses certain expenses specified in sec_274 are subject_to strict substantiation rules no deductions under sec_162 shall be allowed for listed_property as defined in sec_280f unless the taxpayer substantiates by adequate_records or by sufficient evidence corroborating the taxpayer’s own statement sec_274 listed_property includes passenger automobiles and other_property used for transportation sec_280f and ii to meet the heightened substantiation requirements a taxpayer must substantiate the amount time of use and business_purpose of the expense sec_274 see also sec_1_274-5t temporary income_tax regs fed reg date to substantiate by adequate_records the taxpayer must provide both an account book a log or a similar record as well as documentary_evidence which are together sufficient to establish each element of an expenditure sec_1_274-5t temporary income_tax regs fed reg date documentary_evidence includes receipts paid bills or similar evidence sec_1_274-5t temporary income_tax regs fed reg date to substantiate by sufficient evidence corroborating the taxpayer’s own statement the taxpayer must establish each element by the taxpayer’s statement and by direct evidence such as documentary_evidence sec_1_274-5t temporary income_tax regs fed reg date notably sec_274 overrides the cohan_rule 122_tc_305 sec_1_274-5t temporary income_tax regs fed reg date flush language noting that sec_274 supersedes the cohan_rule therefore this court is precluded from estimating any expenses that are covered by sec_274 under sec_262 no deduction is allowed for any personal living or family_expenses the taxpayer must demonstrate that the expenses in issue were different from or in excess of what he or she would have spent for personal purposes 21_tc_170 the expenses of daily commuting are generally not deductible because they constitute personal expenses under sec_262 413_us_838 sec_1 b income_tax regs however the costs of going between jobs or job locations is generally deductible under sec_162 see 55_tc_620 see also 335_f2d_496 5th cir aff’g in part and remanding tcmemo_1962_233 32_tc_947 aff’d 283_f2d_865 5th cir revrul_55_109 1955_1_cb_261 during his testimony petitioner submitted into evidence a mileage log which was created after the tax_year petitioner claimed he drove big_number miles related to business travel in corroborative evidence used to support a taxpayer’s reconstruction of expenditures ‘must have a high degree of probative value to elevate such a statement’ to the level of credibility of a contemporaneous record larson v commissioner tcmemo_2008_187 slip op pincite quoting sec_1_274-5t temporary income_tax regs fed reg date respondent concedes that petitioner drove big_number miles between various job locations during for which he is entitled to claim a deductible mileage expense however petitioner did not meet his burden in proving that the remaining respondent concedes that petitioner was entitled to claim a deductible mileage expense of dollar_figure and we assume respondent calculated this deduction by multiplying cents per mile times big_number miles however for the applicable standard mileage rates were provided in revproc_2007_70 sec_2 2007_2_cb_1162 and announcement 2008_2_cb_114 revproc_2007_70 supra was effective for transportation_expenses incurred on or after date revproc_2007_70 supra was modified by announcement supra continued mileage was not a commuting expense or other personal_expense see generally 413_us_838 sec_1_162-2 sec_1_262-1 income_tax regs in addition petitioner did not adequately substantiate the remainder of his car and truck expenses and so he is not entitled to a deduction for these expenses as discussed below we find the mileage summary to be insufficient under sec_274 because the mileage amounts were not entered at the time the vehicle was used petitioner testified that the mileage log he presented at trial was prepared after he was approached by the irs outside of the syllabi petitioner presented we are unable to determine for what purpose petitioner was traveling to and from the various schools outside of class time petitioner provided no evidence to corroborate entries in the mileage log for random trips to the schools other than testimony that he made various trips to prepare for the semester we are unable to verify whether these trips were for business or were personal see gilliam v commissioner tcmemo_1986_90 cf freeman v commissioner tcmemo_2009_213 continued for transportation_expenses paid_or_incurred on or after date under revproc_2007_70 supra taxpayers were entitled to cents per mile and under announcement supra taxpayers were entitled to cents per mile petitioner is allowed a mileage deduction for big_number miles computed on the basis of the applicable mileage rate during the time he actually drove the big_number miles see eg harris v commissioner tcmemo_2012_312 at lopkoff v commissioner tcmemo_1982_701 therefore petitioner is entitled to a mileage expense deduction for big_number miles driven in furthermore petitioner’s commuting expenses do not qualify for an exception to the general_rule of nondeductibility for such otherwise personal commuting_costs there is an exception for travel_expenses between a taxpayer’s residence and temporary work locations outside of the metropolitan area where the taxpayer lives and normally works see 3_tc_544 a work location is temporary if it is realistically expected to last and does in fact last for one year or less bogue v commissioner tcmemo_2011_164 slip op pincite revrul_99_7 1999_1_cb_361 petitioner was teaching at several different institutions in an effort to secure full-time employment at one of them each semester petitioner had to travel to the various schools to request a part-time teaching position and there was no guarantee that he would receive an offer to teach courses at the same college petitioner’s work was temporary because he was employed semester by semester over the years a number of courts added an additional requirement that the temporary worksite be distant from the area where the taxpayer lives and normally works see 747_f2d_46 1st cir 671_f2d_1059 7th cir epperson v commissioner tcmemo_1985_382 petitioner worked and lived in the same metropolitan area and therefore we find that petitioner’s commuting expenses do not qualify for the exception to the general_rule of nondeductibility we hold that petitioner’s commuting expenses were nondeductible see bogue v commissioner tcmemo_2011_164 see also aldea v commissioner tcmemo_2000_136 b parking expenses petitioner claimed a deduction for parking expenses of dollar_figure for as stated above expenses related to passenger automobiles including expenses for parking fees and tolls are subject_to the stringent substantiation requirements of sec_274 respondent concedes that petitioner is entitled to a deduction for parking fees of dollar_figure petitioner testified that the remaining dollar_figure in parking fees consists of metered parking costs at various schools where he taught petitioner argues that these expenses were incurred at the beginning of each semester before parking was allowed on the schools’ campuses however he did not offer any evidence other than his testimony to corroborate these expenses therefore we are unable to determine for what purpose petitioner was traveling to and from the various schools outside of class time whether these amounts were actually paid and that these amounts were not for personal purposes petitioner may deduct parking expenses of only dollar_figure for c overnight travel_expenses petitioner reported overnight travel_expenses of dollar_figure for petitioner submitted a summary of business_expenses which includes a list of conferences and seminars he attended in petitioner claimed that he traveled outside the los angeles area to attend these conferences however petitioner provided no evidence or testimony to corroborate these expenses we cannot be sure whether he actually attended work-related conferences or was traveling for personal purposes see boltinghouse v commissioner tcmemo_2007_324 slip op pincite therefore petitioner may not deduct any overnight travel_expenses for d office expenses petitioner reported business_expenses of dollar_figure respondent agrees that petitioner spent dollar_figure on books at the east los angles college and long beach city college book stores however petitioner submitted no documentation to show the business nature of these books petitioner offered no evidence or testimony regarding the business nature of the remaining payments or identifying items that were purchased therefore petitioner may not deduct any office expenses for ii miscellaneous expenses petitioner claimed a deduction for miscellaneous expenses of dollar_figure and indicated that these expenses were for legal fees investment_expenses financial advice seminars workshop sic a deduction is allowed for ordinary and necessary expenses paid_by a taxpayer during the year for the production_or_collection_of_income subject_to the floor of sec_67 under sec_212 sec_212 allows a taxpayer to deduct ordinary and necessary expenses paid_or_incurred for the production_or_collection_of_income or for the management_conservation_or_maintenance_of_property_held_for_the_production_of_income petitioner offered no credible_evidence to substantiate these legal fees nor did he provide evidence or testimony proving that these fees were incurred for the production_or_collection_of_income therefore petitioner may not deduct any of these miscellaneous expenses for petitioner did submit receipts for payments made to certain cellular telephone cable television and internet service providers however he failed to submit any evidence showing that these expenses were business related rather than personal iii sec_6662 penalty under sec_7491 the commissioner bears the burden of production with regard to the sec_6662 penalty this means that the commissioner must produce sufficient evidence indicating that a penalty is appropriate once the commissioner meets this burden the taxpayer must come forward with persuasive evidence that the commissioner’s determination is incorrect see rule a higbee v commissioner t c pincite respondent determined a sec_6662 penalty of dollar_figure for respondent contends that petitioner is liable for the accuracy-related_penalty on alternative grounds the underpayment is attributable to negligence or disregard of rules or regulations within the meaning of sec_6662 or there was a substantial_understatement_of_income_tax within the meaning of sec_6662 only one accuracy-related_penalty may be applied with respect to any given portion of an underpayment even if that portion is subject_to the penalty on more than one of the grounds set out in sec_6662 sec_1_6662-2 income_tax regs negligence includes any failure to make a reasonable attempt to comply with the provisions of the internal revenue laws and is the failure to exercise due care or the failure to do what a reasonable and prudent person would do under the circumstances sec_6662 see also 85_tc_934 sec_1_6662-3 income_tax regs negligence also includes any failure by the taxpayer to keep adequate books_and_records to substantiate items properly sec_1_6662-3 income_tax regs although petitioner maintained a large amount of documentation he did not keep sufficient books_and_records to meet the requirements of sec_274 with respect to his car and truck parking overnight travel office and miscellaneous expenses to substantiate the expenses that respondent did not concede petitioner provided a mileage log which was not maintained contemporaneously with his travel and a summary of seminars he attended and syllabi for classes he taught and he otherwise offered testimony at trial the remainder of petitioner’s documentation was not admitted into the record for the remaining expenses petitioner failed to offer evidence that he actually incurred these expenses we find that petitioner acted negligently under the circumstances by failing to substantiate most of his disallowed deductions respondent has therefore met the burden of production as to negligence the accuracy-related_penalty does not apply with respect to any portion of the underpayment for which it is shown that the taxpayer had reasonable_cause and acted in good_faith sec_6664 the determination whether a taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account all pertinent facts and circumstances see sec_1_6664-4 income_tax regs the most important factor is the extent of the taxpayer’s efforts to assess his or her proper tax_liability see id an honest misunderstanding of fact or law that is reasonable in the light of the experience knowledge and education of the taxpayer may indicate reasonable_cause and good_faith see noz v commissioner tcmemo_2012_272 at petitioner’s testimony established that he attempted to comply with the law petitioner submitted large amounts of receipts and other documents that he had collected many of which were not admitted into the record petitioner made a good-faith effort to keep records and document his expenses but his efforts were not enough petitioner seems to have a genuine misunderstanding of the law regarding which expenses could be deducted and he proved to be a credible witness therefore we hold that petitioner made a good-faith effort to accurately assess his income_tax_liability and he acted reasonably under the circumstances petitioner is not liable for the sec_6662 penalty for to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury index no number info release date washington dc person to contact john t sapienza jr id no telephone number refer reply to cc dom it a - cor-111367-00 date date dear commissioner rossotti asked me to respond to your letter concerning obesity and weight-loss programs you asked the internal_revenue_service to issue a revenue_ruling allowing obese individuals to deduct the costs of weight-loss programs as medical_care expenses under sec_213 of the internal_revenue_code the current irs position on weight-loss programs is stated in revrul_79_151 1979_1_cb_116 this ruling holds that if participation in the program was to improve the participant’s appearance general health and sense of well-being the expenses of the program are not for medical_care and therefore are not deductible of course the expenses of a weight-loss program prescribed to treat a specific disease are for medical_care and are deductible we appreciate your suggestion and the references you provided to studies on obesity each year the irs and the department of the treasury review the many suggestions for revenue rulings and other forms of guidance to be published the projects selected are announced in the annual priority guidance plan input such as you have provided is helpful to us in selecting projects for the priority guidance plan i hope this information is helpful please call john t sapienza jr at the number above if you have any questions sincerely deputy assistant chief_counsel income_tax accounting by robert a berkovsky chief branch


internal_revenue_service number release date index number ---------------------------------- -------------------------- -------------------------------------------------------- ---------------------------- ----------------------------------- department of the treasury washington dc person to contact ---------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-132852-06 date january ---------- ------------------------- --------------------------------- this letter responds to a letter dated date submitted on behalf of x x ------------------------------------------------ country date dear ---------------- requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an entity classification election facts x represents that x is a foreign_entity eligible to be treated as a disregarded_entity and that it was intended that an election would be made to elect to treat x as a disregarded_entity effective date however due to inadvertence no form_8832 entity classification election was timely filed to elect to treat x as a disregarded_entity effective date law and analysis corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-3 provides that a business_entity that is not classified as a the information submitted states that x was formed under the laws of country sec_301_7701-3 provides that to elect to be classified other than as sec_301_7701-3 provides guidance on the classification of a foreign sec_301_9100-1 provides that the commissioner may grant a reasonable plr-132852-06 entity for federal_income_tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 provided in sec_301_7701-3 an eligible_entity must file form_8832 with the designated service_center and that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin commissioner will use to determine whether to grant an extension of time to make the election making certain elections determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government conclusion based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a disregarded_entity effective date a copy of this letter should be attached to the form_8832 a copy is sec_301_9100-2 provides the rules governing automatic extensions of time for sec_301_9100-3 provides the standards the commissioner will use to sec_301_9100-1 through provide the standards the except as specifically set forth above no opinion is expressed concerning the plr-132852-06 enclosed for that purpose federal tax consequences of the facts described above under any other provision of the code provides that it may not be used or cited as precedent being sent to x's authorized representative pursuant to a power_of_attorney on file with this office a copy of this letter is this ruling is directed only to the taxpayer requesting it sec_6110 sincerely enclosures copy of this letter copy for sec_6110 purposes william p o’shea associate chief_counsel passthroughs and special industries


department of the treasury internal_revenue_service nashingtcn d c jun g ouuggseo052 o seit ep ra tl tax exempt and vernment entities division re dear this letter constitutes notice that the hospital's request for waivers of the minimum_funding_standard for the retirement pension and administrative plans for the plan years ending june 20'_ have been granted subject_to the following conditions collateral acceptable to the pension_benefit_guaranty_corporation pbgc’ is provided to the plans for the full amount of the waivers by the later of a days from the date of the ruling letter or b the earlier of i the date the pbgc notifies the service in writing that this condition has not been met or ii days from the date of the ruling jetter the hospital provides the pbgc with a copy of any ruling_request it makes under sec_412 of the internal_revenue_code code starting with the quarterly contribution due on july 2g‘ the hospital makes the required quarterly contributions to the plans in a timely fashion while the plans are subject_to a waiver of the minimum_funding_standard for this purpose the total amount of each quarterly contribution will be determined in accordance with sec_430 and sec_430 j e of the code and can be comprised of several installments made prior to the respective due_date of the quarterly contribution 2vu93605 through __ respectively through 20_ by march the hospital makes contributions to the plans in amounts sufficient to meet the minimum_funding requirements for the plans for the plan years ending june without applying for a waiver of the minimum_funding_standard ifthe service determines that pre-2008 funding waiver amortizations are not carried over as a separate amortization base for post-2007 plan years the hospital will make excess annual contributions to the plans as if the waiver amortizations were carried over as a separate base such that the waiver will be paid off in five years the pre-funding balance shall be increased by these additional contributions and maintained until the end of the 5-year period at which time there must be an election to reduce the prefunding balance by the accumulated amount of the excess_contributions the hospital provides proof of payment of all contributions described above ina timely manner to the service and to the pbgc using the fax numbers or addresses below information must be provided to both of the pbgc or other individuals designated by the respective of the service and to agencies using the addresses or fax numbers below internal_revenue_service ep classification commerce st dal dallas tx fax pension_benefit_guaranty_corporation disc k street n w washington dc fax your authorized representative agreed to these conditions in a letter dated date lf any one of these conditions is not met the funding waivers for the retirement pension and administrative plans for the plan years ending june are retroactively null and void these conditional waivers have been granted in accordance with sec_412 of the code and sec_303 of employee_retirement_income_security_act_of_1974 erisa the amount for which these conditional waivers have been granted is equal to the contributions that would otherwise be required to reduce the balance in the funding_standard_account of each plan to zero as of june the retirement pension and administrative plans are non-contributory defined benefit pension plans effective date the administrative plan was closed to new effective participants and the retirement_plan was closed to non-nurse participants date the retirement_plan was also closed to certain union-represented in lieu of future benefit accruals to the administrative and nurse participants retirement plans the option to participate in a defined_contribution_plan was made o l available to non-nurse active participants as of january represented nurse participants as of april the hospital operates ten hospitals in the region that provide in-patient and out-patient services the hospital also offers other healthcare services through clinics and home health care agencies and engages in the retail_sale of medical and pharmaceutical supplies and medical equipment the majority of the hospital’s employees are collectively-bargained and to certain union- through lasted days the hospital calendar_year the two unions representing the hospital's collectively- in revenue was lost as a result of the two strikes during the bargained employees called for work stoppages the first strike in the spring of lasted days and the second strike in the fallof20 estimates that in july the medicaid program in the region converted to a new transaction _in net processor as a result of the conversion the payment of approximately dollar_figure claims payable to the hospital was delayed combined with the work stoppages noted above the hospital experienced a significant cash_flow problem it is clear that the hospital has suffered a temporary substantial business hardship resulting from the two work stoppages and the conversion to a new medicaid transaction processor in furthermore the hospital has provided cash-flow that show that it projections for the fiscal years ending june should have sufficient funds to met the plans’ minimum contribution requirements including the amortization payments if the funding waivers are granted the plans are relatively well-funded and the prospects for the hospital’s financial recovery now appear good because new collective-bargaining agreements have been reached with the unions representing the employees that went on strike and work stoppages are unlikely to recur during the period in which the waivers are being amortized therefore the hospital's requests for waivers of the minimum_funding_standard for the retirement pension and administrative plans for the plan years have been granted subject_to the conditions listed above ending june your attention is called to sec_412 of the code and sec_304 of erisa which describe the consequences that would result in the event the plans are amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting while any portion of the waived funding deficiencies remain unamortized profit sharing plan or any other retirement plans please note that any amendment to a covering employees covered by the plans maintained by the hospital to increase the liabilities of those plans would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa similarly the establishment of a new profit sharing plan or any other retirement_plan by the hospital covering employees covered by the plans would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent we have sent a copy of this letter to the authorized representative pursuant to a power_of_attorney on file in this office we suggest that you furnish a copy of this letter to the enrolled_actuary who is responsible for the completion of the schedule b if you require further assistance in this matter please contact and to your sincerely yours i andrew e zuckerman director employee_plans rulings agreements